THE ERP SYSTEM

INVESTMENT OR BLACK HOLE

Halleluiah !  The new ERP (Enterprise Resource Planning ) system is installed, people have been trained and the consultants are gone.  The keys to the system are now in our hands. We're done!  Unfortunately, if you believe that’s it, you have just wasted the money on the software, consulting fees and time of the people involved in the installation.  So how can that new system be made an investment and not an expense?

Let’s start at the beginning and ask ourselves a key question – Why did we decide to install a new system?  Experience shows that the answer frequently goes like this:

            - “There wasn’t a system in place and my accountant said we should get one”.

- “The president recognized that there were many “Islands of Information”, that

    required data to be entered numerous times.  He/She directed IT to find a

   better system”.

- “Our present software vendor told us they weren’t going to support our

existing system any more.  We had to find a new one”.

  - “Our ability to  “gain and sustain” a competitive advantage through

                  lower costs, higher quality and shorter delivery schedules could not be

                  achieved without an integrated system solution”.

Obviously, there are many reasons why an Engineer-To-Order company purchases an ERP system.  Without regard to the specific reason, however, an overriding consideration of a new system should be “how will the system support improving our operating results”.  In his book – Necessary But Not Sufficient – Eliyahu M. Goldratt, correctly presents the argument that while information systems are necessary to manage most companies today, the system by itself won’t improve operating results. 

A company improves operating results by improving its fundamental business processes and, more importantly, committing the resources to make and sustain the changes required.

So how should improvements be accomplished?   If your system selection process identified the business processes and improvements to be made the foundation for success is in place.  If not, that foundation will need to be developed. This task should be undertaken with the mindset, “that each and every process can be improved by - reducing process cycle times, eliminating the re-entry of any data once it is known, minimizing the number of calculations that are made, improving access to data once entered in to a system and creating reports that are easy to understand and give clear direction.

Building the foundation is completed in three steps.

1-     Identify the business processes.

This is accomplished by identifying the specific activities taking place

in each business process - NOT functions.  Processes are defined by linking the activities required to complete a task in the sequence they take place.  This is frequently called a process value map.  For example, Accounts Payable is usually considered a business function.  It is also a series of activities that take place in various places of the company. Activities such as; receive mail, open mail, takeout invoice, organize invoices, match the Purchase Order related to the invoice, verify that the items on the PO have been received, compare the invoice pricing to the PO pricing, approve the invoice, prepare the payment, record payment, sign the check, insert check into an envelope, seal envelope and mail the payment.  In most companies this series of activities takes place in 3 or 4 different locations within the company, but are all part of the Accounts Payable process.

The level of detail required to identify the activities in each business process can be substantial.  However, the detail provides the “paths” to improve each process.  The identification of each business process also creates the “As Is” baseline from which improvements can be measured.

Improving a process requires adherence to two propositions. 

One, “if it can’t be measured it is not worth changing”.  This simply recognizes the fact that if the resources are used, but the output of an activity can’t be measured it is impossible to determine that anything has been improved.

Second, is the realization that most employees will do what is necessary to receive a favorable performance review.  As stated by Socrates (with some modification), “I am as I am measured”.  The significance of this is that when the performance evaluation process includes metrics on the activities to be improved, improvement will take place.

2 – Establish the quantitative metrics that show the level of resources used in each

process and the output being achieved. 

This step is not as simple it sounds.  The ability to identify the resources used in the process and the outputs achieved are directly related to how well the activities within each process have been identified.  The greater the level of detail used to identify each activity in the process the easier it will be to relate the resources used and the output provided.  Here is where the new system will support the process of change.  The ERP system is the tool through which the on going reporting on the metrics is accomplished.  Collecting and organizing the amount of data required to monitor the improvement process over time would be a significant task.  Capturing and reporting the data required through the new system makes this a manageable task that constantly validates that the improvement process is important to the company.

3 – Determine the change required in each metric to reach the targeted level

of improvement.

This creates the  “To Be” (future) metric values and is necessary to monitor the improvement process.  The ability to monitor changes in metrics is essential for the factual evaluation of the efforts being made.  Also, having the metrics reported regularly indicates when resources need to be adjusted in order to achieve the “targeted” results.

The need to constantly ask, and answer, the question  “What are we trying to do?” quantitatively is essential.  Knowing where you are today – the “As Is” and where you want to be, by when – the “ To Be” makes the “How To” more clearly understood.  Developing and implementing the “How To” changes to the business processes transforms the “cost” of the ERP system into an “investment”.

Are we done?  NO WAY!  To move from the “As Is” to the “To Be” requires an additional ingredient – TRAINING.  Training on the new business processes to be used. Training on how to use the new ERP system. Training on the activities and relationship between business processes and the system.  It should be recognized that training is not a onetime event. Training must be ongoing.  Employees do leave and new staff “doesn’t know what they don’t know”.

The processes and systems they know are unlikely to be exactly the same as yours.  How can they understand your company’s processes and systems if they aren’t trained?  Unless telepathy works, they won’t.  Employees have the power to successfully implement or undermine the proposed process changes.  Investing in their knowledge of your company’s business processes and system helps ensure the return on your

ERP investment.

Post Script – Improving a company’s operating and financial performance can lead down many paths.  Clearly, an ERP system solution could be one.  Other paths to improvement include Process Re-Engineering, certain Lean Manufacturing Principles, Structured Work Flow, Supply Chain Management and Performance Measurement and Reporting. 

To learn more about each of these programs just click on a button

Working with your management team to select the “better” solution(s ) for your company is just one of the many values Visionary Solution Resources  provides.   

For more information on selecting and implementing an information system at your company just complete our Information Request form and we will contact you to discuss your interests and objectives.   

In Arizona, Visionary Solution Resources, Inc. is an Alliance Partner of Beach, Fleischman & Co. PC.