Avoiding Unpleasant ERP Surprises

W H IT E PA PE R AVOIDING UNPLEASANT ERP SURPRISES CONTENT AVOID NASTY SURPRISES ............................................................................................ 1 PROVEN PRACTICES .................................................................................................... 2 SERIOUS CONSEQUENCES ........................................................................................... 3 THE HELP TO SUCCEED ............................................................................................... 4 CONCLUSION .............................................................................................................. 5 1AVOIDING UNPLEASANT ERP SURPRISES AVOIDING UNPLEASANT ERP SURPRISES BY MICHAEL ROMAN BUSINESS CAPABILITIES ARCHITECT MANUFACTURING PRACTICES, INC. How to minimize risk and maximize value with system selection and implementation of best practices. The vital role that enterprise resource planning (ERP) software plays in a company makes its selection and implementation a source of risk but also a huge opportunity to gain advantages. ERP software performs many functions, but defined at a high level, ERP is a consistent way of managing a company to make money. When one stops to think about this central purpose of ERP, then selection and implementation best practices gain importance. Ignore those best practices, and the company using ERP will fail to function smoothly and will lose money. Excel at those best practices, and the company will be in position to perform well and see its profits rise. In this white paper, we will examine the risks, identifying some of the unpleasant surprises that can manifest themselves in an ERP selection and imple- mentation process, and offer advice for avoiding each one. ERP systems are, of course, business management systems that tie together under one integrated system all the departmental functions of a company such as production planning, materials management, production control, procurement, engineering, accounting, sales, distribution, and human resources. Today’s ERP systems are an expansion and evolution of earlier generation systems for materials requirements planning (MRP) in that they look beyond production control and materials management activities, an expansion that began with manufacturing resource planning (MRP II) systems, which evolved into ERP in the 1990s. The technologies of ERP systems have continued to evolve since the 1990s, adding integrated functionalities such as project management, field service, product life-cycle management, and asset management. Through the years, ERP has remained the core business management system that companies rely on to succeed. This makes proper selection and implementation of ERP a vital project for any given company and not just another task to tick off from the corporate to-do list. AVOID NASTY SURPRISES When an ERP implementation goes wrong, the damage extends beyond the user who does not know how to run a report or input a transaction, because the problem can escalate and spiral out of control until it makes its way to an unhappy customer. 2AVOIDING UNPLEASANT ERP SURPRISES Just consider the real-life case of an equipment manufacturer that did not bring all of its departments into the integration/testing phase of the ERP system it was implementing. The company’s engineering department was allowed to continue operating its own system for engineering bills of materials and routings, and the master data on how designs would be built was never properly tested in the new ERP system before it went live. As a result, when the customer for the first product built under the system took delivery, they were dismayed to find that product they were sent did not meet specifications. And they were not happy about it. This scenario is not far-fetched and happens more often than you might think. Systems integrators, consultants and others involved in ERP projects have seen these sorts of problems crop up when the education, selection, and implementation process goes awry. Not every poor ERP implementation is going to result in faulty products, but the point is that sloppy deployments can impact a company’s most crucial processes, from accurate costing to customer satisfaction. The failure of any one department to be on board with the system often brings serious consequences. Fortunately, there are ERP selection and implementation best practices than can guard against such risks, while also promoting the type of inter-departmental dialogue and education that improve on business processes and add value. Let’s look at these proven practices: PROVEN PRACTICES Success with ERP starts with the education process and a careful re-examination of the company’s business processes to determine which activities are the primary market differentiators for the company. Find out what makes a company tick, and that will narrow down what is needed from an ERP package. Here are ERP implementation steps and best practices to consider: • Education, education, education. Nothing is more important than education to ensure everyone is on the same page in terms of recognizing corporate goals and realizing the complex nature of inter-dependencies between departments. Education also is multi-faceted, happening on three different levels. First, the top leadership in the company needs to understand what the ERP system deployment will be doing to and for the company. Second, there needs to be education at all tiers of management and personnel so that everyone understands the objectives. Lastly, everyone from the top down has to come together as a group to achieve an understanding of what they are going to be doing for the company with the ERP deployment. It needs to happen at multiple levels, with open lines of commu- nication when questions arise. 3AVOIDING UNPLEASANT ERP SURPRISES • Leaders need to be leaders and not dictators. The best leaders for ERP implemen- tation are those that take the time to educate themselves about the project’s objectives and are always willing to ask the right questions. The first and fore- most question leaders should ask of their people is, “What do you need to succeed with this project?” • Preparing the company to find the right ERP software. Everyone involved with the project, from the senior management on down, should agree on what the top three or four activities are that drive success. Then the company should stream- line those activities before formally looking for software. This step helps ensure the software selected will be a good fit, while sharpening the scorecard used in the search for the right software. • Get expert help. There are a number of reasons to retain an experienced ERP consultant to handle selection and implementation. A consultant will bring a disciplined, rigorous and objective approach to the search process, helping you identify software that will truly meet your needs and ensure that implementation proposals and timelines submitted by software vendors are realistic. • Avoid customizing the software to be implemented. If your established in-house procedures do not provide a market advantage, change your processes to match the software. While ERP systems are more flexible than in the past, generally, the fewer changes there are to an ERP system, the easier it is to maintain the package and grow with it over time. • Don’t skimp on thorough training and integration testing with the system you select. The ERP system implementation project itself includes key steps such as user training, integration testing, and a conference room pilot, which tests larger processes from start to finish. These steps need to be carried out thoroughly and with full participation by all departments. SERIOUS CONSEQUENCES Failure to follow these best practices results in a host of problems. The company whose engineering department did not buy into the ERP deployment learned that, in addition to incorrect design, faulty costing can result because the cost of engi- neering time was not rolled into the project. To be successful, a company that pro- vides customized products must be able to allocate the cost of engineering time and design or product planning activities. A failure to do the right integration testing, or to get engineering users accustomed to using pieces of ERP functionality—as opposed to operating strictly in their own little information silo—could result in inaccurate costing that kills profit margins. 4AVOIDING UNPLEASANT ERP SURPRISES Of course, engineering is not the only department that should consider how its role in ERP supports overarching goals. Some companies are in the habit of approving rush orders without an appreciation for how this can mangle distribution plans, transportation schedules, and delivery promises for jobs already on the shop floor. These are exactly the type of interdependencies that need to be discussed and understood by everyone. Top management needs to realize the harm that can be caused by habits such as approving rush orders, and production managers need to know how juggling schedules affects downstream activities. Everyone involved should be encouraged to ask the tough questions about how use of the system will affect the company’s larger processes. An ERP implementation also may involve multi-site features or international scope. Some companies have multiple locations, business units and countries of operations, perhaps needing to use multiple languages within the ERP system. Additionally, some manufacturers are project-centric, so they need to pay special attention to the way they want to support crucial processes such as costing, progress billing, or field installation and service. While such advanced features may make ERP projects seem like a giant task, there are two tips that help simplify things. For one, use the education phase to streamline key activities in advance. For example, if you know that field service and maintenance account for much of your profit margins, these processes need to be assessed so that you find the right software, and during implementation, the train- ing and testing for these features need to be as thorough as possible, even it means allocating extra time and cost to accomplish these steps. Second, with any system or project in business, there is a plan, execute, and con- trol aspect. The same holds true with ERP implementations. When a complex imple- mentation spans multiple countries or divisions, you can break implementation into phases, with planning, execution, and control (i.e., review) steps for each phase, as well as the same method for bringing it all together. Questions such as, “How are we going to roll up financials from one division to another?” or “Can these two business units share procurement?” need to be examined, planned for, configured, tested, and reviewed. Any ERP challenge can be tackled when you break it down systematically. THE HELP TO SUCCEED One of the best steps a company can take to ensure ERP success is to engage an ERP consultant. The consultant will ensure that the education is being done properly, can assist with selecting the system and negotiating implementation services deliver- ables, and will be able to spot if crucial steps like integration testing are not being performed thoroughly. A consultant can look at an ERP vendor’s implementation plan and assess whether the services-to-license cost ratio seems realistic. A consultant 5AVOIDING UNPLEASANT ERP SURPRISES who has worked on dozens of projects also has a keen sense of how long it takes to carry out specific testing or training procedures. If a vendor is budgeting implemen- tation schedules on the low side, a consultant can spot this and help negotiate some safeguards upfront. With a consultant on board, the organization has an experienced, impartial third eye and ear when it comes to factors like education, timelines, and vendor deliver- ables. This is a key factor as vendors may deliberately lowball the implementation cost in order to appear more competitive, planning all along to up-sell to a more adequate level of service once the contract is signed. By encouraging education and open dialogue among team members, a consultant also helps to create an environ- ment in which the company finds opportunities for improvement. Yes, an ERP systemd carries risks when best practices are not followed, but it also opens the door for major improvements. For example, for a traditional build-to- order manufacturer, a rethinking of its design/build processes could uncover ways to create common component families that can be used to support a more profitable configure-to-order strategy. Or a project-oriented manufacturer might identify an opportunity to move to progress billing because someone in finance notices that customers are having a hard time paying the full balance in one installment and realizes a new system could link progress payments to project milestones. All it takes is one or two people asking the right questions as part of an ERP project, and new, more profitable ways of conducting business can be tapped. CONCLUSION ERP system implementation poses both risks and opportunities for the user company. By following best practices, however, not only can you mitigate these risks, you open the door to process improvements for the activities most vital to your business. The risks and rewards with ERP implementation are significant, so it is not a time to skimp on the investments in education, training, testing, review, and consulting help. Remember, these investments will pay off by establishing a better way to manage your company and supply chain and take better care of your customers for many years to come. Michael Roman, business capabilities architect, is principle of Manufacturing Practices, Inc. He has more than 30 years of experience in consulting, enterprise resource planning (ERP) projects and has contributed heavily to the Basics of Supply Chain Management Body of Knowledge for APICS. He is currently on the Board of Directors for the ATLANTA Chapters of APICS and IMC (the Institute of Management Consultants) and a member of the Execution and Control of Operations Exam Committee for APICS (International). He holds a degree in psychology from Valdosta State College. En 50 20 -1 P ro du ct io n: IF S Co rp or at e M ar ke tin g, F eb ru ar y 20 14 . www.IFSWORLD.com THIS DOCUMENT MAY CONTAIN STATEMENTS OF POSSIBLE FUTURE FUNCTIONALIT Y FOR IFS’ SOFTWARE PRODUCTS AND TECHNOLOGY. 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