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Posts Tagged ‘Enterprise Resouce Planning software’

It doesn’t get much clearer than that.  When the world’s leading information technology research company says in effect “be very careful” it might be time to pay attention.

In fact, it was last year when the giant research firm warned those considering “post-modern ERP” that they will not be immune to the “traditional ERP headaches of higher costs, greater complexity and failed integration by 2018.”

The “Achilles Hill,” suggests Gartner, will be the lack of a cloud application integration strategy and related skills.

Carol Hardcastle, Gartner research vice president, said in a statement: “This new environment promises more business agility, but only if the increased complexity is recognized and addressed. Twenty five or more years after ERP solutions entered the applications market, many ERP projects are still compromised in time, cost and more insidiously in business outcomes.”

These so-called post-modern ERP solutions are simply not the “Nirvana” that their cloud publishers want buyers to think they are.  What’s lacking is integration of all the parts, not to mention the skills to pull them altogether.

On-premise providers have had years, decades even, to launch all the necessary software ERP components to comprise a completely integrated suite of applications.  Even those who haven’t will usually have ecosystems of third party providers to provide the key components of those applications, things like accounting, workflows, production management, kitting, manufacturing, planning, purchasing, warehouse management or CRM.

Simply throwing software up onto a cloud service provider does not automatically make these things happen.  Even top tier players in the space we happen to work and live in – the small to midsize business – have mostly only managed to cobble together partial or incomplete ERP cloud versions of their systems, often lacking the full-featured capabilities of their earth-bound brethren.

An article in the UK’s “The Register” (byline: ‘Biting the hand that feeds IT’) noted last year, “Nobody was singled out by Gartner, but it’s been the iPad toting, cloud-friendly sales and executive classes who have driven uptake of business software providers such as Salesforce, side-lining the more considered counsel of those in IT who could have taken a more measured approach.  However, according to Gartner, vendors are also guilty, putting self-interest ahead of their customers.”

Ms. Hardcastle concludes… “The blame for this does not lie solely with end-user organizations that lack the experience and expertise to avoid many of the pitfalls. System integrators and ERP vendors have to be accountable to their customers in this respect.”

The solution, as always, includes the important precepts: Starting with a solid ERP plan… having full management buy-in… analyzing your processes before your begin… aligning people, processes and systems… planning your integrations carefully… and keeping your eyes on the big prize – that is, what you need to do to take your company to the level you dreamed and planned for in the first place.

A dream, Gartner Research might well add, that may not yet include any clouds.

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Today, we present a counterpoint of sorts to common ERP selection advice, initially sourced from industry consultants at Panorama Consulting who suggested a few reasons why, despite the fact that business investment spending was up about 10% last quarter, businesses might consider ditching, or at least delaying their ERP projects, offered up for your review:

  1. Your business processes might be the real source of your problems. ERP alone does not solve organizational problems.  If anything, it merely codifies standard practices for use throughout the organization.  Better processes drive efficiency gains, and sometimes big improvements can be gained simply from reengineering yours.  But contrary to myth, you don’t need to know which software you’ll implement in order to reengineer those processes – if anything, it’s the other way around.  Fix the business process, then shoehorn the software to the business and not the other way around.  And in fact, something fixing the process is enough.
  2. Organizational roles and structures may be another issue. As industry consultants at Panorama Consulting note: “Many companies use their ERP implementations as a mechanism to drive organizational improvements such as standardizing operations, but the technology implementation muddies the waters of the real organizational change management work to be done. By defining and implementing your future state processes first, your ERP implementation will be much smoother.”  We couldn’t agree more.
  3. There are many good alternatives to monolithic ERP systems. Technology today has bred a best-of-class thinking that has allowed software providers to solve specific critical business problems discretely.  More often than not, they are commonly referred to as third-part “add-ins” and they frequently solve problems very, very well.  By shoehorning yourself into a single branded solution, you may be settling for mediocre performance or functionality in areas critical to your operations merely for the sake of a “really good accounting system.”  Fact is, today, most ERP systems contain really good accounting systems.  But many of the best focus on doing a few things well, and then let established affiliate partners take care of the many other functions that can make a system really work for your unique needs, i.e., “best-of-breed.”
  4. A technology-agnostic analysis and strategy can be your best way forward sometimes. At our firm, we do them both ways: agnostic and biased.  The agnostic approach says: Just look at us and our processes (or suggested improved processes) and objectively define what we need without paying attention to any specific software.  It’s one good method.  The biased approach says: Take a look at our business and based on your prior experience and knowledge, if you want to slant us towards a solution you already think could work for us, then do that.  This often helps make it easier to paint a more detailed picture of a potential future state, and it can work well when your consultant knows your company already, or you have achieved a mutual level of trust.  Either approach works; it all depends on your own goals and biases.

The overarching point here of course is that it’s not always necessary to throw out everything to improve your processes, your organizational roles or even your software.  A good consultant will work with you to define your true business objectives, and then help you decide on the path forward that is most comfortable and secure for you.

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Any “digital transformation,” as the consultants at Panorama Consulting like to call things like ERP implementations, can seem daunting, a thing best put off ‘until tomorrow’ when, apparently, it will be… easier?  A recent article by Panorama makes a few points however that are worth noting, and that may get you off the starting line to your own internal project efforts and transformation.  We’ll meld their comments and our experience into today’s post.

For starters they point out, think about your ERP effort at a grass roots level.  You can start simply enough by having a few of your own people map out their current business processes, while thinking about the potential improvements they might want to see in a future state.  We always start our clients’ ERP projects with just such an effort.  Clients are usually too busy to do it for themselves, or perhaps too close to the subject to properly critique it, or lacking in the higher level business analysis skills that can help shape the best outcomes.  But at the very least, you can get your team thinking about how you do things today, and how you could better do them tomorrow, with less overlap and redundancy, and better information sharing and collaboration.

As you gather and review your grass roots analysis results, begin thinking about your overarching project goals.  Instead of starting with no sense of direction, think about the long-term goals business goals that underlie your IT, ERP or digital transformation project.  Be sure everyone understands the same goals, and how each of their individual parts in the process will contribute in the end to a more profitable, focused and leaner company.  Be careful not to get too distracted by the technology, and keep your purpose business-focused: that’s how you’ll succeed with customers and grow your own business.

Defining your business processes and requirements is the logical outcome of the actions and discussion we just noted.  It’s getting your ducks in a row.  It can take some time and outside help may be required (to learn what works and what doesn’t, best practices, etc.).  When you are ready to commence your actual ERP initiative, you’ll be equipped with the necessary data, thinking and step-outlines necessary to give your project its full forward momentum.

If you do all the above, you’ll be well prepared for the final step of hiring your outside consultant or reseller or implementer.  The process will go quicker and more smoothly if you’ve already given serious consideration to your business goals, your processes and workflows, and to your newly imagined future state.  It will help you more quickly and accurately match up process needs with software flows (and vice-versa), and save you time and money getting to the point where you’re ready to actually install and implement.

If it all sounds easy, well then, just remember that all along, your employees still have their regular jobs to do!  Be realistic in your expectations, fair in your judgments and remain focused on the planned business outcomes.  If you orient your resources consistently toward giving your people the tools they need and staying focused on the project’s business goals, you’ll fall into the small but highly desirable category of those who actually succeeded in their ERP implementations.

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In our prior post we noted the key premise of ERP: that’s it’s a strategic investment in your business – just like those machines on the shop floor, or the key employees on your management team.  We also noted that it’s scary to many folks, who in turn wait way too long to make a change or upgrade, because sometimes the costs of efficiencies to be gained can be difficult to calculate, whereas the cost of the system itself is very clear – and of course, always too much.

Today we’ll comment on three points made by Panorama Consulting in a recewnt article intended to answer the question: “What can you do to get ahead and accurately weigh the implementation costs versus the cost of inefficiency if you don’t implement?”

  1. Quantify the costs of inefficiency. Your current processes are likely to be some combination of old, outdated, inefficient, broken, redundant or ripe for opportunity for improvement.  Your customers, your employees and your bottom line are all feeling these costs.  The question is: when are you going to start tracking, calculating and accounting for them?

 While you can hire an outside consultant to do this for you, do you really need or want to?  No.  You can do this yourself by time studies that honestly seek to calculate the very real dollar costs associated with each key process in your system.  At the very least, do a day’s worth of route or process tracking to get a baseline for what it costs today.  You’ve got to start somewhere.  Be sure to factor in all necessary labor, overhead and machine costs.  Don’t fudge – it’s your money you’ll be investing and saving after all.

Identify waste at its source by defining the true costs of these processes now while identifying areas where you even think automation could curb those costs.  You should be able to calculate potential decreased labor costs across a time unit of value (i.e., an hour, a day, a run or a shift).

 

  1. Have a clear vision of what your ERP implementation can and should do for your organization. The fact that your old legacy accounting/ERP system is old is probably true, but it’s not reason enough by itself for action.  You must define what you want in the next system – i.e., increased inventory returns, faster customer responsiveness, fewer shipping errors, increased sales throughput, reduced labor costs or shorter cycle times.  There are too many to list, but you know – or should know – which ones matter most to you.  You can’t identify the cost of these inefficiencies capably until you’ve identified, categorized and measured or calculated them.

 

  1. Define how your organization will achieve those benefits. Panorama consultants note thatNumbers in a business case are meaningless without clear and tangible steps on how to achieve them. In order to fully ‘operationalize’ these potential business benefits, your team will need to outline the steps and owners of the steps to realizing those benefits.”  They give examples like determining which process changes and software modules will fulfill a stated goal, such as x% of improved inventory returns… or how a certain process change might reduce your production cycle times.  You get the idea.  You have to ask a lot of questions… question a lot of processes, and process a lot of data and results.

But if you do, eventually patterns will arise and insights will be realized.  You’ll begin to see the inefficiencies and waste and learn to calculate them at least in gross terms.  (Now here by the way is where an experienced business process or lean consultant can really help make a difference.)

The point is: the costs are there, they are evident when you dedicate the time to look, they are very real and, in our experience over many years, they are very significant.

 

Your ERP investment can pay for itself ten times over – but you’ll never know it if you don’t start counting the ways: the inefficiencies, the improvement opportunities, the competitive advantages, the costs and workflow reductions… all of it.

 

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Deciding finally to upgrade your old accounting system into a modern ERP system is never an easy decision.  All too often, we’ve seen that nebulous fear cause many a client to wait too long.  Usually, it takes the sunsetting (i.e., discontinuation) and total loss of support for their current product – with maybe a touch of hardware obsolescence and crumbling network infrastructure thrown in – before they’ll finally bite the bullet.

We think that’s because it’s hard to quantify the cost savings and efficiencies that will be gained against the much more plainly understood “cost” of the system.

All too often our constant reiterating wail to clients that ERP is a strategic investment in your business – just like a machine on the plant floor – falls on deaf ears much like the baying of the coyotes outside my windows on an Indiana night.

Just this week a client told us that they are not spending any more money on software for the rest of this year.  That’s like saying I’m not spending any more on oil and maintenance for our equipment.  The difference?  Most businesses have difficulty appreciating that – done right – the improvements to processes and business alike that result from a strategically used ERP system can save five, ten or even 100 times their costs in wasted or redundant labor and other inefficiencies.

Except of course: We’ve always done it this way…

You can’t blame them really.  Most folks are coming off “accounting” systems built in the 80s or 90s that mostly documented business ‘transactions’ and not much more when it comes to process improvement.  It’s a stretch for them to appreciate that ERP is just the tool we use to codify and standardize business process improvements.  It’s not about the software, per se, it’s about the improvements to processes and the reduction in costs that ultimately flow through it, once processes have been realigned and the software is configured to accept them.

It’s hard for clients to wrap their heads around this, when all they know is what’s worked in the past: build better widgets, and increasingly more of them, as cheaply as possible, and all good blessings will flow.

The idea that wide swaths of a business might be “leaned out” through the implementation of improved processes woven into an extensive enterprise management system that makes those changes ‘stick’ takes some education and some getting used to.  And it takes an investment in the foundation (like working a little compost into the garden dirt) before the changes can begin to grow and bear fruit.  In other words, it can be a leap of faith.

So in the post that follows, we’ll take a high-level look at three steps to weighing the costs of implementation against the cost of continued inefficiency.  Stay tuned…

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Each year Panorama Consulting of Colorado releases the results of its annual ERP survey.  This year they analyzed the findings from ERP implementation at 342 firms across the U.S. and a variety of industries.

From those surveys, the authors saw five of what they called ‘important headlines’ emerge.  A couple of their real-world findings run strongly counter to today’s conventional wisdom.

  1. Project cost and duration have decreased since last year. We always take this one with a grain of salt because the devil is truly in the details in terms of project sizes, scope, industry, etc.  Panorama notes that projects this year were notably smaller than in years past, and that money spent on implementation “does not necessarily mean that long-term costs and overall return on investment improved in parallel. We see many organizations that are willing to step over a dollar to pick up a dime, so to speak, by cutting implementation costs without realizing that it creates more problems later on.”
  2. A counterintuitive trend is emerging. A year ago, cloud implementations appear to have plateaued according to Panorama.  In the past year, the survey showed a 21% decrease in cloud-based ERP adoptions.   Meanwhile, on-premise implementations increased by 11%.  “Perceived risk of data loss” was the concern cited by over 70% of respondents.  And among cloud-only adoptions, the overwhelming majority expressed preference for private or “single-tenant” solutions over multi-tenant solutions.
  3. 88% of survey respondents reported some level of customization of their systems. The vast majority still make changes to source code in order to customize their ERP experience.  They make efforts to manage these efforts closely for cost overruns, but in the end… what’s the point of an ERP system if you can’t have “your way”?
  4. The respondents who reported “being satisfied” with their ERP implementations, a somewhat subjective measure, increased from 13% to a whopping 70%. Actual ‘benefits realization’ also improved, with more firms realizing benefits within six months, and fewer taking more than two years to recoup some benefit.  Says Panorama: “more organizations are realizing a positive return on investment compared to years past.”
  5. Organizations are investing more in organizational change management and business process reengineering. Lack of business process reengineering is often cited as the number one reason for ERP failure.  Companies appear to be learning the lesson.  This year, 84% expressed “moderate or intense focus” on organizational change management and 93% said they “they improved some or all of their business processes,” a significant increase.  We’ve long considered that the first priority in any roadmap to an ERP system – so we’re happy to see the advice taking hold in so many more firms, and the lessons being learned.

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We see clients wrestle every day with a number of common complaints, obstacles and productivity-wasters when they talk to us about upgrading their business management systems.  These issues seem to be common across many companies, so don’t feel too badly if they just so happen to describe your office too.  We’re talking about things like…

  • Spreadsheets.  They’re everywhere.  They’re disconnected.  They’re not available to everyone.  They can be difficult and costly to maintain and keep current.  And worst of all, they represent double- or even triple-entry effort across disparate platforms.  A lot of waste, redundancy and mistakes.
  • Information that’s all in one person’s head. Years ago, we had a client with a production scheduler who had all the magic formulas for How-To-Produce-What-On-Which-Machine (in what order) lodged inside his head, and his alone.  Job security, right?  I thought so too.  Until the company President told me that this fellow had already had two heart attacks!  They could joke about it among themselves (I mostly just kept my head down, and eventually developed a scheduler for them based on some of his knowledge). We have had many clients over the years where the institutional knowledge of certain critical functions was stored in the head of one person – often an owner.  Not exactly conducive to a happy exit strategy, is it?
  • Lack of inter-departmental communication. The classic “left hand doesn’t know what the right hand is doing” syndrome.  Usually it’s front office vs. back office, or production vs. shipping.  Sometimes, it’s like you’re working in two different companies – mostly because the information that needs to be shared simply isn’t in the right place at the right time.  The result is lots of trips out back (or front)… lots of intercom calls… lots of emails… and a whole lot of inefficiency, wasted steps, misspent energy, and “expedited” orders that become the norm.
  • Gut instinct and guesswork as stand-ins for accurate reporting and real business intelligence. When you don’t have the data, you guess — sometimes correctly, sometimes not so much.  Or you ask a person who really doesn’t know the answer.  Or you do it the way you’ve always done it because, hey… that’s the way we’ve always done it.

If some or all of these sound familiar – and they’re usually only the tip of the iceberg – you’re not alone.  That doesn’t mean you shouldn’t do something about it.  The sad truth is, companies lose tens of thousands, even hundreds of thousands of dollars each year to these sorts of inefficiencies – and they don’t even realize it!

What could it do your bottom line, your company’s value and your ability to serve the customer… if only you did realize it – and did something about it?

In the end, you may not be alone.  Misery loves company, right?  But is that really the competitive position you want to be in?  For now, just be glad you don’t know what it’s really costing you. And when you’re finally ready to do something about it, you’ll be taking the first step on the road to a better company.

 

 

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