Insights into ERP systems in supply chain planning and implementation

DustinMattison

Insights into ERP systems in supply chain planning and implementation – Kinaxis

I recently had the opportunity to talk with William Cure, a Certified SCM Change Leader with over 40 years of hands on experience. In my interview we discuss how to define enterprise resource planning (ERP) systems in supply chain planning, the reasons why we need ERP systems, problems faced with implementation and how to successfully implement a new ERP system in a corporation.

In the interview that follows, William will introduce some key concepts and share insights gained from his extensive experience with ERP systems and supply chain planning.

Two noteworthy lessons include the importance of getting people involved in the change process and following the “80 percent rule.”

Dustin Mattison (DM): Can you define ERP systems in supply chain planning?

William Cure (WC): Certainly.

I define ERP in supply chain management as a tightly integrated series of software modules that all integrate back to the financial side of the business, because every business out there, regardless of make — whether they’re for-profit, nonprofit, manufacturing, whatever — has to report their financials to their stakeholders. So everything ties back to financials.

And then based on the kind of industry you are — and typically, in supply chain management, these kind of companies would be manufacturing, possibly distribution, logistics companies — those are the big ones. You would then select the modules that fit their business model and go through the implementation process. So if you’re a manufacturing company, obviously, you would select different modules than if you were primarily a distribution company.

All of these have their origins from an earlier system. ERP was first coined as a phrase in mid-1990s. They all come from the material requirements planning (MRP) and MRP2 systems that were created starting in the early 1960s. Software was developed in the ’70s and ’80s and then really an explosion happened in that industry in the ’80s and ’90s. And now, pretty much every company out there has some type of ERP system. So that would be how I define ERP systems in the supply chain management industry.

DM: Can you talk about why we need ERP systems?

WC: Again, you’ve got to be able to report financials, and you want to make sure you have a common set of information.

Every supply chain company I know of is basically geared towards planning, scheduling, forecasting — whether it’s manufacturing or distribution. And it’s a structured way of using — especially for manufacturing companies — the power of MRP-based planning which looks at your bills and materials. It also looks at the inventory file that your planned order is coming in, purchase orders and shop orders that you’ve already got scheduled.

Then, based on your master production schedule where you enter the customer orders, goes through a series of planning steps for materials and capacity to make certain that you’re planning these according to the due dates and the lead times for the various components that you have to produce. And this can cover everything from made-to-stock companies to engineered order and everything in between.

So without a formalized planning system in place that’s highly integrated and highly automated, most companies of any size just couldn’t do that. There’s just too much data and too many different things that have to be tightly integrated.

DM: Can you share with us some problems that you’ve faced and how you’ve overcome them?

WC: In my supply chain career, which is now over 40 years, I’ve helped to implement everything from selecting through implementation, close to 40 different ERP-MRP2 systems.

Probably the biggest single problem that I’ve run into, and unfortunately the most common problem that happens is that companies do a combination of things where they select a new system. Hopefully they do their due diligence and select something that is a good fit for their processes, but then almost immediately, instead of investing time and company funds in training their people on how to use this new system, they almost immediately start modifying that new system.

And the earlier they start that process after they’ve selected, it’s almost guaranteed that what they’re doing is modifying it to make it look exactly like what they have. If what they have is working that well, why are they spending?

Larger corporations can literally spend hundreds of millions of dollars to select and completely implement a new ERP system corporate-wide. So why are they going through all that effort, spending all that time and money if all they’re going to do is duplicate what they have? And far too often that happens, which then ends up with a project that is doomed to failure.

In my background, I’m a certified project manager along with my supply chain credentials, and you judge the success of projects, classically, based on what’s called the triple constraint. Every project has a set of deliverables. This is what we’re going to do. You have a time frame, and then you have a budget. And when you get into making modifications, when you get into adding a bunch of things, you’ve got to then go back and look at your project plan and make sure that you’re incorporating that into the project plan. Far too often, it doesn’t.

So you may have a project that implements the system, but it’s way over budget and way over time, because we haven’t taken the time to go through the change process.

Along with that, the other big problem is, of course, you’re making changes. And the best way I’ve found to do that is to incorporate the people in the process early on and keep them involved to help you make sure you’re defining this and that they feel like they’re part of the change process. People tend to not like making changes, but if they’re part of determining what the change is going to be, it’s much easier than to get them to buy into the change. So I try and incorporate people into this. I use the classic LEAN technique of basically going through and looking at your processes and doing value stream mapping. I think that’s one of the better tools out there.

So there’s a number of things which end up in with projects that take way too long, spend way over budget, and if you’re the project manager, that’s not a good project to be involved in, because that’s a good way to end up getting fired in the process. And it’s happened to people because they didn’t manage the budget. They didn’t manage what was happening. It may have been successful from what was delivered, but it took way too long and cost way too much. That’s not a successful implementation.

DM: Can you share with us how you do implementation?

WC: First of all, I have a set of standard approaches that I use. I’ve done, as I say, quite a few ERP implementations. I try to select the core features first. I encourage my customers to implement as close to standard as you possibly can and avoid doing modifications until we’ve got the 80 percent functionality, which is what I always suggest to my customers. They need to try and select a system that will do 80 percent of their business practices, pretty much out of the box, then go through the process of implementing it in time. For a major corporation, this could be a multi-year project that I always break up into different phases so that we have control over what happens, what sequence of events goes.

Typically speaking, you implement the financials first because that’s the core of any ERP system that’s out there. So you go through and implement general ledger, ARAP, the human resource type modules. And then normally speaking, companies will tend to implement their order processing functionality along with purchasing. If they’re a heavy manufacturing company, they would want to implement the master planning and MRP modules along with the modules then that control purchasing and what happens on the shop floor along with the feedback paths.

There are a number of other modules that companies today are implementing. So basically, you’ve got to go through and prioritize it. But I always emphasize let’s implement 80 percent first as is and then train people on the new system. Make sure they understand what they can do. Because, again, what they’re probably going to find out, if they’ve selected wisely, is the new system actually has more features and capabilities. It just looks different than what they have in place.

And they need to understand what the strengths are and be trained on this, and the money they spend on modifications to the system is probably much better spent on training people. I’m a very firm believer in training and education. So let’s get the standard parts in first. As we go through, let’s make sure we keep track of any suggested modifications that are brought up and then go through a very detailed cost justification process to identify those that we do have to do. Most companies will make some modifications to their system, but we need to control it.

So identify what those major ones are and then go through and make certain that the functionality isn’t there and it’s a matter of restructuring the reports and screens rather than actually changing.

But if you go through and make modifications, make absolutely certain that you do include the time and funding and resources necessary to do the documentation that is required — technical documentation. If the software breaks — and it always does sooner or later — the IT folks will understand what the new functionality is so that we have a good chance of then coming back online very quickly. But also, the end user documentation, to make sure that we have the new screens, the new formats, etc. in place in the new process flows.

The ones that I’ve seen that hold with that and keep things as standard as they possibly can usually implement the system much faster and get a much better return on investment. Because no matter how you slice it, when you spend the level of money and time that it takes to select and implement a new ERP system, you better be able to get a return on investment within a reasonable time frame or you’re spending company funds unwisely. So you need to identify why we’re doing this, what metrics are we going to put in place, and, as a project manager, make sure you’re keeping track of that and reporting back to the stakeholders in the project on a regular basis. Where are we at, what have we accomplished, what’s ahead of schedule, what’s behind schedule, and what are the major things that we’ve accomplished as part of doing this?

And when you close out each one of the different segments of the project, make sure you go through and do the very detailed analysis — what worked, what didn’t work — so that we can then not make the same mistakes one more time.

So I think you have to structure accordingly. You have to understand how to manage people in a matrix management situation because very rarely do the people doing the implementation work for the project manager. Normally speaking, they work for only managers in the corporation. So they have other things to do. Hopefully they get put on a full-time assignment to do this, but sometimes they are not.

There’s just a number of things that you have to be aware of as an ERP project leader. You have communication. And make sure you have a good plan in place.

And realize, just like General Patton was quoted as saying, “Planning is absolutely essential. Once you put a plan in place, you’ve got to be able to adapt the plan because things do change.” So you’ve got to go through and keep up with what’s happening, and when you discover that you didn’t budget enough time, go through a detailed analysis of “Can we make up this time? How did we make this mistake? We don’t want to make it again.”

So there’s just a number of things that you have to keep up with. Like I say, I’ve been very blessed to be a part of, either as a project manager or as a team member, or as the program manager in a situation where we’re implementing many systems throughout the company. And the bottom line is, you can be successful with this. But you’ve got to make sure you get the people involved. And sometimes you do have to say, “No, we can’t cost justify that.”

DustinMattison

Featured blogger Dustin Mattison is a teacher of supply chain, international trade, international e-commerce, international marketing and logistics at Jimei University in Xiamen, China.

He has been blogging for Kinaxis for the last eight years. Dustin conducts weekly podcast style interviews with supply chain executives and professionals covering a wide range of topics of interest to the Kinaxis community.

Dustin is fluent in Mandarin Chinese and enjoys learning foreign languages and living abroad.

More blog posts by Dustin Mattison

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