By Richard Watkins, MA, MBA Managing Director, Delos Partnership Ltd.
The great thing about European manufacturing industry is that there are a huge number of small to medium size companies, who provide incredible innovation in the field of products and services. They move from being small entrepreneurial organisations [sometimes working in garages] to becoming much bigger.
In order to manage the basic functions of the business, like budgeting, planning, ordering, and managing their new product pipeline they turn to systems like Microsoft Excel, Word or Access with which to manage the business. In fact, if spreadsheets did not exist, we would still need to invent them!
Decisions are taken in the kitchen while getting hot water from the kettle to make a cup of coffee, or over lunch, munching a sandwich.
Curiously, there are also many very large £ multibillion companies, who are household names, who run their businesses on a phenomenal number of spreadsheets. In many of these cases they have already paid significant amounts of money for business systems.
When companies go to buy these systems they are often doing so because they have read the blurb which typically says something like - "XYZ ERP System is a powerful, scalable business management system which integrates all core business functions across your entire company. It provides managers with access to critical real-time data, enabling you to make quicker, better decisions to help grow your business."
The reality is that when people implement these systems, something like 60-80 % of companies fail to achieve the benefits that they originally thought they were going to achieve, many take 50 % longer than they thought originally and they end up costing 50 % more than they were going to cost. Even worse they pay £ millions for the system, but replace most of the functionality with parallel spreadsheets. These companies then need to set up a project to clean up their systems infrastructure.
This article addresses the key issues, which causes these problems, and for those thinking of implementing ERP systems, creates a list of things that should be tackled.
- Create a Business led project-team. Because the issue is seen as acquiring an Information system, the project is often treated as an "IT Project" and handed over to the IT director/manager. All IT directors and managers are highly aware these are business projects, but when it comes to determining key business issues, they are going to find it difficult if not impossible to provide resolution. A project of this type needs to tackle Roles and Responsibilities, Policies and Procedures, Performance Measures, and organisation, as well as changing the culture of the business. Take – for instance – Sales Forecasting as a process. The responsibility needs to be assigned to Sales and Marketing; time to do it every month/week needs to be part of the process. An abnormal demand policy and process needs to be developed, and the accuracy of the forecasts should be calculated and targets for Sales and Marketing need to be established.
However, the key issue relates to ownership of the project.
A project like this should be organised around the key processes – Innovation, Demand, Supply, Financial, People and Systems.
Each of these processes should be owned by functional directors, who are responsible for development of the software, processes and people within their business area.
Task Teams should be set up to work out the detail of the processes.
The diagram to the right illustrates a typical structure for a project of this nature, and illustrates the need for external support to be part of the project.
- Make sure that the software follows industry standards. Once the Project team has been established, then they should set about researching the market for the system, if it is necessary to acquire a new system. They should not be looking for systems, unless they have all been educated in best practise, so they know what they are looking for – around things in particular like Time Fences, Forecast Consumption and Available to Promise.
The Planning and control processes are core to any ERP system, covering how we turn customer requirements into products and services which are delivered to customers. Fortunately you can download for free a detailed evaluation – called MRP II Standard system evaluation from Chris Gray's site – www.grayresearch.com . Don't be fooled by looking for bells and whistles, and certainly do not look to make extensive modifications to the software. You will only be hostage to a small fortune if you come to need to update the software at some point in the future. You should also look at Gartner Group's recommendations and in particular their "Magic Quadrant" as shown in the diagram on the right from September 2013 for supply chain systems.
- Create Company II. Many software projects are structured around documenting the as-is, and then going through a "blueprinting" phase, where the "To-be" is mapped out and documented. We also believe that you need to document the "future state", which is what is meant by "Company II". However, we do not believe it is essential to spend a lot of time documenting the "as-is"; you are going to throw this away.
Company II also is not like many "blueprints". Blueprints are about software systems, and processes – the way things will be done. Company II should include all parts of the company – Organisation, Roles and Responsibilities, Policies and Procedures, the workings of the software, Performance Measures and Culture. It should include doing things in the right way, and not the old way. Education in best practise will help develop the "Right Ways" of working, the right organisation and the right measures. Thus a frequent issue is the identification of the need for a Demand Manager to support the Sales Forecasting process, to help.
- Data Accuracy. Most companies suffer extensively from inaccurate data for key elements of the planning process:
- Inventory and Work in Process
- Routings and Work Centres
- Bills of Materials
- Planning Data [Order Quantities, Lead Times, Safety Stocks, Product Groups].
In fact few companies actually have a formal measure of the accuracy of their data so that they would know how accurate their data is. The requirement for a successful planning system is > 98 %. It requires the basic processes for data management to be overhauled, responsibilities for each data item to be made clear, and a formal change control system to be established.
- Implement Integrated Business Planning [IBP]. Integrated Business Planning is sometimes known as "Sales and Operations Planning". The underlying process is based around a series of monthly meetings that link together Innovation plans, demand plans, supply plans and financial plans, feeding the Senior Team with the decisions that need to be made to resolve resource issues.
It is focussed on the longer-term and often requires cultural changes around operating realistically, being honest about the current situation, and operating to a formal process. It is a crucial part of moving from the "making decisions in the kitchen" culture to making decisions in the board room, that satisfy all parts of the business in line with a vision and strategy. This process often takes around 6-9 months to establish, and should be implemented early. On the face of it, it is organised common-sense; but it is often very difficult to make the foundation of the way the business is run.
The diagram on the right illustrates the typical structure of the formal monthly process. Each box represents a meeting, or a step of a process. Most of our clients see that they do most of what is implied, but not in such a formal manner – and it is this that saves time and effort in busy lives, and makes sure everyone is working to one set of numbers.
- Use the Delos Pilot methodology during the implementation. When implementing IT or ERP solutions, the software provider will take you through simulations or tests to ensure that the system works. Typically the tests will be carried out functionally – so it will test whether you can identify the need for a purchase requisition, place a purchase order, and receive the goods. They will also – but not always – test whether this links with the Production Planning system; thus the production plan is altered, which gives rise to the need to raise a purchase order etc.
However, we see that developing a new ERP system is also about developing "Company II" and the way the company will operate. Organisationally it may identify the need for new roles like Master Scheduler, Demand Manager, and Innovation Manager. It will develop new performance measures, and will have different reward structures. It may develop new Lean ways of working at the shop floor level. It may also develop a team based culture – it is the company that will change and not just the system.
So we have developed a methodology around creating a pilot of how the company will operate at three key stages – a Project Team pilot [where the Project Team tries out its ideas], a Trainers' Pilot [where key managers try out new ways of working] and finally a users' pilot which fundamentally tests whether users can do their jobs in the new way the company will operate. So this is testing software, roles and responsibilities, policies and procedures, measures and culture. The diagram on the right shows when these pilots should occur during the lifecycle of the project.
- Ensure that 100 % of the people are educated in the new ways of working. The critical part of a change process is to make sure that all of the people within the organisation accept the new ways of working. Most companies will have a group of people who have been with the company many years, and will not easily adapt to change. Many have several people who have come in from outside and from other companies who do things in different ways. The challenge in implementing a new system, and new ways of working is to de-educate people from the old ways of working, and then educate them in the new ways of working.
When software or new tools are involved, people often loosely talk about training. But we see Education and Training as two completely different things. When faced with change most people will ask the simple question "Why?" It is ingrained from an early age. Training, on the other hand, is the answer to a different question – which is the simple question "How". Often people will not want to learn how, until they have had the answer to the "why".
If you had a son or daughter who came home from school one day and said that "Today we had a Sex Education" class, you would be relieved, and would understand that as being to do with Personal and Social Education [PSE]. If they came home and said that they had had a "Sex Training" class, you would probably form a completely different view of the school curriculum.
People when faced with change will normally fall into one of four "camps" based on their knowledge and enthusiasm for the change, as shown in the diagram on the right hand side.
Thus those that are highly enthusiastic for change, but do not understand really what needs to happen are loose cannons. Those that are highly enthusiastic for change, and understand neds to change are "Agents for Change". But those canny people who know what needs to change, but are resolute in not changing their old ways of working are "Blockers". It is the challenge and task for the Agents of Change [often the project team members] to persuade these blockers to change.
The only way this happens is if this change process starts at the top of the organisation and is cascaded down through the directors and managers to every person in the organisation. This requires two stages. The first is for the Project Team to educate the Senior Leadership Team, and the Second is for the Senior Leadership Team to lead the education through the rest of the organisation. This should be done through a series of business meetings which will last between 2- 4 hours over a period of 15-20 weeks. This should be organised by topic, and made relevant to each group. Topics include "Integrated Business Planning", "Sales Forecasting and Demand Management", "Data accuracy".
The material for this is developed and prepared by the Task teams as part of Phase two of the project plan above. It should cover the concepts that are involved, the detailed standard operating procedures, and how the software will work, so that everyone knows how to do their job. The following diagram illustrates the key inputs and outputs of these sessions:
This requires a significant amount of effort and resource, and is often short-circuited in those projects which are driven to get software installed and working rather than getting the software supporting the way the company runs – better than it used to do before.
And that is largely why the projects fails.
About the author
Richard Watkins is Managing Director of the Delos Partnership Ltd., which specialises in education and leadership of people within a company who want to improve systems, processes and in particular the culture. Richard was part of the project team at ICI Agrochemicals, which implemented the first global SOP process in 1990, which led to spectacular benefits. Since then he has worked with many global clients wanting to implement Sales and Operations planning/Integrated Business Planning, in FMCG, pharmaceutical, engineering, chemical processing, defence, and aerospace industries - amongst many others. Specialities include SOP/IBP, Sales Forecasting, Supply Chain Optimisation and Performance Measures.