ERP – A technology project or business initiative?

Peter Green SPM Group Ltd
So you are getting integrated! You are implementing a state of the art "Enterprise Resource Planning” (ERP) system that will enable all of your departments to operate as one slick and seamless operation; smoothly eliminating gaps in sales, manufacturing and operations; making inventory spin not just ‘turn’; and of course, increase market share, revenues and margins! Well the good news is that ERP projects can and do deliver results. I do want to give you one word of caution. Don’t get too caught up with technology and make sure your ERP project is driven by the business and as a strategic initiative.

Background
Enterprise Resource Planning (although I prefer to call it Enterprise Requirements Planning) started out as the latest offering in an evolutionary chain of ‘closed loop’ business systems that began in the 70s. The pioneer was Ollie Wight who developed what later became known as “little mrp” (where “mrp” stands for material requirements planning). This was a materials ordering system based on “Bills of Materials” or the ‘parts list’ for the item being manufactured. Ollie then evolved this into “MRP” or ‘Big MRP’ which included “Routings” or “Bills of Labour” to enable the system to plan both materials and capacity (and where MRP stood for Materials & Resources Planning). MRP II was the first introduction of a ‘closed loop’ system where information flows in a continuous loop. Whereas big and little mrp both just provided information down to purchasing and manufacturing, MRP II incorporated feedback as to how good the plans were and how well they were being executed back up to the planning and management areas. This was soon followed by BRP (Business Requirements Planning) which brought other parts of the manufacturing organisation (Sales, HR, etc.) into this closed loop. ERP continued and considerably extended this concept by also bringing customer and supplier management systems into the loop and incorporating new technology functions such as database management. It also adapted this enterprise wide functionality to suit other types of organisations such as the service industries and project driven companies.

Class A Manufacturing
In the days of MRP II and BRP, Ollie Wight and his contemporaries all stressed that although these planning, scheduling and feedback processes required sophisticated systems to run them; they were first and foremost business systems and that the teams that installed them should be led by the business with business driven goals and schedules. To stress this, they introduced the concept of Class A Manufacturing where the organisation had to meet some very high standards in order to achieve a Class A status. A number of performance metrics were introduced with each company then being expected to establish their baselines and monitor their improvements and progress towards reaching these targets, both during the implementation and beyond. These metrics measured such things as data integrity (inventory accuracy – with a target of 98% and bill of materials accuracy – 98%); planning/scheduling management (master schedule accuracy 95%) and the organization’s ability to properly execute their plans (on-time shipments- 98%, on-time shop floor delivery – 98%). They were not concerned with things like system response or processing time or website ‘hits’.

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The organisations striving for Class A regularly sent the majority of their executive teams and management level staff on detailed training. This covered both the benefits of being Class A and how to get there, as well as all the underlying principles of the system and processes. Based on this training they then assigned one of their ‘non-IT’ senior executives to lead the project and employed an outside ‘authority’ or expert to routinely advise and guide them and to conduct audits on progress towards Class A. At least the successful ones did because they heeded the training and understood that these projects were much more about leading and facilitating change than about technology. It was about being able to implement changes that fundamentally impacted and enhanced the way the organisation conducted its business and dealt with its suppliers and customers.

ERP technology
Today’s ERP software systems still follow the same basic structures and concepts that the MRP and BRP systems pioneered, but with much more extensive and rich functionality. This is true both within the individual modules themselves and also with the levels of integration between them. In addition, they are now global in nature and there have been many other major upgrades in how these systems interact with other internal and external web applications; with client/supplier intranets; with supporting reporting and analysis tools; and to satisfy the need for much larger processing windows and enhanced security. In fact, the software has become so complex that more and more CIOs are finding they no longer have the capacity to develop and maintain such systems internally. As such, they are looking for economical ways to outsource this responsibility and linking up with one of the ERP vendors meets this need. It’s ‘one-stop shopping’ where they can get more value for their IT dollars.Vendors can amortise their development costs across their entire customer base and thus individually save their clients money. Today, there are 4 or 5 viable ERP system vendors including Oracle, Peoplesoft, and JD Edwards, with SAP leading the pack. All of these vendors now have very mature offerings, with each having gone through several versions and major technical upgrades. In addition, all of the major consulting firms have now also set up vendor specific consulting groups.

ERP Implementations
As a result, ERP implementers are often very vendor-specific and this tends to make the technology the dominant part of the project. So, whereas BRP implementations were very strategic in nature, ERP projects are generally initiated to address more tactical issues. A few years ago, ERP projects were often initiated to get through Y2K and today the tactical concerns are about keeping up in the rapidly evolving ‘e’ and/or ‘i’ business worlds. In both cases, Ollie’s Class A Manufacturing objectives are largely being ignored and ERP implementations are now primarily technology projects. They may have an executive sponsor but they are being led by IT managers or by external vendor specific leaders from either the software provider or one of their affiliated consulting firms. At best, this often means the organisations do not realise any significant business benefits and at the other end of the scale, there have been some spectacular and expensive failures! Not because the IT Managers were bad leaders but because the underlying business commitment was never in place.

The Better Way
I believe that for companies to be truly successful with their ERP programs, they need to strike a better balance between the strategic and tactical. They still need to recognise the technical complexity of what they’re doing but they also need an equal focus on the business needs and impacts and to make sure the project is set-up properly at the beginning. They need to get some independent expertise to help align the ERP program with their strategic objectives; set operational performance baselines and targets; and get an understanding of all of the organisational, cultural and behavioural changes they’ll need to manage to order to incorporate the technical changes and achieve the performance targets.

The information contained herein is the sole property of SPM Group and cannot be reproduced, used or copied without express permission. SPM can be contacted at 416-485-1584 or 1-877-776-3886 or by web at www.spmgroup.ca.

In short, they have to establish and sell the vision that will enable their organisation to not just implement the technology but to put themselves in the position to capitalise on it to the fullest extent possible! Then they need to turn that vision into a plan: the leadership and executive sponsorship structures; the work breakdown structure or the portfolio of projects (technical and business) that will have to be undertaken; the mix of technical and business expertise required, including how they are to work together and whether they are available internally or need to be resourced from outside; and finally, the project support tools and processes. The plan that will ensure the ERP journey will be properly resourced and managed! It’s only when this vision has been created, sold, funded and at least partially resourced that the organization should worry about what software would work best for them. And don’t go overboard with this research because if an organization really does have a vision to change and the internal strength and support to make that change happen, then any of the major packages will likely work just fine.

In Summary
ERP projects can and should be invigorating and enabling projects - programs that will fundamentally transform the way the company conducts business and not just upgrade the tools it uses. If this is not clearly understood upfront, then the ERP project will likely just be another technology project, and because of the complexity of the system, one that is just as likely to end in disappointment or failure.

About SPM Group Ltd SPM is a management consulting firm with over 12 years of experience providing project management solutions to clients. SPM is known for delivering results that enable change. Understanding the unique challenges facing business today, SPM is able to provide a solution customized to the client’s needs. With three practice areas, SPM covers the full spectrum required by our clients, combining to form a total solution. • Consulting delivers solutions to clients business issues and challenges • Professional Development assists clients develop the people assets required to deliver their initiatives • Implementation Services “Make it Happen”, enabling clients to deliver their initiatives It is our people that make the difference. Our people are the best in the industry combining experience, knowledge, creativity and a results oriented approach. Success is defined solely by the success attained by our clients. About Peter Green Peter Green is Vice President of Implementation Services at SPM Group Ltd and brings over twenty five years of experience in leading and managing large initiatives. Peter holds an Honors Bachelor of Science degree in Mathematics and has been a certified Project Management Professional (PMP) since 1999 and a dedicated project professional since 1996. Peter works well at the senior executive level assisting in decision making and has consistently shown his skill as an excellent leader, facilitator and problem solver through his wide variety of project leadership, consulting, reengineering and strategic planning assignments.

The information contained herein is the sole property of SPM Group and cannot be reproduced, used or copied without express permission. SPM can be contacted at 416-485-1584 or 1-877-776-3886 or by web at www.spmgroup.ca.