Anyone who's juggling a multitude of project actuals, financial projections, human resources statistics and a Gantt chart (or four) between different software applications knows the frustration of aligning variables and analyzing trends. Step away from your computer. There's a better way.
Enterprise resource planning (ERP) software looks at the different processes relating to time, money and human resources across an organization to capitalize on efficiencies. Instead of relying on different software, each with its own way of calculating performance and generating data, ERP coordinates information flow in common terms. Think of ERP as the difference between piecemeal processes, which require greater effort and manual controls, and a holistic approach that coordinates and automates an organization's every step.
We have done a better job of inventory control and purchasing control. We can plan our production. As we re-implemented the system, we became more efficient.
“When business processes start getting complex, and transactions start to accelerate, then you should start looking at the small end of implementation,” says Russell Johns, The Netherlands-based director of product marketing for enterprise solutions with Baan. “Larger companies want a competitive edge, better forecasts, a more efficient way to manage plants, communicate more with suppliers and customers—that's when ERP becomes important to them.”
Most ERP systems automate processes in three specific but interconnected domains:
- Financials. Covers everything from global consolidation of information, purchasing, accounts payable, management of cash inflow and outflow (revenue and receivables management), and physical asset utilization.
- Human Resources. Addresses payroll, staffing for skills, tracking employee history, certifications, benefits administration, career planning, promotion and training.
- Projects. Includes planning and scheduling, supplying people with the right skills, capabilities management, and vendor-, people-and materials-associated costs.
At the most basic level, every component must allow you to view performance critically so you can assess what can improve and leverage that knowledge.
SMALL FISH, BIG POND
In 1997, REMEC, a San Diego, Calif., USA-based manufacturer of wireless infrastructure equipment and microwave equipment, was experiencing growing pains. The defense firm had just created a new commercial division, and it felt the pinch of competition.
REMEC was using a manufacturing resource planning package— a predecessor of ERP software—but the outmoded system would not allow management to quickly respond to commercial market needs. “The product was weak in functionality,” says Rick Taylor, REMEC vice president of information technology. “We needed a more robust system that would support entry into a new market and help us to expand globally.”
In 1998, REMEC employed a consultant to help research and select ERP software. “We wanted better control of our planning and materials purchasing process,” Taylor says. “Our inventory control and production planning was another concern.”
At the time, REMEC was a conglomeration of smaller companies. The implementation team began at the San Diego headquarters, and in five months, the first implementation went live,
including manufacturing and inventory control, purchasing, integrated financial tools and logistics functions. From there, the team implemented contained systems in Toronto, Canada; Escondido, Calif., USA; Palm Bay, Fla., USA; and Costa Rica—each in three-month implementation cycles.
“Since then, we've restructured the company so that we're one big company, and we re-implemented ERP software globally with upgraded versions and restructured processes,” Taylor says. “We have done a better job of inventory control and purchasing control. We can plan our production. As we re-implemented the system, we became more efficient.”
Taylor says the implementation couldn't have been successful without management involvement and support. And the key to that support involved setting up detailed transactional reports with summarized information. “You must spend time to determine the high-level management reports you'll need, and the earlier you do that, the better,” Taylor says. “Otherwise management will say, ‘We don't have what we need to manage the business.’”
Mom-and-pop shops can profit from holistic thinking but rarely can invest the time and resources needed to make the jump to comprehensive software. And although almost every larger organization can benefit from an ERP strategy, you must start by looking internally to make sure your existing work processes are well configured. You can't fix an internal process problem with ERP software—in fact, you may perpetuate it, as the system depends on accurate data.
“Sometimes you have to change your business processes,” Johns says. “In other cases you have to change your business goals. The whole of your organization has to be educated as to expectations. It won't solve all your problems. You'd be surprised how many people take their existing systems, plug in the data and carry on with errors.”
Self-awareness also will help you choose an appropriate package and vendor. “You must understand your strengths and failings,” says Joseph H. Jezior, vice president of professional services at Deltek, Herndon, Va., USA. “You must look at a vendor who has a specific niche that fits your company. Ask to see a client list, and see if your competition is on that list. Then ask how your prospective vendor worked with them in that niche.”
The Choice is Yours
You can't expect all things from every package. Each ERP system works well with different industries, strategic needs or process categories. For example, some planning tools allow you to best align resources. These work best for construction or architectural firms that have assets at the ready.
Other packages allow you to tap into your partners’ people and schedules, minimizing bench time. Accounting, consulting, IT and legal firms benefit from this approach.
To pinpoint the best software for your business, know thyself. Before ERP can aid efficiency, drive costs out of your business and ensure prime asset utilization, you must determine key drivers that affect your business. “You must understand what type of organization you are,” Jezior says. “If you're not sure how to categorize your firm, look at vendors to see what their specializations are.”
Once you know your most important processes, choose software with the best version of those components. “Don't cloud your vision with the thought that every piece of software must be the best,” says Fred Studer, vice president of marketing, Oracle, Redwood Shores, Calif., USA. “People assume that they need an all-or-nothing approach. They can get a lot of efficiency from a big-bang approach, but this causes anxiety, and decisions are delayed. You really need to think of integration, but also modularization and having an incremental approach.”
|When choosing an ERP system, consider:|
|■ Internal Processes. In most cases, you must define your business flow to discover your inefficiencies and your strong points. From a holistic point of view, you must know which functions you will use most.|
|■ Appropriate Cost. Determine the right size package for your business by recognizing which ERP components you can’t do without and which fit well with your existing processes. Least expensive does not mean best.|
|■ Executive Buy-In. Without management commitment, you shouldn’t proceed.|
|■ Credibility. If you’re going to spend substantial time, money and resources on a system, ensure that you pick a winning package with a strong track record in your industry.|
|■ Functionality. It’s easier to learn an advanced system than to make a basic system do everything. An easy-to-use interface shouldn’t be the deciding factor.|
|■ Customization. The more you tailor a system to your processes, the higher the cost. Decide which processes you can re-engineer to fit the software before customizing the package to suit your flow.|
|■ System Scalability. Your tool should grow with your company and incorporate processes that may become important based on your strategic growth.|
|■ Flexibility. You must possess all the modules you need for today, without having to implement everything at once.|
With a full ERP system, people need to make a wholesale change. To get the necessary value out of the tool, people must take bigger steps toward coordinating all of their process elements.