ERP: Are you doing too much too soon?

You’ve probably heard the term ERP (Enterprise Resource Planning). An ERP system is a computer-based business support system that maintains the data that a business needs for a variety of functions such as Manufacturing, Supply Chain Management, Financials, Projects, Human Resources and Customer Relationship Management. Companies planning ERP system implementations often have high expectations of what they want to achieve and what they will get. You would too. The investment is high and it’s a lot of hard work. However, in many cases, these expectations are not met. Not for technical reasons, but because the organisation doesn’t have enough time to prepare itself for the new system and processes or the new system and processes just aren’t appropriate for the organisation.

Below is an example of one company that tried to do too much too fast during an ERP implementation and some lessons that can be learned from their experience.

Background

In early 2006 a local manufacturing company decided to implement a world class ERP software system. The company had enjoyed many years of rapid business growth and had established itself as an international company with an admirable overseas customer base. The management realised that the company’s existing ERP system was “splitting at the seams” and wouldn’t support the company’s current business needs let alone the expected future growth.

Also, since the company’s manufacturing process was labour intensive (they employed about 3,000 people on the shop floor), management wanted better data about, and more control over, its shop floor activities. Management understood that the new ERP system would help them improve production planning, purchasing, and inventory management and it would also give them a clearer view of shop floor activity. They were confident that the ERP system’s data would help them analyse production efficiency and identify potential production process improvements. However, it would require changes to their existing processes and the way people worked.

The company hired a consultant to help them implement the software. The implementation consultant provided a small team of experts to help them configure the software to support the company’s business requirements in sales, purchasing, inventory control, manufacturing and accounting. The implementation consultant’s plan allowed about 5½ months for the consultant and company representatives to jointly design, configure, test and train users for the new system.

The new shop floor control process designed by the ERP team had about 10 ‘confirmation’ steps. That is, after each step in the manufacturing process, shop workers had to confirm that a production order passed that step. The existing system had two confirmation steps: one at the beginning and one at the end of a production order.

The last weeks before the system was due to go live were marked with anxiety as the future users of the system attended training courses and tried to prepare data that was necessary to run the new ERP system including about 10,000 bills of material (BOMs) and routings that had to be reviewed, verified and loaded into the system. The ERP system would use this BOM and routing data to plan and cost production orders and calculate purchasing quantities of raw materials.

What happened…?

The new ERP system went ‘live’ on schedule. Shortly after the system went live, users started experiencing two major problems.

Materials Requirement Planning (MRP) runs were unreliable - BOM and routing data were not prepared properly and the new ERP system was calculating material requirements incorrectly. The purchasing department could not rely on the MRP data from the system and had to continue estimating and planning material requirements the ‘old fashioned’ way – using a spreadsheet.

Production orders could not be closed on time – due to the many steps introduced with the new system and the need to fix incorrect BOM and routing data before a production order was closed on the shop floor, while actual products were being completed the ERP system indicated that they were still work in process. This had two major impacts:

1. Users could not track completed products in the new system. A finished product may have been sitting on the shelf waiting to be picked and shipped, but the system indicated that the item was still in production. Therefore, the system would not allow users to ‘pick and pack’ that item for shipment. This had a further impact.

2. Product shipments dropped by 60% during the first month of using the new system – since the shipping department could not ‘see’ the finished goods in the system, they could not ship and bill the products. By the time temporary work around processes were put in place, planned shipments for the month were far behind resulting in a significant drop in shipments (and revenue!) during the first month.

After about one year the company was able to work through its main issues and begin to use the ERP system as they had originally hoped. However, they paid a big price to get to that point.

Lessons learned

One of the most important points so often overlooked is that successful large scale ERP implementations are not just about technology. They are equally about new processes, new skills…about people: having people understand that they will need to change the way they do their jobs and then helping them prepare for the change. Looking at this case, there were a few other pitfalls that could have been avoided which would have allowed them to enjoy the benefits of their ERP investment faster with less cost and less pain:

Avoid ‘over engineering’ your new ERP system. ERP systems have a lot of features – but you don’t need to use them all at the beginning. Walk before you try to run. This company’s ERP team was excited when they saw what the ERP system could potentially do to improve their shop floor processes – some would say that they tried to design the perfect system. Practically speaking though, the company didn’t need a perfect system at this time. As a first step, they only needed a system that would provide them with basic information and controls to better manage a relatively simple production process.

Don’t try to do too much too fast. – The project was carried out in only 5½ months. Yet the amount of data that needed to be prepared, and the number of users that needed to be trained on the new system, could not be performed in that period of time. Realistically, this project should have been carried out in 7 or 8 months.

Keep your organisation’s capabilities and potential capabilities in mind. Organisations in many ways are like people. Some are nimble and agile and adapt to change faster than others. While this company had grown fast in its relatively short life, it had never undergone a single major change project of the ERP implementation’s scale (the previous ERP implementation had been a much smaller undertaking). It’s important that management understands a company’s readiness for change before undertaking a project like this and then adapts its plans accordingly.