7 posts tagged “erp systems”

There is no doubt that ERP can bring benefit to manufacturing business. The move from silo mentality to that of a process one, makes people within the business take a fresh view (or so it should) of how they do business.

Back at the end of the 1990’s there was a frenzy as companies rushed to ERP in the hope, initially, of avoiding the millennium bug, and latterly in ensuring that the had fit for purpose business systems for the future. An awful lot of claims were made by all the vendors about how the ERP system could bring visibility to the enterprise – how the CEO would be able to sit at his desk and with the simple click of a mouse get the latest information on how his business was performing. A good number of CEO’s and their colleagues were to be later disappointed not only by the cost overruns of the ERP project and the complexity, but also by the fact that they didn’t get their point and fire business insights.

Why was it such a problem? Firstly it was a great deal more complex than many people imagined (and salesman dared to admit) to implement a new business system – the cultural change is enormous. Secondly, for a lot of businesses the principal activity was manufacturing and most ERP systems really stopped short of the factory floor. By this I mean that they certainly were capable of planning and scheduling production orders in the factory but once released they went into a black hole and didn’t appear again until the work was complete (and in some poorer implementations until days afterwards). Where a product had a short run time this would generally not be a problem, but for more complex items built over a longer period the loss of visibility was critical to the business. Although deemed critical the additional cost of putting in shop floor and machine data collection to these businesses didn’t seem to be worth the effort or money. This was probably down to ERP mission fatigue.

So, unfortunately, there are a large number of people out there that have a dim view of ERP and what it can deliver. If data collection had been budgeted and been part of the project in the first place then, I suspect, there would be a much better view of ERP in manufacturing than there is today.

Whenever we are undertaking an ERP project with a manufacturing client we certainly make them aware of the value of shop floor data collection and ensure that it is included in their business case.

A growing part of our business is providing ‘outsourcing’ to small and medium enterprises (SME’s) and the frequency of the enquiries in the current economic climate has increased dramatically. A good number of them are from companies that have an internal IT department, typically have implemented an ERP system that has settled down and is not really being enhanced or optimised, and the IT headcount has been reducing for a number of years.

They now find themselves with an IT infrastructure that is stable, IT employees that are underutilised and, in truth, a little bit bored. How else can they save money they ask?

Unfortunately for some companies I would suggest that they are asking the wrong question. They should be asking how they can reduce risk. The pursuit of lower costs in terms of headcount is something that should always be considered but there is a point for each company where unnecessary risk is introduced into the IT strategy. I have seen a number of businesses where their reliance on one or two people has led to them being in dire straits when one of those people have decided to leave, or worse, are unavailable for some other reason.

Many senior managers in SME’s believe that outsourcing is something that is done by large companies for large companies. The truth is very different – there are many local and specialised IT providers out there that can mange your IT and look after your ERP system very cost effectively, and they can reduce risk and add value to your IT strategy. For some more thoughts on outsourcing and the options available see my whitepaper ‘IT Support Options’

Well, I was going to say ‘The Never Ending Project’ but it didn’t sound so good, and it would make a lot of CEO’s and CFO’s shudder at the thought.

However, anyone who has got an ERP system, or is considering implementing one should recognise that the effort of getting the best out of your new business system doesn’t stop a month (or six months!) after ‘go-live’. Sure, there is a shift from the frenetic activity of moving to the new system and training people, not only the basics, but in the advanced or infrequent activities within the software, but for many companies they believe that is the end of their project and they often move the key players in the implementation team either within, or sadly, out of the business.
I’ve yet to see any project where the entire functionality that could be used, is used by the business.
Yet many companies believe that they should stop developing their understanding of their ERP and lose the opportunity to gain a better ROI.

Here at Neustro we are often called in to offer consulting and managed services for Microsoft Dynamics AX and Infor Baan and I find in some instances that the last time the system was ‘developed’, by this I mean functionality that is available is used, is often around the time of the original implementation project. Part of our review process, and the value we bring to our clients, is getting more value from the software they own. I’ve often sat with the directors and managers of companies where they have lamented the fact that they have lost years of opportunity to get additional value out of their ERP system, or worse, where they have invested in alternative solutions not realising that they already had the functionality available to them.

My clear recommendation is that your ERP project shouldn’t stop when it’s implemented – make sure that you have the budget and resolve to optimise its use on an ongoing basis.

If you take time to read all the sales literature from some software vendors you will gain the impression that they are only in business to ensure that your company benefits from all the investment in time and money they have made into their product. You could even be led to believe that have no self interest at all.

But we all know, and it’s fair, that people make a reasonable amount of money so they can continue to invest in their company. And if you get good value from the product and services you’ve purchased, at a fair price, then everyone should be happy.

However, I have come across, a number of times, and quite recently, where software vendors of ERP systems and databases have instituted contract clauses that I think are really unfair to the customer.

One such clause frequently activated is where the software licences are being ‘transferred’ from one company to another. In this particular instance it is nearly always as a result of either a management buy out of a company or the acquisition or disposal of a business. In reality what is happening is the assets of a company are being transferred to new ownership and a different company legal entity.

I have customers who have been forced by the vendor to pay a ‘transfer fee’, or worse, almost the entire cost of new licences when the company has been involved in such an activity. This despite the fact that the software is being used by exactly the same people, to carry out exactly the same activities in exactly the same premises and on the same equipment. How can they justify this? It’s just an opportunity to get extra revenue and book ‘new’ licence sales at the expense of the new owner (or the old owner if they have to pay the bill).

Of course the ERP vendor is in a very strong position because they know that it is improbable that the ERP system could be replaced in time, or at a low cost. So they effectively hold the business to ransom and get money for old rope.

Another clause I have witnessed is the limitation of use of the software to employees only. This clause is designed to prevent independent contractors or support agencies from supporting the customer. This can restrict choice and keep the prices of consulting and support artificially high. It is the equivalent, to my mind, of buying a car and being prevented contractually from having it serviced at a dealer of your choice.

My advice is to ensure that you pick through the contract with a fine toothcomb and ensure that what you consider to be onerous clauses are removed or amended. Ask specifically what the position is in the examples I’ve mentioned and get in writing, as part of the contract, the definitive outcome that would happen in such an event. This way you may save yourself a great deal of annoyance, when you least need it, in the future.

If you have undertaken to implement a new ERP system, such as Microsoft Dynamics AX2009, then you will probably understand that you are about to review your business processes and this will potentially touch every part of your organisation.

ERP functionality has grown over the past decade from a focus on manufacturing and finance to encompass most of the activity in a business. It will be important to consider which activities you carry out will be included in your use of the ERP system. Ideally by using a single system with a single database you can enter data only once and therefore avoid duplication and avoid re-keying errors.

An important part of your project should be to identify all the projects within your business and document what they are intending to achieve and how they will achieve it. Whilst in smaller organisations this will be easy, larger businesses will probably need to go through a more formal discovery process.

The purpose of this project activity will be to determine if any existing project will be impacted by the implementation of ERP, for instance interfaces to supplier systems with a procurement project, if the project should be subsumed into the ERP initiative; for example the implementation of a warehouse data collection project or if a project should be suspended or halted indefinitely – the implementation of project management software in a engineer to order environment.

By undertaking this important activity you will ensure that there is no duplication of effort and that the best resources and minds are focussed on the single goal of getting the best out of your ERP system.

If you already have an ERP system in your business, or are contemplating buying one, for instance Microsoft Dynamics AX2009, then I’d recommend an ERP away day. I have seen many companies where the senior management have handed off responsibility of the business system either to middle management or the IT department. The truth is that the same Directors and Owners wouldn’t dream of doing the same for a production machine they had spent a great deal of money on. Yet, for many the ERP system doesn’t even register on the radar.

Your business system is a serious investment and has the opportunity, if used properly to add real value to your business. If you don’t know what it is capable of then you will not be able to take advantage of those opportunities. Even worse, when things are not going right errors can be covered up or lost by blaming ‘the system’.

I’m not suggesting for one moment that you should learn every functional detail of the system – I propose that you should understand what the modules do, and what modules you are not using, but possibly could. This will furnish you with the knowledge to challenge your people to make better use of your systems investment and also help you resolve disputes regarding what the system is capable of.

If you already have an ERP system, ask your support partner or vendor to come and talk to you about its capabilities. Make it clear it’s not about buying more software – you don’t want to give them a day to do an extended sales pitch!

If you are contemplating implementing an ERP system then either seek out an independent consultant or find a partner that promises not to spend the day selling to you. We have now presented several ERP information days, in our ERP Demo Suite, where we run through the functionality that is available in most ERP systems and the response has been universally positive.

ERP (Enterprise Resource Planning) describes software that is able to run (almost) your entire business. It tends to use a single database and has a common user interface for every type of function it carries out. Some people have a view that ERP Software is often too unwieldy or expensive to implement and you have to change your business to suit it.
EAI (Enterprise Application Integration) is software that is often described as ‘middleware’ it sits between your legacy or best of breed applications and allows them to talk to each other.
There is a view held in some quarters that EAI is cheaper than ERP. I would suggest that this is not true.
When calculating the cost of implementing a new ERP system or integrating there is always the danger that the true cost of either venture is not calculated correctly. For sure the ERP costs are generally easily recognizable but the benefits aren’t always so (see my Developing a Business Case whitepaper . However, for EAI the costs counted are nearly always only related to buying the middleware and developing the interfaces. For a true picture I’d contend that future cost of amending interface schema be calculated and the cost in terms of maintenance and support of the various legacy systems that are being interfaced should also be thrown into the calculation. In reality an ERP alternative will leave you with a single maintenance cost and the opportunity to make sure future investment is channeled towards optimizing the use of the system rather than being spent on keeping up with the changes in the legacy systems. Don’t agree? Then let me know!