For many manufacturing organizations, an optimized Enterprise Resource Planning (ERP)system is a key enabler for digital transformation. While implementing a new ERP system isoften one of the most difficult and challenging endeavours any organization will everundertake, it is just the first step in the ERP journey. Maintaining or increasing competitiveadvantage requires continued investment.
The overriding consideration in almost every ERP modernization discussion is whether the organization should upgrade its current system or implement a new system. The final decision is often driven by factors such as:
A precipitating business event like a merger or acquisition
An announcement from the ERP vendor that your version is about to go out of support
Your existing ERP system simply fails to perform as well as those of your competitors
Irrespective of the reason, you will first need to define your new system requirements clearly.
Two critical assumptions that all ERP systems make are that data is correct, and that agreed plans will actually be executed. Manufacturing organizations that understand and meet these requirements will flourish in an ERP environment. Those who do not will struggle significantly.
Avoiding Common ERP Pitfalls
This video explores how ERP implementation and renovation challenges are often less to do with the system and more to do with the approach.
Five warning signs of process inefficiency
One fundamental truth about all ERP systems
is that they’re only as good as the underlying data and business processes that
support it. In fact, two of the most
common reasons cited for the high rate of implementation failures are
inadequate organizational change management and poor master data quality.
To determine if your ERP system is limited
by your data and processes, look for these five warning signs:
1- Unable to reliably make and meet customer order delivery promises
If there is one thing that ERP systems are
inherently good at, it is planning resources across the entire enterprise to
deliver goods to customers in a reliable and predictable manner. So, if your organization has been using an
ERP system for several years and is still struggling to achieve acceptable
customer service levels, that is a clear indicator that there could be
underlying business process issues that need addressing. Determining if that is the case requires a
thorough root cause analysis of your service failures.
In conducting that analysis, it is critical
that you drill down to the proper level to identify the true root causes. For example, determining that many of your service
failures are caused by an inability to produce to schedule is too vague to determine
if the issues are process- or system-related. You need to dig even deeper.
If the deeper analysis reveals that the
issues are caused by poor equipment reliability and/or quality, then focusing
on continuous process improvement stands a far better chance of improving service
performance than any ERP system upgrade. Conversely, if the issues are more on the
scheduling side, then it could indicate a training issue or a true system
shortcoming. If it’s the latter, then
the next logical question you must ask is: “Does a system upgrade fix this
issue, or does it require a new system?”
By following a similar line of logic for
each major service failure, it is possible to create a scorecard matrix to
define what issues can be solved by:
Focused process improvements
ERP system upgrade
ERP system reimplementation
2- Inventory adjustments are frequently performed
A fundamental requirement for successful
operation in an ERP system is having accurate inventory. The ability to maintain accurate inventory
records will increase order fulfilment capability, reduce costs and improve
customer satisfaction. Timely access to
this information can therefore be a strategic differentiator.
Some best practices to adopt prior to going
live with a new ERP system are to:
Implement cycle counting to track and report inventory record accuracy (IRA) routinely
Conduct root cause analysis of IRA failures
Take corrective actions to prevent failure recurrence
But even if all these practices are in place, it’s still useful to verify their effectiveness independently. One very efficient way to do that is to analyse the system write-ons and write- offs. When performing this analysis, be sure to measure both the number of adjustments and their magnitude in terms of absolute value.
The reason for doing the latter is because
write-ons and write-offs have a tendency to balance themselves out over time,
unless there is some systemic bias. So,
if you have a situation where there are $1.21 million of write-ons and $1.19
million of write-offs, a simple arithmetic analysis would show a net impact of
only $20,000 which might fly under the radar. Conversely, when looked at in terms of
absolute value, the total combined write-on plus write-off quantity would be
$2.4 million, which would almost certainly draw attention.
3- Production orders often have large variance
One of the key benefits of an ERP system is
that is provides real-time access to costing data which enables improved
decision-making. Of course, the quality
of the decisions that can be made is dependent upon the quality of the costing
data itself. So, to get the most out of
your ERP system, it is important to take the proper actions to maintain good
cost data integrity.
Since ERP systems are based on standard
cost accounting, managers must understand when and how to react to variances. For manufacturers, the most important
variances are production order variances, of which the two main categories are:
Over / under consumption of materials
Over/ under consumption of resources (line time)
The use of standard costs naturally
promotes a management by exception process. As long as variances remain below some
reasonable threshold, no intervention is required. Conversely, if variances surpass that
threshold – either above or below – management must quickly investigate and
decide on the required actions. Although
it is common to have high production order variances when an organization first
implements an ERP system, these variances should come down over time if
management responds to them appropriately.
The primary mechanism for reducing
production order variances is to adjust the bill of materials (BOMs) and
routings to more accurately reflect actual demonstrated performance. If your organisation has been on an ERP system
for several years and continues to see frequent, high production order
variances, it’s a sign that the underlying business process for responding to
production order variance must be improved.
4- Inappropriate inventory levels
Carrying the appropriate amount of
inventory can be a delicate balance. Too
much inventory ties up capital unnecessarily and can lead to waste from over-age
and obsolete inventory. Too little
inventory can lead to stockouts and missed sales opportunities.
Maintaining appropriate inventory levels
hinges on several factors. Understanding
what is causing your organisation to struggle in that regard is a key step in
determining whether a system upgrade can help.
For instance, if BOMs are not accurate, this could lead to either over-
or under-purchase of components.
Another item that is critical for setting
appropriate stock levels is an accurate demand forecast. But before looking for a system solution,
first ask the following questions:
Is the demand planning manager viewed as an important role in the sales and marketing organisation and staffed accordingly?
Is the demand plan reviewed and updated at least monthly?
Are time fences and decision points established and honoured?
In other words, is the organisation doing
all it can to develop an accurate demand forecast? A system upgrade may go some way in providing
access to improved forecasting algorithms, but it can only work well if the
right organizational structure and processes are in place.
5- Inability to generate routine reports without significant manual intervention
Although tremendous advances have recently been
made in the reporting and business intelligence capability of most ERP systems,
do not assume that all your reporting issues can be solved by upgrading alone.
Consider the seemingly simple task of
running monthly KPI reports. Intuitively,
it would appear that this type of routine, repetitive report should be easily
automated. But what if month-end happens
over a weekend and your organization has the habit of waiting until Monday morning
to finalize the production postings from the weekend? The reports must then either be delayed or
manually adjusted to account for month-end timing issues.
Another common cause of manual manipulation
of reports is incomplete or inconsistent population of fields used in the
report. When this occurs, someone must
either massage the input data, or review the output and adjust as necessary to
account for field inconsistencies. No
matter how many advances your ERP vendor has made in their latest version, it
is highly unlikely that an upgrade is going to resolve either of these
It’s therefore important to review all
routine reports and ask the question: “What is keeping us from automating this
report today?” If the answer relates
primarily to technology, upgrading may help. If the answer leans more towards
organizational behaviour, then the focus should instead be directed toward
fixing the organizational behaviour.
Deciding when and how to update your ERP
system is a major decision for any organisation. No matter what you opt for, the choice is
ultimately a business decision based on a cost and benefit analysis with a
10-20 year outlook.
So make sure you can deliver the cost of
entry before diving into the latest innovation. Consider external advice, such as gauging your
organisation’s readiness for a new ERP system implementation. Then take advantage of the emerging
technologies to place you on the road to success.
https://erpnews.com/v2/wp-content/uploads/2019/01/5-erp-trends-2019-UK-300x200.jpg200300harunhttps://erpnews.com/v2/wp-content/uploads/2018/10/[email protected]harun2019-07-17 12:11:262019-08-09 15:26:255 Signs Your Business Processes are Inhibiting ERP Success
Do You Know How ERP Systems Have Evolved Up Until 2019?