Should You Use Excel for Your Supply Chain Planning Requirements?

Examining the pros and cons and how to make the choice

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Microsoft Excel spreadsheet software continues to be the application of choice for supply chain and logistics management at companies large and small, around the world. Its advantages include low cost, ease of use, versatility, universal availability, and good basic functionality.

The most important advantage is that Excel enables experimentation and tinkering, which are very important in the planning field. In planning, unlike other endeavors, the ability to do rapid-fire experimentation on “slightly known” possibilities is very important.

However, Excel poses serious limitations when compared to more robust and full-featured software applications designed specifically for supply chain management and logistics.

In this report, we will explore the pros and cons of Excel usage, and offer suggestions for deciding when to use Excel—and when your organization should graduate to a more sophisticated, transactional application.

Microsoft released Excel in 1985 as an early application for the Apple Macintosh computer. It was one of the first spreadsheets to offer a graphical user interface and pull-down menus along with compatibility with a mouse. A Windows version followed in 1987. In those early years of the personal computer, Microsoft hoped to displace the then-leading spreadsheet software, Lotus 1-2-3. The strategy succeeded, and by 1988 Excel became the most widely-used spreadsheet software.

“Unacceptable” error rates

A 2008 study by the University of Hawaii found that “errors in spreadsheets are pandemic.” The study declared, “In general, errors seem to occur in a few percent of all cells, meaning that for large spreadsheets, the issue is how many errors there are, not whether an error exists.” Since the average spreadsheet contains thousands of information-bearing cells, a “few percent” may translate into dozens of errors.

In many non-critical applications, these errors may be considered a reasonable tradeoff for the affordability and ease of use offered by spreadsheet software such as Excel. However, when they result in serious miscalculations in your supply chain, the costs to your organization can be devastating.

For instance, a miscalculation in the quantity of a key part can produce a domino effect in which assembly of the final product is delayed. This could cause a manufacturer to miss production deadlines, resulting in lost orders, rush shipping charges, and damage to the company’s reputation.

As the University of Hawaii study concluded, “All in all, the research done to date in spreadsheet development presents a very disturbing picture. Every study that has attempted to measure errors, without exception, has found them at rates that would be unacceptable in any organization.”

Signs you’ve outgrown Excel

When an organization is in its early stages, the limitations of Excel may be outweighed by its convenience and affordability. As the organization grows, however, those limitations become magnified. Among the indicators that your organization has outgrown ordinary spreadsheet software are:

  • Long lists of customers and conditions: If your company needs to compile and analyze high volumes of data, you will find that spreadsheet software offers neither the capacity nor the intelligence. In addition, complex conditions such as rapidly-changing production schedules and multiple product configurations are not easily accommodated by spreadsheets.
  • Multiple users: Spreadsheet software is inherently single-user. As long as one user controls the master Excel spreadsheet – even when that master is “borrowed” by other users, version control is possible. However, when multiple users have equal access and/or equal responsibility, the chance of input errors increases dramatically. In addition, there is a far greater chance that basic functions will be corrupted by each user’s outlook on how the spreadsheet should be managed. The resulting chaos can make it difficult to establish a single version of the truth.
  • A need for accurate real-time data: In a smaller operation, a handful of people may be close enough to the production line to track current status and make any corrections. In a larger operation, however, software must be used to match inventory with demand, and to create accurate forecasts and schedules. Spreadsheets are not capable of tracking key data in real time.
  • Uncertainties: Spreadsheets are calculating tools, not analytical tools. If your organization requires ranges, forecasts, what-if scenarios, modeling, planning, or replanning, you will find that they are beyond the software’s functionality. This will result in a need for human judgment based on the limited evidence available. More sophisticated software can identify trends and interpret data with far greater precision.
  • Improved process control: Because they have virtually no business intelligence built in, spreadsheets cannot provide insights into how processes may be improved or enhanced.
  • Institutionalized knowledge: Critical process knowledge can walk out the door with a key individual – and a spreadsheet cannot replace it.
  • Data analytics: Spreadsheets offer virtually no analytical capabilities beyond simple calculations. For more sophisticated analysis, a transactional application is required.
  • Process extensions: If you want to extend a process into other departments or your external ecosystem, spreadsheet software offers no support aside from the ability to duplicate a document. Transactional software, by contrast, scales readily into other areas.
  • Process insights: Specialized supply chain software can provide valuable insights into the intricacies of your processes, enabling your team to continually improve efficiency. Spreadsheet software offers no process insights.

The next step

What is the next step from spreadsheet software? For most companies, the answer is a far more sophisticated planning application based on a relational database management system (RDBMS).

These applications gather real-time data from throughout the organization, and hold it onto a centralized server where it may be accessed by any number of users. More important, they offer true business functionality, including specialized support for a wide range of supply chain processes, including inventory management, manufacturing, and value chain collaboration.

RDBMS-based applications are, of course, not included with the purchase of a laptop. But they can provide business value that far exceeds their cost. Compared with Excel, for example, solutions based on relational database management systems offer significant advantages:

  • Safety: In Excel, any unsaved data may be lost if a system crashes. Databases write data to the hard drive immediately.
  • Volume and speed: High volumes of data will bog down Excel, while RDBMS applications routinely manage big data
  • Related data: Storing related data together in a single table or spreadsheet can be unwieldy and invite errors. Databases can easily link tables of related data together, such as customers and orders.

By leveraging the intelligence of an RDBMS-based application, a company’s decision makers can immediately detect data and mapping errors. In addition, they can see how data relates across attributes. And, they can detect patterns within the data itself, to make better-informed decisions about overall processes and individual projects.

Users Know Best

For applications that are limited in scope, such as basic information compilation and storage, spreadsheets may provide an adequate and inexpensive solution. However, spreadsheets have severe limitations that make them inappropriate for the complexities of today’s analytical requirements. These limitations can impact an organization’s efficiency and competitiveness – especially in a globally competitive marketplace that requires extensive interaction with customers and partners.

To establish whether your organization has outgrown its spreadsheet phase, one approach is to poll current users and ask whether they believe their processes are as efficient as they could be, or whether they feel it is time to graduate to a more capable transactional application.