There is always a sticker shock that comes with the cost of purchase and implementation of an Erp system. In a mid-sized company the true cost of implementation for an ERP software package will start at 70% of the cost of the software and could be as much as 300%. This variation is a result of the variety and complexity of business models and serves to highlight the value in knowing your vendor’s capabilities and your internal capabilities.

You have done your due diligence, researched your vendor, analyzed your processes and set you goals. That should show you the value in an Erp system but sometimes that value is not always affordable, we all have a King’s dreams but we don’t all have a King’s budget. That is why we suggested you list the features as “wants and needs” so you can plan for a staged approach and implement what you need then, budget and phase in what you want.

You are attempting to make your business operate more efficiently and effectively and give yourself the capability to do more with less. Your bottom line will improve and the return on your investment will be realized if you have planned for it. In the end that is exactly what Erp is, an investment in your organization.

 The cost of a complete, end to end ERP implementation project is very high It is critical for an organization to make the project a success and start deriving benefits out of it as fast as possible. But what is it that makes an ERP implementation project successful?

 There are a series of common factors:

-A well-defined project organization structure that details the project planning, execution, and monitoring mechanism

-An attitude which stresses business transformation instead of process automation

-An approach to implementation that brings about the proper integration of people, process, and technology through effective management of the change process, specifically the expectation and the result.

 What we are saying here is you must define and plan the process in coordination with both the vendor and your organization. You should have an internal team that works with the vendor’s team to layout a step by step plan with timelines and milestones clearly defined and monitored. The tasks associated with implementation and start-up should be distributed to those who can meet the timelines in the most effective and efficient manner. If you have chosen to customize right away those customizations need to be analyzed and simulated and scored according to the goals you established in your search.

 If you organization has ever added a new product line or a production line, you know how disruptive that change can be. But those changes only affect the employees in direct contact with the new product or the production line. The implementation of any Erp system will cross all levels of you organization and affect most of your employees daily routines. This makes the implementation of an erp system the biggest change management project you organization will embark upon. Therefore your internal implementation team must treat it as such and be proactive in its promotion to your employees. The benefits and long term goals need to shared and reiterated often with your employees so that the long term ROI can be achieved. It is our advice that the internal implementation team consists of not only C- level managers but managers from all levels as well as non managerial staff, so that input and buy in from across your organization can be achieved.

 The industry analogy is: we are about to get married, shouldn’t we get to know each other better first? Choose the right vendor for the right reasons. Don’t buy based on demonstrations that stress the “bells and whistles”. Use the information you gathered from your analysis to measure the vendor’s capability to satisfy your business process needs. Demonstrations are a great opportunity to test the vendor by watching how they handle processes and issues that are standard in your industry. Let me caution you here, watch for the vendors who exhibit any of the following:

 - Poor or non-existent analysis prior to issuing a quote.

- Insufficient knowledge and resources in required core competencies

- Cannot demonstrate industry specific knowledge

- Doesn’t demonstrate their product effectively. (This can mean he doesn’t know how to use it.)

 Don’t hesitate to ask to speak with or visit existing customers in the same or similar industries and go prepared with questions not only on specific features but also on how they handled customization and special projects. This will give you a better understanding of the vendor’s capabilities and expertise which is crucial in determining the division of responsibilities during the implementation process.

Knowing the vendor is critical but not knowing the limitations and capabilities of your people is fatal. Many an ERP project has been derailed because the purchaser has failed to grasp the magnitude of the project and failed to realize the limitations of internal resources. This doesn’t mean that your personnel can’t do a large portion of the implementation themselves because they often can. It means that you must chart a proper plan for implementation, dividing up tasks based on knowledge and expertise. What can your people do efficiently and effectively and what will you need to rely on the vendor to do?

 Identifying the pain – What is it that has brought you to the table in the first place? Do you need to streamline production, keep better track of job costs or improve the quality of quoting and estimating? Whatever the reason, now is the time to analyze your business pain points and find a solution for, if not all, as many as you can.

 Pick and prioritize your features- You’ve identified the pain now choose the pill. Which features will eliminate the pain, accounting, job costing, order entry or maybe it’s scheduling. What ever it is, list the features in order of importance and be sure to highlight the ones you can’t live without as critical.

 Analyze your existing business processes and determine which processes give you a competitive advantage and which are flexible. Identify the strengths and weaknesses and map out strategies to improve where you need to and document the results. This is crucial; we have seen hundreds of businesses pursue customizations to align the Erp system to their processes only to later discover that those processes were not as critical as they thought and there was a better way to do it out of the box.

You have decided that an ERP system is what you need to transform your business into the vibrant successful organization we all dream about, now what? Erp systems are a robust complicated beasts and buying one without a plan would be like giving your 16 year old the keys to a Porsche without teaching him to drive or at the very least teaching him to drive something else first. He is headed for a deadly accident and if you purchase an ERP system without first doing the basics you are too!

You need to prepare yourself for the task and plan for the results you seek; in short you need a plan. First, know what ERP systems are and how the benefit you. Second, know what you want, know what you need and know the difference between the two. Third, know the vendor and their capabilities but also know yourself and your people and be honest about their capabilities. Finally know the cost, the true cost and set a budget accordingly.

 What are ERP Systems

 Enterprise Resource Planning (ERP) software is a series of modular software applications where each application represents a particular business process within your organization. These applications communicate with each other and pass information between them. They share a common database where information is stored so it can be retrieved as needed. For example, in a typical manufacturing company an ERP system would contain modules where you can: 

- Store basic information such as product structures, drawings, manufacturing           instructions, and quality requirements                    

- Quote, price, and enter customer orders

- Plan and forecast customer demand and schedule product availability

- Manage your supply chain

- Cost products, break it down forensically, and measure performance

- Manage receivables and supplier payments

- Manage inventory locations and turns

- View and print a variety of reports that improve your decision making capabilities

- Quality analysis

 If your company is distribution or service based then your needs will vary somewhat from this list. A good ERP system can adapt to most core business types. Special needs from particular business types have resulted in “industry-specific” modules that assist with special processes. But make no mistake, what you really need to invest in should be determined by where your problems lie.

The Real Benefits of ERP

 The true benefits you will reap from investing in ERP lie in the ability of the software to provide business intelligence data that will improve process efficiency and reduce the overall cost of doing business.

 These include:

- Automation of manual or clerical business process

- Improved product or service quality

- Improved customer relationships

- Forensic cost analysis capability

- Direct business to business communication

- Improved communication across all functional departments

Next: week what you need vs what you want.

http://www.technologyevaluation.com/

Tec has thoroughly vetted ERP123 in the following categories:

       Discrete Manufacturing
       Supply Chain and Warehouse Management
       Distribution Management

The North American plants of Japanese auto manufacturers are going to need parts and will need them soon. They will be looking for local suppliers to fill the void while Japan rebuilds. The question for North American part manufacturers is, can you handle the opportunity? Can you create new parts with bills of materials and routings quickly and easily? Can your engineering department create new product structure, pass it into your data base and see how it will affect scheduling capacity? Can you calculate and identify the costs associated with these new products quickly and calculate pricing and profit margin?

All are great questions! All are questions an effective ERP Program is designed to address. If you are not using an erp system, you don’t have any of the answers, at least not quickly enough to be of use. Spending hours pouring over spread sheets and reports, will result in days of indecision and ultimately missed opportunity. I know there are other issues like labour, well there are fewer manufactures around; their employees are still here, either unemployed or under-employed. There are equipment issues but surely all those machines, your competition was using, must be somewhere at a good price and if you were currently using an erp system you would know if your machinery could handle the increase!

Finally, is it worth the effort, if it’s going to be short term? Well how short term will it be?  History has shown one thing about the Japanese, they learn from it!  They will understand the need to have a stable supply chain closer to their manufacturing plants, if not for all of their supply, at least for good portion of it.  Couple that with the ever increasing cost, of an ever diminishing, oil supply the argument for producing parts closer to the manufacturing facility, starts to look more and more like a long term solution. So I ask again, Are You Prepared?

For more information on how erp123 can help you contact Neil  ndunsmore@integrateit.ca

The company I was working with had purchased a rather good ERP package from a local vendor. I learned, to my dismay, that this was their fourth attempt at installing a system in the last six years.  Each prior installation had failed to bring the results they desired.  In fact, they had gone to litigation with one of the last vendors because they felt they had been misled.  I was beginning to wonder what I doing was there. 

During my initial consult with them I inquired as to their perception of why they had failed in the past.  The answers made it pretty clear that they really didn’t have a good understanding of it.  It was the software, it was the consulting advice they were given, it was them…you could tell they weren’t sure of anything.  

They did feel that their business had some very special needs.  And, interestingly enough, they had very strong opinions on the things the software should deliver.  They felt the issue was that they had failed to find software that could do all the things they needed it to do.  I smiled.  Here’s a little background of their business. 

Half of their product line had a seasonal sales cycle.  The other half was less seasonal, but still had spikes.  During peak months the demand for their product dramatically outstripped their production capacity.  And so we have the typical cycle of a seasonal manufacturer.  These types of companies will employ strategic inventory to draw from when peak output cannot meet demand.  Unfortunately, this didn’t work for them because they allowed attributes, such as color, to be specified by the customer during the ordering process.  This meant that they couldn’t forecast past a certain point.  The typical strategy here is to build popular component part stockpiles and ensure the manufacturing process can meet peak capacity in the required workcenters. Support departments try their best to fill in the gaps in the product mix as they occur.  This way you don’t have to gear up the whole facility, just part of it. 

From a software perspective this simply meant they needed and inventory/MRP based system.  Nothing that you would classify as a “special need” so far.  Here’s the basic layout for any inventory system.  There are three types of orders that drive everything: 

Sales orders, which place demand within the inventory system 

Work orders, that supply component parts and finished goods.  They also consume materials. 

Purchase orders, that supply raw materials. 

Now, creating a sales order at this client was a problem because orders were frequently taken and processed without the customer specifying the variable attributes such as colour.  These were left as “to be determined”.  The perception was that giving manufacturing whatever information was available would allow them to jump-start the process.   Now as far as the customer was concerned, the lead-time clock was ticking even though the details weren’t finalized.  And, as could be expected, sometimes there were delays in getting the missing info to manufacturing in time.   And this frequently made them late. 

This company really had a great line of products.  The design allowed it to be put together in a great number of different configurations.  And, if they didn’t have the required configuration, then they would build it as a “special”.   So, creating a work order was a problem because the number of bills of material required was staggeringly high.  In many cases, you literally had a different BOM for each time the product was built.   I’ll tell you, learning their product was a trial.  Oh, and they didn’t use part numbers for most of their stuff but that is another story. 

Now, most vendors will tell you that you need a tool called a product configurator to meet the demands of these types of businesses.  This sounded logical to my customer so the current package had a great configurator.  And, truthfully, some of the product was ideally suited for use with a configurator.  Trouble was that a significant portion of it wasn’t.  There were simply too many combinations.  Worse, some options mandated that other options had to be changed. In fact, there was a whole hierarchy of decisions that had to be adhered to.  Software that does this is referred to as a “parametric configurator”.   So they bought one. 

Yes, they believed the configurator was indeed the solution to their problem.  Software salesmen had told them so, so it must be true.  (Breaking up laughing now).  Their pursuit of it had seen them buy one, but once they really tried to use it, it proved that it wasn’t functional enough.  The second one was better but the amount of data entry required was high.  While it was, perhaps, worse than normal, they should have got the message at this point.  But, instead they were told that it was a matter of finding one that was flexible enough.  So they decided to buy a software package with a very strong configurator and then paid to have it enhanced to a specification that would be created through analysis.  It was the right approach.  Now, they thought, we will have the tools we need.  So, back to the parametric configurator. 

The first point I want to make about a parametric configurator is this…entering data into one of these babies has a lot in common with General Relativity.  It’s very complicated.  There’s also a lot of data that needs to be entered for each combination.  And they had a huge number of available combinations.   As I looked closer, the bottom line seemed to be that the amount of data entry required to support the configurator for much of their product offering was just staggering.  If they had been a larger company with more manpower then….maybe.  But they weren’t.  So they couldn’t do the required data entry.  

When I got the call they were 12 months into this installation.  The company was angry at the software vendor.  They felt they hadn’t delivered the required configurator specification.  The vendor was also angry with the client.  They felt they had gone over and above the required specification and had gone to great lengths to make the data entry process simple and effective.  The system was partially installed and working well in those areas.  The configurator was working well for the standard segment of their product line.  When I checked the capabilities of the configurator I was surprised to find that it did indeed do what was advertised.  In fact, it may be the strongest configurator I’ve seen.  It would handle virtually anything they could throw at it.  And the data entry task was about as simple as it could be for something that could produce data that complex. 

My investigation concluded that there were two major issues.  First, the configurator was complicated.  They had never used anything like it before.  Kind of like trying to scale Mount Everest the first time you go rock climbing.  Secondly, the amount of data required to cover all of the options they offered was absolutely huge.  And there weren’t enough people to do it that had the required product knowledge.  It was simply a task that was so large they didn’t know where to start.  And even if they had, they wouldn’t have finished it for a very long time.  And then there’s the ongoing data maintenance….it was just too much to bear. 

Solving this problem required making a few rules, and simplifying the product structure.  Because the product was so configurable there was a certain degree of engineering that was going into each product.  So we trapped this process on the system to create the product structure.  It’s manual, but it follows the process well.  It also negates the need to create all the configurations because they simply configure it as they go, manually. 

The biggest overall problem I had was convincing them they didn’t need what they had spent all this money on.  It took them quite a while to let go of the old concept and accept the new one.  But, in the end, the results proved to them that it was the right choice.  There were orders flowing for the first time.  As it turns out, the first system they bought probably would have done the job for them if they had only had the right concept in hand prior to purchasing. 

This just goes to show that pursuit of automation only works in situations where a manual process isn’t the right choice.  Sometimes, doing it manually is the most effective way.  It’s all about having the right concept in hand and good picture of effort vs benefit.   Integration with the business process, and managing the amount of data you need to generate will always be key success factors in business software implementation.

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The same holds true with an erp implementation. How much you can do verses how much the vendor should do is always the magic question. There are always things that you should do, it’s your business and nobody knows it better than you. The trick is to know when your time is better spent. I renovated a bathroom once , my wife and kids were at the cottage, I had the weekend to myself and I did a great job. It took a total of 24 hours, two 12 hour days and bingo, beautiful bathroom! The kitchen reno was different it came at a time when I was run off my feet, working 10 hour days and then coming home to work on the kitchen. It didn’t take long for me to call in the pros! The problem is, when a pro comes in after you’ve started, they add time to inspect what you did and time to correct what you did. That just adds insult to injury, not only is your time wasted but so is your money.

In all organizations there are down times, some down times are longer than others and some disappear quickly and business comes out of the blue. If you’re planning an erp implementation, you need to remember that your staff already have jobs to do and adding to their list can be a double edged sword.  There will always be a need for their involvement, it’s part of learning how to use a system. In fact, if they are involved in its set up they will have a better understanding of the system and be more effective users. The most successful implementations are the ones where both the vendor (pros) and the users (diy) work together and get to understand each others capabilities. They communicate in such a way that each one learns from the other, the vendor learns the more intricate details of the business, what works effectively and what doesn’t. The user learns the system and how it can help them do their job and the  features that will make life easier.

The key is understanding the value created when your staff perform a task and the value in having the vendor do it. I will be clear here in my, albeit humble, opinion it is never a good thing to go all or nothing. If you try and implement a system, any system, all by yourself without vendor assistance, you are, like the lawyer who represents himself, a fool! If you work with the vendor, soliciting and accepting guidance, you can get alot accomplished and avoid costly errors and most of all, when you get the pros involved they won’t be correcting everything you’ve done. Neither, do I feel,  is it  a good thing to have the vendor do it all for you. Sure it’s nice to come  to work Monday morning and get handed the login to a perfectly set up system and off you go. Oh if only it were that simple! That’s why you sit down with a contractor and discuss a remodel before you let them loose in your home, if you don’t you end up with a dysfunctional mess. It’s an even trickier situation when it comes to your business. Just like you getting lost in their system and them having to redo your mistakes, they can make assumptions that may have worked elsewhere but not in your business, so they have to redo it to make you happy. Again this costs time and money. The reoccurring theme here is communication, get that right and the rest will be a comfortable and successful collaboration!