All entries for June 2011

June 30, 2011

Rethinking ERP Implementations

Many organisations have hoped to improve their competitiveness by investing in ERP systems. However, the implementation and associated changes in business processes is a complex and highly cost intensive project. There are several stories about failure during the implementation and divers authors call attention to the implementation process. Hence, it can be agreed that, next to a high leadership commitment, a strong control mechanism is needed during the implementation in combination with a step by step approach.

So far, consultancies mostly undertake the implementation process, which, as it is said, costs three times more as the system itself. However, if the success rate is so low that only few are able to benefit from the plenty of advertised benefits of an ERP system, why is there such a lack of innovations regarding the ERP implementation?

Considering the implementation of Six Sigma via a belt system, I wonder if this would be suitable for ERP implementations in a similar way. The belt system is a hierarchy based on 5 specified roles, each of them indicating a certain degree of expertise with the aim to convert the culture and the processes. Transferring this to the ERP implementation would mean that there are trained leadership roles, responsible for promoting and direction the chosen ERP implementation area (e.g. HR, Production or Finance) and trained managers and employees at various levels, responsible for conducting and control the implementation, conducting process redesigns under consideration of the old legacy system and feedbacks of future process user and for conducting coaching and teaching session on the operational level.

I see advantages in, firstly, that various roles and responsibilities required for the implementation process are clearly defined and separated compared to having a small number of external consultancies, which are responsible for a whole set of implementation activities. Secondly, organisations invest into their own employees and create valuable knowledge, as they understand the business process from the past. Thirdly, since any change requires a cultural change, which happens internal in the mind of the workforce by fully agree and adapt to the change, the “belts” can make a significant contribution to enable a true change by decreasing the resistance of employees to use the ERP system.

One disadvantage represents the costs, which are still very high. Moreover, it is important that the chosen employees for the belt system are only concentrate on the implementation over a longer period. Hence, their current role may be replaced by other required employees, which increases labour costs. Nevertheless, on a long term perspective this is likely to pay off compared to the non-success stories of past and properly future ERP implementations.

I only can see this from my point of view. If anybody has a better background of both Six Sigma and ERP implementation I would be pleased to obtain some critic in form of limitations or disadvantages of integrating a belt like system for ERP implementations.

June 22, 2011

Why companies should integrate their ERP and what they should be aware of

I have been pondering on how best to go about answering this question for a couple of weeks now. I think I might have figured out the best way to do this (at least by 70%). I first started developing the question by building a mind map for it (IF YOU ARE NOT MIND MAPPING YET, YOU ARE MISSING OUT). As I said before, I feel my work is at least 70% done (very subjective) so it's no surprise that the mind map reflects this. Then I developed a thesis for the question which is (Currently) "The adoption and integration of ERP systems should follow a company's strategy to realize the desired benefits". To answer the question completely I feel that the following list of objectives should be considered:

1. the Importance of Integrating Business functions and the potential of Enterprise systems (ERP)

2. the Importance of Strategy in driving the choice of an ERP system

3. Identify the benefits obtained from an ERP system as per strategy adopted (e.g. Cost differentiation)

4. Identify the potential problems that might be faced when integrating business functions through an ERP system implementation (What to watch out for)

For a complete picture on how I intend to answer this question, see the mind map. Cheers.

ERPI PMA Mind map

June 03, 2011

An ERP Success Story – Discovery Toys

Discovery Toys is a medium-size company that has recorded positive total cost of ownership savings from implementing an ERP system. Discovery Toys designs, distributes, and sells toys with educational value. The company outsources all manufacturing activities. Richard Newton, vice president of Operations, estimated that in the first year of operation of their ERP system, Discovery Toys saved approximately 10 million dollars.

The reasons for Discovery Toys’ successes appear to be in the selection and implementation process. Richard Newton used six criteria for ERP supplier selection: risk, implementation, functionality, partnership, cost, and technology. Risk was assessed by how much the selected ERP system would interrupt business during implementation. (Many companies have had major problems with implementing ERP systems and he wanted Discovery Toys to avoid the problems). Implementation referred to the speed and ease with which the software could be integrated into the company’s working information technology. Functionality covered the issue of how closely the software actually met Discovery Toy’s business needs. (Mr Newton had noticed that many vendors provided ‘bell and whistles’ that were unnecessary, but did add cost and complexity.) The forth criteria, partnership, addressed the relationship the supplier provides, primarily in terms of support during and after the implementation. Cost addressed the total cost of ownership, which included estimating the hidden costs such as training, upgrades, and maintenance. The last criteria, technology, referred to an investigation into the software’s compatibility with existing legacy hardware and software systems.

Discovery Toys implemented a J. D. Edwards ERP system. J. D. Edwards designed its software for small to medium-size companies like Discovery Toys, so the cost was low compared to that of other suppliers. The software did not have as many ‘bells and whistles’, but it did meet the functionality requirements of Discovery Toys. In addition, Richard evaluated the system as quick to implement. In fact, implementation took Discovery Toys only about six months. One of the most important criteria to Richard was partnering. J. D. Edwards demonstrated to Richard through its actions during the proposal phase that it would provide Discovery Toys with strong support after the sale.

The results? After stabilisation of the ERP system, the purchasing staff at Discovery Toys was reduced from nine to two full-time employees. The seven employees released or cross-trained into other areas had been performing clerical work prior to implementation of the ERP system. Similarly, the accounting staff was reduced even more dramatically from 21 to five full-time employees. The ERP system automated most transactions, thereby eliminating almost all of the paperwork and enabling instantaneous tracing of orders and transactions. The two retained purchasing professionals essentially became supply managers and are now able to focus on strategic decision-making. As a result, Richard pointed out that the qualifications for future employment of supply professionals at Discovery Toys had increased significantly, to the point where a college degree in supply management is now essential. Additional improvements were: customer service staff reduced, overall inventories reduced, and average lead time for processing orders dropped from five days to one day (Richard Newton, personal interview, November 1999).

Reference: Burt, D. N., Dobler, D. W., & Starling, S. L. (2003). World class supply management: The key to supply chain management. Boston: McGraw-Hill/Irwin.

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