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Posts Tagged ‘ERP’

A recent white paper from a company called Tribridge highlighted 15 ways culled from real companies in in which those companies’ accounting system was hurting their business.  As we reprise a few of them here, it’s amazing to see how many similar situations we’ve run across with our own clients over the years.  How many look familiar to you?

  1. Unstable system, slow performance. This is the most common one.  Reports run slowly, the system locks up regularly and error messages are common.  Modern systems today are built on solid transactional databases, mostly SQL in the PC world, complete with transaction rollback capabilities to minimize corruption.  Newer systems – once properly installed and finely tuned – will run everything faster, from daily transactions to month-end reports.  (While the Tribridge report skews toward Microsoft Dynamics as a solution, it’s not the only good one out there.)
  2. A growing paper problem. Manually entering invoice data into the system.  Tracking down and matching up invoices.  Searching for old orders or payment history.  And so on.  With an automated Accounts Payable system, you eliminate much of the office paper flow.  As well, invoices can be coded intelligently or by approvers during a rules-based approval process.
  3. Production schedule delays. Delays, inaccuracies and frequent rush orders (with extra freight charges to expedite) are tell-tale signs of the problem.  Modern systems allow for full integration of EDI integrating them directly into production scheduling, thus eliminating many of the human errors that plague so many distribution and manufacturing companies.  Yes, it takes time and effort and patience to set it all up, but once you do, it just runs.
  4. Inaccurate cost calculations. Whether it’s losing a contract due to inaccurate pricing, or building in a cushion, or high raw material costs due to poor inventory tracking or simply the unending burden of manual, time consuming reporting – these are all common results of inaccurate costing.  Costing is tough, to be sure.  They comprise many of our own most complex implementation issues for clients.  But they must be tackled, in modern systems they can be, in order to ensure peak performance, accuracy and ultimately profitability.
  5. Time wasted having employees create reports manually. Employees often find themselves compiling report data from three, four, even five separate sources.  They often have to wait for others to compile their contribution.  And then there’s the number/data double-checking, the occasional Excel formula error (or change).  All lead to laborious, redundant and often inaccurate reporting.  Financial reporting need not be that difficult – once you have your system implemented properly, well-tuned and honed by trained users.
  6. Selling out-of-stock products. When accounting is disconnected from inventory, the warehouse or the e-commerce platform you might sell by, you may end up managing stock keeping units in more than one system.  In-stock quantity errors are not uncommon.  Mistakes happen.  You can end up buying out-of-stock items on rush orders for the wrong price.  You lose visibility.  When everything is disconnected, you lose money.

We’re not half-way through Tribridge’s list (white paper here), so we’ll look at a few more and wrap up in the following post.  Stay tuned.

 

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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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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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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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As most of us have noticed by now, the pace of technology – long proceeding at a snail’s pace as generation after generation lived more or less as their parents had – has been accelerating at what to many feels like a breakneck rate.  We’ve gone from linear progress to exponential, moving from the industrial revolution to the current digital one at an ever-quickening pace.

Moore’s Law, now over 50 years old, postulated that the number of transistors per square inch on a circuit board would double every year or two since – and today, that continued pace means that exotic technologies that include AI (artificial intelligence), robots, cloud computing and 3-D printing systems are proliferating, evolving in many cases faster than we humans can keep up.  It seems like things keep getting faster, smaller and smarter.

And therein lies the downside of all this technical innovation, says Gary Smith, a logistics expert with the New York City Transit in a recent issue of APICS Magazine.  Smith believes that “the rate of technological change exceeds the rate at which we can absorb, understand and accept it.”  This is acutely true in the world of supply chain, with its deep reach into manufacturing, distribution and just business in general.

Most importantly he notes that “disruptive technologies require a workforce that adapts to new processes, new ways of learning and training systems.”  In that spirit, he suggests key considerations and qualities that are going to be important within supply chains of the future, ones that the next generation workforce can expect to have to incorporate into their work patterns.  Among them:

  • Data analysis and database development skills. The ability to analyze and produce actionable results from data using logic and fact with insightful opinions and interpretation of available data will be critical.
  • Critical thinking. It’s vital to data analysis and fact-based decision making.  The ability to quickly acquire knowledge and break it down into its logical components, and then analyze and drill for accurate and actionable conclusions matters.  You have to be able to take complex situations and break them down into their component tasks.  Or as Franklin Covey would say, “start with the end in mind.”  Critical thinking means “abstraction, systems thinking, experimentation and collaboration,” notes Gary Smith.  To wit:
  • Abstraction. The ability to discover patterns in data.  Often, lessons from one industry can be applied to another, for example.
  • Systems thinking. That is, viewing issues as a part of the whole – how issues relate to the rest of a system.  Often, the “good of the many outweighs the good of the few.”
  • Experimentation. Complex problems require trial and error, testing and experimentation.  It’s okay to fail, as that’s part of learning.  Fail fast, think differently and learn to adapt as new conditions present themselves.
  • Collaboration. It’s working with others toward the common goal.  Easier said than done.  It requires team-building and facilitation skills, along with everyone keeping their eyes on the prize.  Collaboration is particularly important in supply chain and ERP work, where silos need to be broken down and people need to cooperate and effectively communicate.

These are the critical skills companies will be looking for.  We see the need for it every day in ours, and we’re only one of many.  So in a very real sense, the future really is now.

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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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Be sure to read our previous post beginning here on some basics of “blockchain” technology.  Today, we’ll tell you about an even newer evolution in the rapidly evolving blockchain saga.

Our title headline today is how a fellow named Joe Lubin, founder of a company called ConsenSys that develops applications for the burgeoning “Blockchain” technology, describes Ethereum.  Chances are if you’ve heard of Ethereum at all, it’s because the new platform was the victim of a $60 million hack a while back.

What you may not know is that companies including IBM, Microsoft, BP, JP Morgan and a lot of others recently attended a forum sponsored by an industry group called the Enterprise Ethereum Alliance.  Ethereum technology, while still young, comes with enormous promise, despite last year’s hack setback.  Advocates believe Ethereum “could be a universally accessible machine for running businesses,” according to a Matthew Leising of Bloomberg Businessweek.

Cornell University professor Emin Gun Sirer says “Ethereum gives you a new way for the computer to interact with the real world and how money moves.”  In effect, it’s a complete business-to-business transaction engine and database.  It’s based on the “Blockchain” concept of digital money.  The idea behind Blockchain is to create a verifiable virtual currency that can be distributed as easily as an email.  It’s an online ledger on computers distributed around the world.

We’ll spare you the details, but the idea is that every “bitcoin” distributed is tracked and verified, in a system that basically runs itself.  Its main purpose is to move currency from point A to point B.

What Ethereum adds to the Blockchain is the ability to store fully functioning programs called “smart contracts.”  So beyond moving money, users can potentially control contracts or projects, thus allowing a person to complete a job for a customer and trigger payment on completion – all without added human intervention, in a secure framework.

That’s the concept, at any rate.  As Leising notes, “Once you can create contracts – which in essence are just operating procedures – you can use them to manage almost any kind of enterprise or organization.”

A variant on the technology would see companies participate in an Ethereum platform on a closed invitation basis, given that a public platform tends to increase security risks, whereas a semi-private network among aligned business partners might provide an effective alternative with the same end result.

A variety of companies are exploring their options today.  John Hancock is experimenting with compliance tracking and anti-money-laundering regulations in its wealth management unit.  Airbus is exploring ways to move its entire supply chain to a Blockchain.

If all this sounds a lot like the future of enterprise business models, one shouldn’t be surprised.  There are security and logistical wrinkles to be worked out, to be sure, but the idea of a self-regulating supply chain of integrated enterprise systems that embrace project management, verifiable currency transfers and contract fulfillment has a lot of companies paying attention to the Blockchain ledger technology.

Right now, Ethereum is helping to lead the way.  It’s a name worth remembering.

 

 

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