ERP and Waste Elimination

ERP and Waste Elimination

Many organisations believe that an ERP project will reduce waste and make the company more efficient. ERP is primarily an information tool that enables the company to plan and control their activities by integrating all of the elements of the business from an information perspective.

Ninety per cent of ERP projects fail to deliver tangible business improvements or reductions in cost adding activities. To get the most from the ERP project, business process reengineering, lean principles and six sigma techniques need to be applied, at some point, as well as the implementation of the software. Process reengineering lean and six sigma techniques are based around reducing non-value adding activities and strive to for a zero defects environment.

For most organisations attempting to combine the four into a one stop project will end up in confusion and complicate an ERP project that most likely will become beset with significant issues of project delays, software fit problems and budgetary blow-outs.

There are different schools of thought on the application of these technologies! Some believe that process reengineering, lean applications and six sigma should be implemented before ERP. Others argue that ERP is an enabling technology that provides the platform for process reengineering, lean and six sigma. To take it a step further there are those who advocate replacing ERP with lean and six sigma.

Can lean or six sigma manage the entire supply chain without ERP? I don’t believe so. ERP

is required for all of the up-front processing of information such as forecasting, sales order processing, production and materials planning, accounts payable, accounts receivable, product costing and many other vital functions of the business

There are certainly opportunities for the application of lean, six sigma and process reengineering to streamline activities and reduce cost-adding activities such as activity based costing, vendor managed inventories, factory and vendor pull systems (kanban). In all of these ERP is a still a vital aspect of operating a business. An understanding of how these technologies can be applied should be looked at before embarking on any business improvement program to determine the optimum application to benefit the organisation. How the ERP system is implemented can facilitate or block the application of the other technologies.

 

Ray Atkinson

 

Experience worth listening to!

 

 

 

For further information and blogs goto http://www.atkoglobal.com

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ERP Software Specification & Selection

ERP Software Specification & Selection

Our continued ERP project analysis over the last 35 years has consistently shown organisations experience significant problems with software not fitting the organisations needs. This is despite significant in-house investigations and involvement with internal users on what they want with the ERP software.

ERP projects tend to run into problems during the implementation stage of the project for a host of reasons, but up on the top of the list is the need to carry out significant software customisation, modification or purchase of additional software in order to achieve the functionality required.

The confusion and frustration from senior management, as to why this situation occurs, given the amount of effort that has gone into the original specification, is understandable. The message on software functionality and fit in many cases has been taken on board by organisations embarking on ERP projects but despite the knowledge that this is a problem area and steps taken to address the issue, the in-project problems still persist.

So why do organisations continue to have these problems despite putting together comprehensive software specifications and software demonstrations designed to eliminate packages that don’t fit the requirements? The answer to this is never straight forward or simple! There are a number of issues that impact the acquisition and implementation of ERP software;

Budgetary constraints: For many companies determining the budget for an ERP project includes an amount for the software as part of an overall ERP project. Often a number will be determined for the software component based on the amount of money available and may not be a realistic figure to cover all of the software and any customisation or modification that may be required. The assumption is the amount allocated will be sufficient for the software to meet the operating needs. Software vendors will size the software to the money available but in the end may leave significant shortcomings in functionality.

Software shortcomings: The shortcomings in the software become evident at the implementation stage of the project and in many cases can be a show-stopper unless addressed. The budgetary constraints employed in selecting and purchasing ERP software are typically reflected in additional costs incurred during the implementation stage, but are greater as the disruption to the project schedule with additional costs of consultants and making the changes are far greater than paying for the right software up-front.

Misleading Information: ERP software vendors are in the business of selling you the product. They are rarely going to highlight the shortcomings in the software they are selling you and risking the sale. The software houses will size the product offering to meet the budget constraints as this is what you have asked for. They also know that you will need to address the software shortcomings during the implementation stage but rest on the fact that they have given you what you asked for. They will also make additional revenue from the changes you then request during the implementation stage of the project.

Lack of top management involvement or oversight: Too many senior managers tend to view ERP as a technology project that is to be left with the computer people and the users and as a consequence they tend to limit their involvement to receiving weekly or monthly reports. The setting of budgets without a true understanding of the implications simply sets the ongoing implementation of the technology on a path of problems.

The problems in selecting the right ERP software hasn’t changed from the days the technology was called MRPII. Writing down a set of requirements and sending them to software houses to comment on and having demonstrated different elements of the software before purchasing it has proven to be inadequate for a successful outcome.  What needs to be done is take those requirements from the users and construct a model to simulate the software through. Construct a macro model of how the software is to flow and then on each area of the model specify what you want in terms of process and output.

By simulating the software through the model you can quickly identify what areas of the software are not compatible with your operating requirements and either; reject the software or negotiate on whatever customisation or modifications are required up-front and, not discover the shortcomings in the software when you are trying to implement it.

Experience worth listening to!

Ray Atkinson

Atko Global

The Conflict in ERP Expectations

The Conflict in ERP Expectations

Many organisations we visit, post-ERP live running, express great disappointment in the results they have achieved with their ERP project. The expectations on the benefits the company can achieve from a correctly implemented ERP system, whilst being reasonable, are not achieved by the simple installation of the software.

The purchase and implementation of ERP software through the internal ERP project simply sets the foundation for the technology to achieve the results expected. The company must ensure all of the decision making is actually in place, the data is accurate, the training is complete, procedures written and everyone understands how to use the system to get the best from it. This is not the job of the ERP software integrators! They do not run the company and it was never intended that the results would be achieved by simply turning the technology on. Unfortunately the people selling the software do not emphasise that the business must change the way they operate to achieve the maximum results and that management must take a proactive role in the implementation and change process instead of just leaving it to the computer people and the users.

Most ERP projects generate an enormous amount of internal activity and together with the problems experienced during the implementation such as; insufficient resources to carry out the work, data clean-up, software modifications, additional software, budget over-runs and schedule over-runs tend to distract organisations from the task of running the business post-live running and as a consequence too little attention is given to how to use the software to achieve the results.

Our research over many years has shown that the understanding of what an ERP project is by top management and the systematic approach made to ERP projects driven by top management can have an enormously positive impact on ERP outcomes. Unfortunately many senior executives see ERP as a technology project and relegate the project to the computer people and have little further involvement until problems arise that consume vast amounts of money to resolve. In turn the people charged with implementing the technology do not have the mandate to make all of the necessary changes across departmental barriers and when senior management are approached to make difficult decisions impacting the ERP project, in the face of departmental resistance, baulk and delay critical decision making impacting the overall ERP project progress.

There is no end of ERP software houses and consultants that claim “Proven Paths” and other statements all designed to give a level comfort that their methods are fool-proof and ensure a successful outcome every time. The statistics on ERP failures and the increase in litigation from disgruntled ERP buyers suggest that the overblown hype on proven paths etc., is nothing but a sales pitch not matched by results on the ground.

The confusion between installation of ERP software and the implementation of the technology has been going on for many years with little change.

The huge dollars demanded by software houses and their integrators can seriously damage an organisation financially if not carefully controlled and managed. This management and control starts at the very concept stage of justifying an ERP system and ensuring a systematic approach to the overall ERP project is taken at each step of the way.

See article on the 26 steps developed over many years on managing an ERP project from concept to completion.

Atko Global

For further information on ERP go to http://www.atkoglobal.net.au

The Gap between ERP and Management

The Gap between ERP and Management

The tendency for corporations to view Enterprise resource Planning (ERP) as a technology project that the company is undergoing and that requires minimal attention by senior management, is a major impediment in the effective implementation and operation of ERP systems!

The rise of the IT profession has spawned a whole industry, in itself, that is cloaked in vagaries and shrouded jargon, all designed to promote the industry as being too hard for anyone but the specialists to understand. (Translate pay a lot of money for implementation services from third parties).

The difficulty in this technology evolution is that management at all levels need to get a more detailed understanding of the technology and the application and use of ERP as a core information tool for planning and control.

The ERP technology has now been around in one form or another for the past 40 years or so but the understanding of the potential of the technology, by senior management is, at best, poor. The full potential of the technology continues to elude organisations, particularly manufacturing and distribution industries due to their failure to fully utilise the business philosophy and make the necessary changes to the planning and control decision making that is enabled by a fully functional ERP.

The many organisation’s around the world, that have fully embraced ERP, have reaped enormous benefits in the areas of inventory reductions, purchase cost reductions, transport, production efficiency, reduced cost and improved customer service.

The competitive advantage of organisations that have successfully implemented ERP is significant and can only be brought about by senior management, IT and operational users all understanding what the potential of the technology is and how to achieve it.

The ERP software component of an ERP project accounts for about 25% of the success of the project but unfortunately, for most organisations, it is seen as the most important part of the project. The belief that implementing a set of software modules provides the benefits of ERP is reflected in the statistics on failure against expectations. Seventy five percent of implementations are seen as failure against original expectations and even those companies that believe they have successfully implemented an ERP system they report benefits against expectations of around fifty percent.

The failure here is separating the hype from the reality up-front when the project is being cost-justified. A realistic cost justification carried out by the company less the technology hype would go a long way in determining  a realistic expectation of benefits to be gained by implementing the ERP technology. This involves a greater understanding of what is possible and realistic and what isn’t by senior management at the concept and approval stage of the project.

The other seventy five percent of the project success includes:

  • Effective project management
  • Clear implementation objectives through a well- managed project plan and model
  • Education
  • Training
  • Data clean-up (Bills of materials, routings, inventory, work centres etc.)
  • Data conversion
  • Process reengineering
  • Procedures

The tendency for companies to believe the sales hype of proven path implementation methodologies (never matched by actual outcomes) needs to change so that organisations take control themselves to ensure that the technology and all the decision making processes that are needed to make it work are actually implemented as part of the overall ERP project.

By immersing themselves into the full ERP project and not just seeing it as a technology project management can bridge the gap and ensure the technology is implemented and operated to provide the best return on investment.

for further information on ERP go to http://www.atkoglobal.net.au

Atko Global

Experience worth listening to!

The Conference Room Pilot for ERP

Most ERP implementation plans include a conference room pilot whereby data

sets are transacted through the system to give everyone confidence that the

ERP system actually works. Successful conference room pilots are the basis for

the go-live decision to turn the system on in the real live operational

environment of the business. As the conference room pilot was a success there

is a high level of confidence in turning the system on ….. only to find that there

are massive problems with the system producing incorrect information,

creating chaos.

So what has gone wrong? The system was tested with some real data sets that

we chose for the pilot and the system worked during the pilot!

The conference room pilot was conducted in a lab type setting with limited

amount of carefully selected data.

Let’s go back a bit! Given the huge cost over-runs experienced in the majority

of ERP implementations a conscious decision was made to take shortcuts.

These shortcuts may well have been in the area of data clean-up and

migration, or structure of bills of materials, or not quite getting the inventory

accuracy issues sorted out.

There is no impact immediately in making the shortcut decision as no

processing is taking place during the implementation stage of the project.

Now that the system is turned on the implications of these shortcuts become

immediately obvious! The system is processing numbers that are incomplete,

wrong or simply not there because the decision was made to clean it up later.

The costs you thought you were saving by making the shortcuts has now come

back to bite you and the impact on the business operations, that are now

relying on the system for numbers, can be quite dramatic and cost you millions

in losses and confusion.

We visit many companies that complain that the conference room pilot was a

success but when the system was turned on it didn’t work. The system is

actually working but the data that it is processing was not cleaned up and the ERP system is generating correct numbers based on the data it is processing.

The problem is the data is wrong!

The conference room pilot may give you confidence the system works but this

does not guarantee a successful outcome if you haven’t cleaned up the data

during the implementation preparation stage.

If you have this situation there is no option but to clean-up the data and this

could be very disruptive and costly post-live running of the ERP system.

Ray Atkinson

Atko Global

for further information on ERP go to http://www.atkoglobal.net.au

Experience Worth Listening to!

The Business and ERP

The Business and ERP

ERP systems and their predecessor systems MRPII have been around since the late sixties and early seventies of the last century but we still see the majority of organisations struggle with getting the benefits from the technology.

Our analysis has shown that a major issue in the implementation and operation of ERP systems is in the practical fit of technology to the operating requirements of the business. This stems mainly from the perception that ERP a computer system and therefore you must have people skilled in IT degrees and ignoring the essential operational know-how that blends the computer systems and operations together. What may seem academically reasonable may not work in the real world environment of the day to day operations of the company.

Whether the ERP software works to provide the right information at the right time, or not, the day to day operations of the business must function. This may mean abandoning parts of the system and finding other ways to carry on the business. Too many organisations fail to realise the benefits of an ERP system due to parts of the system being non-functional and the operations being carried out using non-integrated means and undermining the fully integrated philosophy of ERP.

The areas being non- functional may be because shortcuts were taken in data clean-up during implementation or other steps not carried out to cut the costs of the project.

Operational knowledge and what is a practical application of the ERP technology must be a partnership between the people who have knowledge of the software and application experience from people who have worked hands-on in a business environment so that a workable solution is found.

This experience must be utilised during the specification stage of the project to produce a model and details of how the software must work in the specific organisation.

This does not mean duplicating poor and bad methods of operations but it means taking the technology and blending it into the organisation to take advantage of the technology in a way that is practical to the organisation. Change management and process reengineering are an essential part of this process!

The type of issues may be in the way that bills of materials are structured to facilitate the most effective way of planning and scheduling, The way purchasing of parts and components are organised from vendors employing other philosophies such as “vendor managed inventory”. Other practical considerations would be in the use of factory schedules or works orders to control the jobs going through the factory or in the way materials are handled from and into the factory to reduce the non-value adding time and maximising productive value adding time.

Until we can get the mix between software and application skills right in ERP projects we will continue to see ERP systems failing to achieve their full potential!

Atko Global

For further information on ERP goto http://www.atkoglobal.net.au

Experience worth listening to!

ERP Wisdom in hindsight

Many companies embark on an ERP project believing they have all the bases covered and their IT people know what they are doing. Internal projects, steering committees and executives champions are all in place and the project proceeds.

Very few problems emerge in the early days of projects as it is really a preparation stage of gathering data, migrating data, training, software configuration, process review and procedures.

Somewhere down the line when the nitty gritty of what the software does and how an organisation can use it issues start to arise. Data that is not available in the form required needs to be obtained, unbudgeted for, data is not in an acceptable form and needs to be changed and cleaned-up, unbudgeted for, training is proving to be inadequate and more is required, unbudgeted for, changes to software and scope creep start to emerge, unbudgeted for and decisions need to be made, that are resisted by departments, are not made, all add to the ERP environment and potential disaster.

Add to these a blow-out in consultant costs, all seemingly legitimate but expensive and you have a recipe for disaster.

Thirty five years of experience in integrated MRPII and ERP systems I have seen a repeat of the above over and over and continuing to this day. The amount of money that goes into these projects, and lost, is staggering to the point organisations can be seriously financially and operationally compromised.

The blame game starts when the costs begin to hurt the organisation. The finger pointing starts in earnest! The vendor misled us, the company didn’t do what they said they would do, management wouldn’t get involved and make decisions, the software doesn’t work, we were not permitted to make process changes, the consultants were incompetent and lied to us and so on.

These are issues that have been around since the early days of MRPII. Are we really that slow we have learnt nothing? The statistics on failure are there for all to see! As high as 70% of organisations attempting to implement ERP fail to achieve the results expected. Massive cost blow-outs are the norm. Some companies have gone bankrupt attempting to implement ERP.

The solution is really quite simple. Do the work up-front pre-software purchase. Identify the issues that will need to be dealt with and design a model for how the software is to work and test the software through that model. Identify the data required and commence clean-up before you buy software etc.

Look at the 26 steps that must be covered to get it right the first time. Go to http://www.atkoglobal.net.au for details of the 26 steps. It’s free no cost and no obligation. We will even give you a free self-assessment program for you to look at what you are doing and evaluate yourself against. It could save you millions of dollars.

If this were a new technology we could understand teething problems in getting it implemented and working. Could you imagine continuing a space program with a failure rate of 70%? I think not!

We have all of the experience to ensure that every implementation should be a success learnt through many past failures. This hindsight should be a template for the future. Unfortunately it isn’t!

Experience worth listening to!

Ray Atkinson

Our ERP Doesn’t Work

For more ERP Blogs goto http://atkoglobal.net.au/member_area.php

We have visited many organisations that have implemented ERP only to find that they are having significant problems in operating the technology as they expected. In fact they have now turned off or ignore outputs from the system as the information is incorrect.

  • There are a number of reasons for this state of affairs;
  • Lack of education in how the ERP system is supposed to work
  • Poor software selection in the first place
  • Poor data set-up
  • Shortcuts taken in cleaning up data migrated to new system
  • Poor data integrity on dynamic data (ie. Inventory control)
  • Lack of effective system operations training
  • Poor operational procedures around processing operations

Whilst all of these are recognised as mistakes made during implementation and running the ERP less consideration is given to the customisation and modification carried out on the system during the implementation stage. Changes are made to the systems for a variety of reasons. Chief amongst these is the “must have” some function that was available in a previous version or system that is seen as a show stopper. When a number of these changes have been made they can have unforeseen consequences on the overall operations of the systems to the point the systems do not function in the way the designers intended.

ERP systems are fully integrated systems that enable data entered into one part of the system to flow through the organisation through processing and output to other parts of the organisation to use and onward process. An example of this is a sales order that is entered, translated into a schedule for manufacture, processed through materials requirements planning using inventory records, bills of materials and routings and ending up as planned orders for the factory and purchasing the materials to support the manufacturing.

Modifications that may seem simple at one level can have an impact anywhere in the process and end up causing incorrect information to be output due to some issue with the changes made to software.

Add these issues to the issues identified above and you have a poorly functioning ERP system. Users have no choice but to seek other means of operating the systems.

ERP has been built around a defined logic. When changes are made without an understanding of this logic then the risk is you will affect something in the systems logic that will cause the system to have problems.

The best way to avoid this is to define clearly, pre-purchase of software, and test the software fully (not a simple demonstration) prior to purchase of the software.

The construction of a model will ensure you are able to identify any shortcomings in the software and get the fit you want and need.

With the many problems being experienced over 35 years seemingly repeated over and over again we are either incapable to learning the lessons of failure or are somehow being conned.

The cost overruns in ERP project go across a spectrum from 25% to 1000% of the original budgeted cost. The work done up front on effective modelling and risk analysis can assure an effective ERP outcome every time without the hugh cost blow-outs.

With  50% – 70% of organisations reporting significant problems and failures and even those organisations claiming success reporting an average of 50% of the benefits expected, a new approach is badly needed.

For further information on ERP goto http://www.atkoglobal.net.au

Experience worth listening to

Ray Atkinson

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ERP Failure! Do you just walk away?

There are many organisations facing the reality of a massive ERP disaster! This comes in a number of manifestations; Project budget over-runs of anywhere between 25 to 1000% of original estimates with no benefits being achieved for the business, post live-running the business is in chaos, software functionality that is not suitable for the business, ERP vendors and their implementation team does not have the necessary skills and experience to fix the issues in the project, the system had to be turned off due to processing problems, internal divisions and blame game affecting company performance, company financially damaged  and potential risk to the company viability.

With somewhere between 55 to 70% of organisations failing to effectively implement ERP and even those who report successful live running achieving around 50% of expectations, there is a lot of anger and disillusionment with the entire venture.

The two most important issues to look at here are:

1.A review of the project to determine the actual project status and what has to be done to get it operational and at what cost.

2. What has gone wrong with the project and who is responsible.

The first of these options is reasonably straight forward in determining the status of the project and what has to be done to either complete the project or abandon it. The review will determine the stages of completion and any additional costs involved.

Care must be taken here as too simplistic a view of the project status can lead to missing critical costly elements and solves little.

The second issue to be considered is what went wrong and who is responsible. For many organisations the confusion generated by the in-project issues and the tendency for the ERP vendor and their implementation team to point out the failings of the implementation client company whilst at the same time painting themselves as blame free tends to muddy the water on responsibility.

For most organisations the road to holding the ERP vendor and their implementation team accountable seems insurmountable and potentially costly on top of the losses already incurred.

For those companies that are prepared to pursue ERP vendors and their implementation teams there are two approaches that can yield results; Mediation with the vendor to reach an amicable solution and fair compensation for the vendor’s failure to advise competently on the implementation of the system or the lack of functionality of the system against undertakings made by the vendor during the sales stage of the ERP system.

Failing mediation the second option is to proceed against the ERP vendor with legal proceedings for breach of contract, misleading information, fraudulent misrepresentation and failing to deliver a product that is fit-for-purpose.

In both cases the vendor will play hard ball and resist any solution that puts them into a position to have to pay compensation or accept any liability. This is an opening stand that typically puts off the grieved party as it is easy to point to failings of the customer as the reason it has failed or not performed to expectations.

Before either mediation or litigation is attempted an analysis needs to be made of the project starting with the original request for proposal.

Organisations (ERP vendors and their implementation teams) profess a great deal of expertise via their “proven paths” and other such statements of expertise yet so many
projects, 55-70% fail to deliver to expectations. Even those companies reporting project completion only realise 50% of the expected benefits.

In the majority of cases the customer has a strong case for compensation for the failure of the ERP vendor and their implementation teams to provide a useable product and implementation services in accordance with the contract for supply or what the client could expect from organisations claiming “Proven Paths and vast expertise.

With the large sums of money lost in botched ERP implementations many organisations are pursuing vendors and integrators to compensate them for the losses. Many disputes are mediated and few end up in court. Vendors do not want bad outcomes from court cases as this damages their image in the market place and potentially affects future sales.

Experience worth listening to!

Ray Atkinson

 

For additional blogs and info please visit: http://www.atkoglobal.net.au/member_area.php

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The State of the ERP Industry

For more information visit: http://www.atkoglobal.net.au/member_area.php

ERP failures are not slowing! The complexity of ERP implementations and issues involved are simply not understood by most organisations and ends up as minor or major disasters.

Many organisations are oblivious to the problems they will face or believe that ERP is simply a technology project that the computer people will deal with, until the disaster happens. The growing demand for expert witness services or mediation in disputes between software vendors, integrators and clients is a good indicator of ERP problems and we do not see this dropping off any time soon.

ERP success and failure depends on where you sit in the equation. From an ERP software vendors and integrators perspective the project is a success if the software is installed and running, from the clients perspective they want the technology implemented and working for them on time and within budget.

Half implemented and abandoned ERP projects litter the landscape. Most ERP systems we are asked to get involved with are poorly specified, lack clear objectives, are late and are way over budget.

Shortcuts taken during the implementation stage always come back and bite during live running of the system and can result in crippling the company and costing ten-fold the cost of doing the job properly in the first place.

The message on risk of ERP projects is getting through. More and more organisations are spending more time researching ERP and how to approach it to ensure success. Unfortunately these organisations are overshadowed by the majority of organisations who simply believe they can pay a cheque and ERP will happen.
For a very small investment our book “Enterprise Resource Planning (ERP) The Great Gamble” A guide to understanding and ERP project, outlines the issues that all CEO’s managers, and implementers should understand about an ERP project. The book is available from all book outlets and can save an organisation millions in preventing ERP failures.

Some other blogs available on our website include:

ERP Implementation Goals

ERP Vendor Integrity

ERP Expert Witness Services

Ray Atkinson

Experience worth listening to!

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