What’s possible for Small to Mid-Size Manufacturers:
We offer an entirely different angle.
Move everyone to a way of working that produces massive (not an exaggeration) performance improvements and a highly satisfactory ROI. THEN take a look at how to use the ERP system in support of this new way of working.
Done right, your people “pull” the ERP system into place to support what makes total sense to them.
It’s not just more effective than trying to “push” a system on them. It deals with the reality that you’ll probably never see a ROI from any other approach; and you’ll face years of frustration from any other approach.
This completely “re-frames” the challenge and by-passes ALL the common arguments and resentment and dissatisfaction about an ERP choice and implementation path.
Background:
Go back year after year for as long as Google has been around. Then go back with Journals & Magazines (I still have some back to 1984). The failure rate of first MRP, then ERP, is staggering. (Search on Google for failure rate ERP.) 75% is the most common figure quoted.
Of course, this depends on definitions. So here’s mine: in my experience, at least 80% of companies who implement an ERP system these days do not achieve the Business case they used to justify the implementation. I consider that “failure.”
In fact, one of the biggest software suppliers on the planet asked me to meet with them some years ago and unashamedly told me that fewer than 18% of their clients achieved their target Business case. Consequently they weren’t spending money with these guys for more software and services. They wanted me to teach Theory Of Constraints, TOC, to them and potentially to their clients with the goal of helping their clients actually achieve the ROI they’d hoped for from their ERP acquisition.
Now, if you Google for the 3 word phrases “ROI from ERP” or “ROI for ERP” you’ll discover that the ways you are supposed to gain a ROI from ERP are so absurd they have to be read twice to be believed. They’ve never made sense. And you’ll see a wide acceptance that the vast majority don’t produce a ROI by pretty much any measures, absurd or logical.
OK. So let’s move beyond ROI to something that’s less tangible but very real for a lot of managers. Discussions with my colleagues confirm it’s more like 95% of companies where a collective of managers would say they are incredibly frustrated by their ERP experience.
One of the most common complaints I hear from users is “They made us change our business to suit their software; we wanted them to change their software to suit our business.”
And the complaint from vendors and consultants is “They refused to change their business to conform to our globally-proven successful model; they wanted us to change our software to suit them!”
Well, both camps are mostly wrong. And a little bit right.
What are my qualifications for making this claim?
Well, I designed, developed and implemented my first in-house MRP system in 1975. That’s 41 years ago. MRP, as you probably know, stands for Material Requirements Planning, which later evolved to MRP II, Manufacturing Resources Planning, and later still these modules became the central core of what became known as ERP systems, Enterprise Resource Planning.
Later, I joined a pioneering software company as employee #11 and implemented (as an external project Manager) 23 MRP systems in Europe and North America over 4 years. Then I joined another pioneering software/consulting company and was responsible for the design and development of what was one of the first ERP systems. I was involved in the North-American-wide launch of this plus a different MRP II system. Meaning, I trained the implementers and trained the sales folks. I wrote the implementation manuals. I handled some of the early implementations myself.
I believe I was only one of a handful of people Canada-wide to be Certified by the American Production & Inventory Control Society, as it was then called, at the level of “Fellow” indicating my level of expertise was in the top 2% of pretty much everyone in that field. And I was being billed-out as a MRP consultant in the early 80’s at up to $2000 a day, which was a pretty high fee in those days.
And, since 1988 I’ve been deeply associated with one of the leading manufacturing-system improvement technologies. And a key point arising from this is that pretty much EVERY implementation of the advanced improvement technology I’ve been involved with over those 28 years has been with a company with ERP software of some kind. Sometimes we’ve worked with it. Sometimes worked around it. Sometimes seen it replaced. But, it’s pretty much been a constant in every implementation. because it doesn’t produce the performance improvement it was supposed to.
Now, here’s where it gets interesting.
In 1977, my company’s major competitor was IBM.
Our competitive edge was, we ALWAYS customized our software 100% to suit our clients.
While IBM insisted on their customers adapting to the “proven business systems” of their software.
Yep. Even 40 years ago, that was the debate.
And it was the wrong debate then, and it’s the wrong debate now.
Here are some inconvenient truths.
1. The ROI will not come from improved accounting. Yet most ERP systems implemented in manufacturing businesses are selected mostly by the financial folks; the IT department often reports directly to Finance. I can’t tell you how many manufacturing managers are just resigned to the fact that they didn’t get the support they wanted to improve their performance by the system selected.
2. In fact, the ROI will probably NEVER come from manufacturing, either. Because the functionality built into the software — especially MRP and shop floor scheduling — CANNOT and WILL NOT generate significantly improved competitive-edge performance. Even those companies that DO choose their software in support of the manufacturing operation, either never fully implement it; or else they do, then they have to back away from it. Either way makes no difference really because it won’t help, even if they persist in implementing it.
3. The way that a company generates a big ROI from improvements is by making those changes that provide a DEFINITIVE competitive edge. Meaning, a competitive edge large enough that the company can persuade prospects loyal to a different supplier to abandon that supplier and come over to them. This way they increase Sales, and Revenues, and Contribution. If they simultaneously increase Productivity so they can support the increased sales without large increases in Operating Expense; and improve their business systems so they can support the increased sales without an increase in Inventory investment, in fact ideally with a big reduction in Inventory; THEN they have all the elements of a heroic ROI.
Sales are up; Profit on those sales is up; Investment is down.
The problem is that ERP software will typically provide NONE of these.
It won’t boost competitive edge performance by any measurable increment.
It won’t improve the Productivity that matters – in the Plant – by any measurable increment (and might worsen it, this time BY a measurable increment).
It won’t reduce the Investment in Inventory by any number that makes a difference to anything.
Strike 3.
and
4. The traditional Project Management approach used to implement an ERP system is greatly flawed. That’s why the AVERAGE ERP implementation takes something like 220% longer than planned, and consequently is also over-budget. There is a far better approach but few companies know of it.
and
5. Yes, for many companies, changing the way the departments work is always going to be inconvenient. The software these days is incredibly flexible; but this also makes it incredibly complex.
So, I said that the debate being held was the wrong one.
What IS the approach that works?
Simple.
Step 1: Implement the radical changes in business processes that provide the Decisive Competitive Edge. Usually this means, implement TOC or Lean in such a way that you shrink Lead times by 75% or more, shrink WIP by 75% or more, boost on-time performance to the 99% level, eliminate overtime and expediting expenses that aren’t associated with capitalizing on an opportunity.
THEN …
Step 2: Choose a software system that SUPPORTS these changes. OR adapt the system you have to support the changes.
Almost by definition, this addresses the arguments of “change business to suit the software or change the software to suit the business” because the business HAS to be changed to provide the improved performance, then the software has to suit that NEW way of working.
So, no – the business should NOT change to suit the software in the standard ERP system because that won’t improve anything.
And no, the software shouldn’t be changed to suit the existing business practices because that won’t improve anything, either.
Instead, make the massive changes to the way the business operates, to support sales growth; then choose software to support the new way of working.