Despite spending considerable time and financial resources on Enterprise Resource Planning (ERP) systems, businesses may still struggle to manage operations effectively and utilise resources to justify the investment. Operational personnel often attribute errors to the system, with a belief that business processes were better prior to its implementation.

Initially, ERP systems were developed as bespoke solutions for intricate manufacturing and fulfilment operations. Subsequently, these custom systems were repackaged and marketed by software houses and consultants as comprehensive industry solutions. However, implementation into other businesses often required significant modifications to make the system functional. To address user requirements, consulting firms were enlisted during implementation resulting in significant modifications to align the system with existing business processes and procedures or desired outcomes.

The Pitfalls

A significant challenge of implementing a comprehensive ERP system is the underestimation of the required effort. This system impacts all aspects of the business from front to back, and it brings significant changes to the roles and responsibilities of all staff members. Unfortunately, in the planning phase, businesses often lack a fundamental understanding of the magnitude of the changes and how far the current processes are from what will be required.

Staff members are working hard on their current tasks, and it is a significant expectation to ask them to change processes and methods while also maintaining existing procedures and systems. Many businesses opt for a ‘big bang’ approach, where all systems within the business are started on the same day. However, unless many people are involved in the process, this approach rarely works. Additionally, other factors contribute to the challenges of implementing an ERP system, such as the lengthy implementation time, staff turnover or losing interest, a lack of ongoing performance management to assess progress or benefits, and unsustainable processes and procedures that accompany the system.

Why isn’t this right?

In the current economic climate, businesses are focused on improving the productivity of their back-office operations. This focus has been extended to encompass all routine activities, including Accounting, Invoicing, Stock Control, and Production Reporting. However, in the pursuit of efficiency gains, the importance of procedural systems is sometimes overlooked. These systems rely on the quality of data passed from one module to another within the system. Consequently, the accuracy of the system’s output is directly linked to the quality of the input data.

For instance, consider the unit cost of a component. If the processing of the original receipt is not carried out correctly, the inventory stock valuations, quotations, material usage costs, manufacturing costs, cost of sales, and operating profit will all reflect an incorrect unit cost. Therefore, ensuring the accuracy of input data is critical to the success of the system and the business as a whole.

First Pass ERP

During the initial implementation of ERP, many businesses try to mould the system to fit their existing processes. This approach stems from the earlier stages of development mentioned previously. However, this often results in costly modifications, which delay the implementation and prevent the system from functioning effectively if not closely monitored and controlled.

Capturing Value from Technology

Modern-day systems have been designed to include best practices and methods. The key decision that needs to be addressed is determining how to operate and develop the business, followed by selecting the technology that provides the optimal solution. To attain success, businesses must drive themselves to align with the technology and extract the maximum value from their investment.

Second Pass of ERP

The second iteration of ERP often involves a re-implementation of the current system. However, it is essential to avoid repeating the same mistakes made during the initial implementation. A critical starting point is to revisit the original proposal and cost-benefit analysis to ensure focus is maintained. Actual benefits should be reviewed, with outdated ones modified, and those still achievable restated. The second iteration delivers more substantial benefits than the first time around. By reviewing the original costs, businesses will discover that most expenses were incurred in computer hardware and software licenses. As a result, the costs of the second iteration are significantly lower, with only training and implementation costs included in the new ROI equation. Additionally, staff members are already familiar with the technology, eliminating the need for extensive training. The emphasis during the recent implementation can thus shift to the business processes, rather than the software interface.

Planning

Planning is crucial when embarking on an ERP system implementation. Underestimating the effort required and elapsed time when running the business in its existing format can lead to problems. The plan should include the activities to be undertaken and the sequence required, but it should not be driven solely by the end date. If resources are unavailable or not capable, it is not productive to keep pushing for an end date. A good result justifies a slip in the overall timing.

Apart from the initial plan, another plan is necessary for the ongoing operation of the system after the implementation date. This plan must cover the job roles and responsibilities of people extracted from the business to carry out the implementation, ongoing training, and the review process for changes to processes and procedures. Once the system is installed, it must be a working system that reflects the direction of the business and is capable of embracing changes as they arise.

Assessing where you are

Assessing the effectiveness of an ERP system in supporting a business can be challenging as the system becomes an integral part of the daily operations. To gauge the level of support, it is essential to analyse the accuracy of the data processed. This can be done through three simple steps:

1. Select ten products or components from the inventory system and record the stock levels and location. Then, count each item at the stock locations. The number of items that match the recorded stock levels gives the inventory record accuracy KPI. If the figure is below 90%, it indicates inventory accuracy problems.
2. Request purchasing to generate a special order report for all orders with a due date older than today. This report should be blank. Any items printed on the report indicate issues with purchasing and planning department.
3. Request manufacturing or sales to generate a special customer order report that lists all manufacturing and customer orders with a delivery or due date older than today. This report should also be blank. Overdue charges indicate potential problems with production controls, job costing, inventory, and customer invoicing.

Enhancing the System

To improve your existing ERP system, a straightforward but well-structured process is required. The process should start with validating all inventory items, including finished goods, sub-assemblies, and components. Once the items have been verified, it is necessary to review all inventory transactions, such as purchase receipts, sales, deliveries, and manufacturing, to ensure their accuracy. This should be followed by a stock-take and the implementation of cyclic stock counts and KPI reporting. Once the inventory has been established, it is necessary to verify bills of material and work routings. This can be done by monitoring and measuring the activities that take place on the shop floor. The material costs need to be reviewed via purchasing transactions, while the standard routing times and labor requirements by product and WorkCentre need to be calculated. Standard labor and machine overheads must also be taken into account in the job-costing module. KPIs should be implemented for all processes reviewed. To complete the manufacturing process, it is necessary to review the accuracy of purchasing and delivery performance, customer quoting, ordering, and invoicing with assigned KPIs. The financial systems that rely on information passed from the manufacturing systems will naturally improve the accuracy of accounts payable, accounts receivable, general ledger, and the suite of management reports.

The Significance of ERP Systems

An appropriately implemented and well-maintained ERP system can provide substantial operational benefits and allow business owners and senior managers to concentrate on other strategic matters. Therefore, it is worthwhile to evaluate the current status of your system and make efforts to optimise your returns. Specialised external support is available, but it is crucial to have clear expectations, scope, timelines, and defined responsibilities.