When you last went through ERP selection and implementation, maybe 5- 7 years ago, how different was your business? For most manufacturers, customers have higher expectations and more complex requirements, material costs and lead times are higher and more volatile. Even if you compare your business to 1 or 2 years ago, your team may be different, you've launched new products, or brought on new suppliers. As the demands of the business morph, many leaders think they need to select and implement a new ERP system. This may be true in some cases, but more often going through an ERP Optimization can bring your ERP system back to a high-functioning, growth enabling tool for your team.
SETTING HIGH STANDARDS FOR YOUR ERP SYSTEM
As businesses change, many leaders fall into a death spiral, starting with, “my current ERP system can't do that.” This leads the team to create work-around processes, side spreadsheets, or in worst cases, just not do what their clients or team are asking for. As a leader, the greatest thing you can do is to set standards for your ERP that don't change, and force the team to look instead at, “what would it take for our system to:”
- Maintain a consistently accurate current inventory
- Track actual results at the appropriate resolution for us to understand our costs
- Look at our orders and forecast needed material and labor
- Produce precise financial documents with ease and confidence
- Provide performance visibility by work center, cell, and business unit that will allow my team to prioritize improvements activities
These may or may not be all the standards that are appropriate for your business, but you can be assured that if your ERP is not meeting these standards, you'll hear and see these symptoms in your team and processes:
- "I don't trust the system, I'll go out and count the inventory to make sure."
- "I better order more of that material so we make sure we have enough."
- "Month-end close is long and painful because of all the corrections/adjustments"
At the beginning of 2012, Definity was approached by a mid-sized chemical manufacturer in Northeast Ohio with a key objective of validating that they had outgrown their Great Plains ERP system and looking for us to take them through our ERP Selection process. After taking a hard look at their business strategy, operational processes, and current system setup, we helped them define the gaps between what their system was doing versus what their system SHOULD be doing for them. Engaging their internal process experts and their ERP software provider/VAR, we were able to identify a series of specific configuration changes, process and behavior changes, and data population that could be done to close the gap.
In this specific example, two of the strategic needs were the inability to forecast labor capacity and inability to maintain an accurate, location-specific inventory. In 21 days, the cross-functional team was able to:
- Develop labor standards for every product
- Develop a process to capture and enter actual labor by job
- Mark and label all physical locations in 5 warehouses at a new level of detail
- Set up site and location configurations to match bins in the ERP system to the physical locations in the warehouse
- Develop a process and train the associates to transact inventory to and from the bin
With the ability to define productivity, managers are able to set clear expectations for the front line, as well as accurately predict costs and lead times. With visibility to accurate, bin-level inventories, wasted time looking for material and overstocking was reduced significantly. Buyers and planners are free to work more value-added tasks like alternate sourcing and supplier quality.
Many leaders don't even realize what their current system is capable of, and what adjustments could be made in setup, process, or usage to significantly simplify and accelerate their business. This company went down the path of assessing how their ERP system was supporting their business strategy as a part of their Continuous Improvement program. Besides the $100,000’s of ERP Implementation cost avoided, they significantly improved inventory management, productivity, and the morale and engagement level of their workforce. This business will eventually need a new ERP system, but besides significantly delaying that giant investment, they have solidified the high standards to which they'll hold that new system in the future.