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?”
- 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 Your current processes are likely to be some combination of old, outdated, inefficient, broken, redundant or ripe for opportunity for improvement.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).
- 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.
- Define how your organization will achieve those benefits. Panorama consultants note that “Numbers 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.
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.
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.
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…
Be sure to read our previous post beginning 
As we began in our 
What if you could document and preserve all the data associated with a product’s life cycle from the origin of the raw materials to the final sale of the finished good as it travels along the supply chain, with 100% certainty?