The amount of low-cost computing power, digital storage and sophisticated business software available to manufacturers and distributors today is pretty amazing.
Equally amazing is the extent to which modern integrated business systems are underused and misunderstood. In the last 30 years we’ve replaced the Conestoga wagon with a Ferrari, but instead of turning on the engine, we’re still pulling it around with a horse.
The development of modern business systems took off in the 1960s at IBM with the advent of material requirements planning — or MRP — software, designed to match levels of inventory, purchases and production to customer requirements. As more computing power became available, more functions were added. By the 1980s these included capacity planning, shop-floor control and full integration with accounting systems. This was MRPII, manufacturing resource planning.
Today, with more computing power on every desk than was once in the environmentally controlled computer rooms of the 1960s, many software manufacturers have integrated business planning, capital budgeting and control, customer relationship management and numerous industry-specific functions. These all-inclusive systems are called enterprise resource planning, or ERP.
Why do I call ERP a horse-drawn Ferrari?
In many businesses, ERP software has been implemented by the accountants to help them keep the books and prepare financial statements. Other business functions are simply along for the ride.Salesenters customer orders, purchasing enters purchase orders, inventory managers move materials in and out of inventory and production issues work orders.
Superficially, it looks like a sophisticated system is in place, but in reality these other functions simply do their best to replicate what they did before they had the system. Instead of being enthused by the power given to them, coworkers in other departments often view the ERP system as a burden and the accountants as a pesky group of scolds raising a stink about errors and omissions that went unnoticed in the past.
In other businesses, an owner or president might decide to implement ERP, but often without clear and quantifiable goals for the project. They have an honest belief it will make the business more efficient, but no clear vision of what that will look like. Instead of training and empowering a strong cross-functional team to re-engineer business processes, the owner or president often trots out the accountants to lead the implementation, again ensuring accounting-centric results. Department managers do their best to stay clear and ensure the new system has as little impact on their fiefdoms as possible.
There are some very easy ways to tell that an ERP system is being used as a horse-drawn Ferrari:
- The “P” in ERP is missing. The operative word is planning, but the system is not being used to plan anything. Instead, it is being used to record inputs and outputs and produce reports of results. Whatever planning is happening is external to the system in spreadsheets, on whiteboards and in managers’ heads.
- The accountants are the in-house experts on everything. They create all the custom reports, they fix all the errors, they troubleshoot all the bugs. Everyone else knows how to do the very basic tasks they’ve been taught and that is about it. No one knows or discusses what could be done differently.
- There is a proliferation of old manual systems that were not re-engineered out of the processes when the software was implemented. These usually take the form of logs, forms, charts and spreadsheets with data that exists in the ERP system but is being manually duplicated because untrained users don’t know how to retrieve or use it. In some cases, subject matter experts continue using comfortable manual work methods and the company pays extra for someone to do their computer entries for them.
- Transaction data is entered in daily batches by clerks rather than by users in real time at the point of activity. When you can wait 24 hours to find out if an order has shipped without calling shipping you aren’t using your ERP system.
- Data can’t be trusted. If you are on the phone with a customer who needs two widgets tomorrow and your ERP system says two are available, does someone in the warehouse need to look to be sure? Sadly, the answer is often yes.
The good news is that bad implementations can be fixed. It starts with leadership. Business owners or presidents must do the work that was not done before. It starts with establishing concrete goals that might include reduced lead time, improved on-time delivery, greater throughput or reduced inventory. Next, assign and train a cross-functional team of empowered, energetic coworkers. Add a little bit of expert assistance to help re-engineer business processes to meet those goals. Make a plan and start executing.
Not every business can be world class, but even a well-tuned four-cylinder compact is better than a horse-drawn Ferrari.