ERP Not Delivering For Project Based Companies

Published January 21st, 2013 by John Westerveld 0 Comments

ERPI came across an article in Industry Week about a study from IFS North America (with help from Mint Jutras), which shows how traditional ERP vendors aren’t addressing the needs of project based companies.

The study looked at companies with more than $100 million in annual revenues that engaged in Engineer-to-Order manufacturing, delivered projects as an engineering, procurement and construction contractor or companies involved in batch process (which requires enterprise asset management of plants and equipment).

According to the article, companies find themselves needing to manage projects because  it is part of the way they deliver products (like Engineer-to-Order companies) or because they need projects to manage their capital assets (think about managing a project to replace a major piece of equipment).

There is potentially a third area for project management that impacts many more organizations which the article doesn’t touch on: New Product Introduction.

Most companies in the study (71%) use Microsoft project – so companies are using technology to help manage their projects. The challenge, however, is that for many companies (39%) the project data is not integrated at all with the other systems used to run the company.  Further, only 14% of companies consider their project data to be fully integrated and 4% use embedded project data as a native part of their ERP.

So, you may be asking why should project management data be integrated into the systems that manage the rest of the enterprise? There are obvious ties between project deliverables and financial reporting.  The timing of project milestones can result in penalties and can impact revenue timing.  There are also ties with procurement and with human resources.  The largest impact though is with supply chain.  In Engineer-to-Order companies, for example, where the company builds the components and then installs them, the ability to deliver a project on time depends on the ability of the company’s supply chain to deliver on-time.

Imagine the following scenario.  You are a project manager managing the building and installation of custom heating system for a large institution. As you leave for the weekend whistling a happy tune because the project is on-time and on budget.

You come in Monday morning and see an alert that your project is at risk of missing a major milestone and idling dozens of people poised to move on the next stage. More importantly, this milestone is tied to a penalty clause that will cost your company tens of thousands of dollars.  You look at the project plan to see what happened.  You can visually see the task that is now late.  As you look at the task details, you see that it is tied to the receipt of a manufacturing order that is now late.  With a click, you can see that this order is late because a component supplier several levels down the bill of material, at a different site, has revised a delivery date. A quick call to the planner gets things moving and before you can finish your first cup of coffee. The project is back on time.

Let’s look at what happened behind the scenes: the component supplier revised a delivery date for a component that goes into a sub-assembly (at a different manufacturing site) that went into the main assembly needed by the project.  The supply chain tool recalculated availability for the assembly based on this new date. Because the project is integrated with the supply chain, the impact on the project in terms of milestone dates, resource impact and penalties can be calculated.  Finally, because you set an alert to notify you if a key milestone slips, you got notified in time to resolve the issue before costs were incurred.

Does your company install the products you make?  Do you have significant maintenance projects that need to be managed?  Do you have extensive NPI projects?  In each of these cases there is a direct tie between your supply chain and your project plan. So if that is the case, why don’t ERP vendors do a better job integrating these two capabilities? (Actually, that question can be asked about a lot of ERP offerings…)

How do you manage projects that tie to supply chain?  Comment back and let us know.

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