The essential ERP guide
RICK TAYLOR, VICE PRESIDENT OF INFORMATION TECHNOLOGY, REMEC, SAN DIEGO, CALIF., USA
When you’re ready to get serious about your business processes, let ERP software point you in the right direction. But don’t expect software to deliver effortless returns.
BY ROSS FOTI • PHOTOGRAPHY BY NICK SOUZA
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.
RICK TAYLOR, VICE PRESIDENT OF INFORMATION TECHNOLOGY, REMEC, SAN DIEGO, CALIF., USA
“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.
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.
Also, you must be willing to dedicate resources—time, money and people—toward learning the software and fully committing to the system. Although ERP software will provide a multitude of information and will delineate linkages, it won't place the proper resource with the proper job, and it won't take the place of leadership or eliminate the human factor from the equation.
Ultimately, an ERP system's benefits depend on the scope of implementation and the ability of management to use it. “Sometimes you'll see returns quickly—weeks or months—but it may take a while before a customer sees benefits,” says Scott Lutz, director of product marketing, ERP and services, J.D. Edwards, Denver, Colo., USA. “Improvement in the speed of business processes and accuracy of data can be seen almost immediately.”
Because there are fewer customers for these systems, which cost anywhere from the low thousands to more than US$30,000, vendors focus more on customers and long-term relationships. Realize that you'll be working with a vendor for years to come, so be confident in the level of support and service you'll receive before making a choice.
Most large vendors provide the full range of services from project solution design, to implementation and post-implementation support services, and all work with external services providers. “More and more, the marketplace wants service exclusively from vendors or in partnership,” Lutz says. “Companies want vendors involved every step of the way because at the end of the day, the more the vendor understands business processes and how the software integrates with the enterprise, the better the fit. Someone in that mix must know how to translate industry challenges into specific software functionality and how to deploy it.”
Either a vendor or a third-party consultant typically can handle implementation, but vendors most often supply application training to the customer's front-line staff. After go-live, those who will use the software on a day-to-day basis are brought up to speed. “Software is changing so quickly that it's difficult for a third party to keep up with that,” Lutz says.
Integrate or Upgrade?
For many executives, taking the plunge into a full ERP system can be a difficult cost to consider, given that all firms already have many of the software components, including a standalone financial or project scheduling system.
When looking at integration, you should start by thinking about the system's cultural impact on your organization. Here again, you must have a clear picture of your internal processes. “With a full ERP system, people need to make a wholesale change,” says Michael Shomberg, vice president of marketing, Primavera Systems. “To get the necessary value out of the tool, people must take bigger steps toward coordinating all of their process elements.”
You must determine if several integrated systems together can meet your needs better than one component. It's possible to roll up centric data into an ERP solution.
A full implementation also involves larger training costs and learning time. “If you look at the cost of implementing any ERP-level software, the number-one cost is training, and the number-two cost is process modification,” says Patrick Durbin, chief executive officer and founder of PlanView, Austin, Texas, USA. “Three is software and hardware commitment. Integration is way down that list. Get your processes structured right and realize that your people cost is the biggest cost. Everything else is relatively trivial.”
With an all-in-one solution instead of integrated components, you may lose functionality that you've already seen with a few specialized tools. If you rely heavily on your existing human resources tools, for example, integration may be a better option than completely switching your system. “You must determine if several integrated systems together can meet your needs better than one component,” according to Don Lancaster, PlanView's manager of integration services. “It's possible to roll up centric data into an ERP solution.”
Just as in paper-based processes, software requires attention to communication, including how applications will share data, how information will be reported and who will manage resource numbers. “It's very common for people to acquire systems and want them to talk without knowing what they want them to say,” Lancaster says. “Determine what information should be shared and how you're going to use that information. Will you be accounting once a month or do you need real-time reporting? Who is responsible for the reporting? Involve those people in the discussion and flow-through of the system.”
Typically, integration involves an application programming interface (API) that allows programs to communicate with each other, translating information in terms both systems understand. “An API must always adhere to the business rules,” says John Garay, alliance manager, Primavera Systems. “The alternative would be going direct to a database system, which is risky in an integration environment. In a database, you can put invalid data into a field that could impact the validity of the whole system. Most major vendors have APIs that allow smooth integration between programs.”
Technical innovation continues to drive what software can accomplish, and ERP is no exception. “Post Y2K, the push was to get functionality on the Web, but we don't see a big demand,” Jezior says. “For example, the ability to submit a requisition for employee or service via Palm Pilot. But, the market hasn't yet realized the value of moving features to the Web.”
The flashier programs will not provide just data, but also will offer decision-making help. “The real question is competitive edge,” Johns says. “There's a trend for business intelligence systems written into the software rather than just relying on reporting functions. Cutting-edge software will make suggestions for process improvements rather than just presenting data.”
The usual suspects—customer relationship management, lean manufacturing, just-in-time—also continue to drive business thinking, and ERP software is being pushed to provide quicker and clearer return on investment. Systems are covering more business operations and going deeper than before. “Now, we're focusing on ethics,” Studer says. “The next step is corporate governance, and the keys to that are visibility, controls and efficiency—all of which are possible with ERP systems.” PM
To participate in an online discussion on ERP software with your colleagues, visit communities.pmi.org and go to the PMI Member Community.
PM NETWORK | JUNE 2003 | www.pmi.org
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