For many manufacturing organizations, an optimized enterprise resource planning (ERP) system is a key enabler for digital transformation. While implementing a new system is often one of the most difficult and challenging endeavors any organization will ever undertake, it’s just the first step in the ERP journey.
ERP Success – Maintaining or increasing competitive advantage requires continued investment. The overriding consideration in almost every ERP modernization discussion is whether the organization should upgrade its current system or implement a new system. The final decision is often driven by factors such as:
- A precipitating business event, such as a merger or acquisition
- An announcement from the ERP vendor that your version is about to go out of support
- Your existing ERP system simply fails to perform as well as those of your competitors
Irrespective of the reason, you will first need to clearly define your new system requirements.
All ERP systems make two critical assumptions: that data is correct, and agreed plans will actually be executed. Manufacturing organizations that understand and meet these requirements will flourish in an ERP environment. Those that do not will struggle significantly.
Five Warning Signs of Process Inefficiency
One fundamental truth about all ERP systems is that they’re only as good as the underlying data and business processes that support them. In fact, two of the most common reasons cited for the high rate of implementation failures are inadequate organizational change management and poor master data quality.
To determine if your ERP system is limited by your data and processes, look for these five warning signs:
1. Customer order delivery promises are not reliable.
If there’s one thing that ERP systems are inherently good at, it’s planning resources across the entire enterprise to deliver goods to customers in a reliable and predictable manner. So if your organization has been using an ERP system for several years, and is still struggling to achieve acceptable customer service levels, that’s a clear indicator that there could be underlying business process issues that need addressing. Determining if that is the case requires a thorough root cause analysis of your service failures. In doing so, it’s critical that you drill down to the proper level to identify the true root causes. For example, determining that many of your service failures are caused by an inability to produce to schedule is too vague to determine whether the issues are process- or system-related. You need to dig even deeper.
If the deeper analysis reveals that the issues are caused by poor equipment reliability or quality, then focusing on continuous process improvement stands a far better chance of improving service performance than any ERP system upgrade. Conversely, if the issues are more on the scheduling side, then it could indicate a training issue or a true system shortcoming. If the latter, the next logical question you must ask is: “Does a system upgrade fix this issue, or does it require a new system?”
By following a similar line of logic for each major service failure, it is possible to create a scorecard matrix to define what issues can be solved by:
- Focused process improvements
- ERP system upgrade
- ERP system reimplementation
2. Inventory adjustments are frequent.
A fundamental requirement for successful operation of an ERP system is having accurate inventory. The ability to maintain accurate inventory records will increase order-fulfillment capability, reduce costs and improve customer satisfaction. Timely access to this information can therefore be a strategic differentiator.