Some concerning news for those of us in the ERP market, which means every manufacturing, distribution, and company using ERP systems.

Georg Glantschnig, VP of Dynamics 365 AI ERP at Microsoft, recently said in an interview with an industry magazine, “ERP can no longer just support a business process. It needs to run it.” He went on to say, “Microsoft is staking out a radically different ERP future—one powered by agentic AI, consumption-based economics, and a design philosophy that favours human adaptability over system rigidity.” (The bold and italics are mine.)

The concerning words here are ‘ consumption-based economics.

This means a shift away from user and role-based licensing towards one where you pay for every service you consume.

ERP vendors are talking up the future of agentic ERP driven by their AI agents. What this will mean is that rather than having one big system/code base, your business will be running lots of individual agents, each with their task to perform. A best-of-breed type of architecture that is potentially more difficult to stitch together, and one where you pay for the time you utilise each agent.

So, as the volume of interactions increases as the use of the agents and growth of your business dictate, so too will the cost to operate these agents.

While there is a significant level of hype surrounding AI at the moment, in my opinion, this is not a positive development for users of ERP systems. The big technology companies have crafted a new way for them to siphon money out of your bank account.

This drive to AI is pushing vendors to place, what I consider to be unhealthy, pressure on their partner ecosystem to include AI in every proposal. Some are pushing so hard that the commissions paid by the software vendor to their partner network are being impacted to the point where they receive no commission if there is no AI in a proposal or sale. This is unhealthy pressure and has no relevance to what might be in the customer’s best interests.

I may be cynical, but I cannot help but think that this pressure is coming because the current uptake of AI is much slower than expected. This is despite the hype the vendors have created around AI. Recent business publications indicate that the adoption of Microsoft’s Co-pilot has plateaued and is not generating the expected revenue. You can read them here:

• Forbes Magazine
• Business Insider

Another consideration with AI is to understand where the LLMs or agents are hosted and how they are trained. Is this in the public domain, in which case your data and queries are going out to the public? Or are they being trained securely in your tenancy on your data? If it’s on your own data, then the question is – how much data are you feeding them? ChatGPT and the other public LLMs have had trillions of words used to train the models. Do you have enough data to make the learning meaningful? Is your data in such a clean state to make the learning useful, or is the agent learning from a lot of unclear and useless data?

We believe AI will have a significant impact on businesses in the future. However, we cannot see the ground-breaking use cases now, and the existing use cases being circulated to support the hype certainly don’t justify the costs being charged.

All the ERP vendors are heading down the same route, so it is interesting to watch where Microsoft take this. Their marketing pitch encourages clients to consider utilising the entire Microsoft stack. The challenge for executives will be whether the business case exists to pay for a consumption model that includes so many different components, all operating together and being charged differently for varying volumes. This will become a nightmare for executives to undertake an apples-to-apples comparison with competitors.

We would be keen to hear from you about the efforts you are undertaking around AI and what your results have been. Your experiences in this field are of great interest.

The Donald’s Impact on Supply Chains

The Donald is having yet more impacts on supply chains now that he has dropped the bunker-busting bombs. Firstly, it was his on-and-off-again tariffs, and now it’s war in the Middle East.

Iran’s threat to close its section of the Strait of Hormuz is having a significant effect on shipments, with the industry on high alert. Greek authorities, representing the world’s largest oil-tanker fleet, have advised ships to wait in safe ports. Maersk has had its captains change course, adding 3,500 nautical miles or 10 to 14 days to the shipping time of the journeys.

Luckily, much of Australia’s shipments come from China and are in many ways unaffected by this closure, of course. That is, until China invades Taiwan. It was three years ago at one of my business owner and CEO lunches where I posed the question, “What would happen to your business if tomorrow China invaded Taiwan?” Commercial trade with China would come to a standstill. How would that leave your business?

There has been a lot of talk about reshoring manufacturing back to Australia, but let’s be honest (or to be in keeping with our branding, Frank) – the current energy and IR environment and the Government’s policy would prevent this from happening.

So the alternative is to nearshore. Many executives are looking at other Asian countries like Cambodia and Vietnam, but they are still essentially communist countries. There is India, which is a democracy, and some have made the move. As a left-field option, some are considering Mexico because it has the skills, scale, and quality needed to service the US market. They may have some spare capacity now that the tariffs are in effect, but the port access and sea route aren’t the most convenient.

So, manufacturers have some serious choices to make, and, in our humble opinion, they must make them quickly. We do not see the political environment improving anytime soon.

Robotics and automation do provide some opportunity to gain the productivity this country desperately needs, and it would reduce our reliance on the international supply chain challenges.

Supply chains must be adaptive and resilient. Resilience stems from your ability to adapt to new disruptions and overcome choke points. This adaptation might come in the form of rebalancing your inventory holdings. Perhaps you renegotiate arrangements with suppliers and have them hold additional stock, or you rebalance your holdings.

What you don’t do, is do nothing.

At the very least, you should be realigning your inventory policy settings to adjust to the current circumstances. If you haven’t reviewed your ERP configuration settings within the last 60 days, then there is a very high likelihood that your supply chain is configured to deliver inventory shortages. On a broader level, you should be re-examining your supply chain strategy.

Our services are well placed to assist you with all of these endeavours because we don’t deliver Big Four-style consulting – we deliver RESULTING™

If you’re an executive or owner of a mid-sized or large company and want to discuss ideas on how you can use systems and technology to dramatically improve productivity in your operations, decrease costs, enhance scalability and increase profits – give us a call.

Until next month…let’s be Frank!

Sincerely,
David.