ERP not delivering? Try looking at it from a different perspective

For many manufacturing companies, the use of enterprise resource planning (ERP) systems has become a necessary condition for success. But the complexities of todays more demanding manufacturing strategies call for ever greater visibility and control over every process. This is increasingly extending into the supply chain in terms of balancing greater lead times for smaller batch sizes or individual components while customers continue to expect decreasing yet more accurate delivery times. The ability of ERP systems, especially the recent generation of extended ERP solutions, to provide all the relevant data is without question. Yet many companies are not seeing the expected benefits that such systems promised. Why is this?

Dr Ted Hutchin, I & J Munn Ltd, (pictured left) is a 'Theory of Constraints' (TOC) expert with over 20 years experience delivering lean solutions for manufacturers. Having recently formed a partnership with Infor because of the unique closeness of fit of Infors ERP solutions to TOC methodologies, Hutchins believes the answer is a simple one. Manufacturers are failing to assess the benefits of their ERP investment correctly. Specifically, they are using the wrong measurement tools.
Technology as a liberator, not a constraint
Eli Goldratt argues that the key benefit of any technology is that it should diminish a limitation within the operational aspects of any organisation. It is also true that any new technology, an ERP system for example, has to be implemented into an existing system of policies, measurements and rules. Yet the current rules and measurements exist to accommodate the current limitation. If, when implementing a new ERP system, the old rules and assumptions apply, the new technology is immediately handicapped when it comes to delivering the expected benefits, says Hutchin.

Identifying and challenging assumptions
At the heart of these rules lie two key assumptions, or ways of looking at the business as a whole.

  • The first is to see the business as simply a collection of local operations, departments or business units, and that increasing local efficiencies leads to an increase in a corresponding increase in the overall performance of the company.

  • The second is to assume that the aims of these local operations are aligned with the aims of the overall business. Hutchin illustrates this clearly when he says: Look at the objectives in different areas of business units: Increase volume of sales, purchase cheaper, more tonnes per day, pore pieces per hour, less inventory, cost reduction, lead time reduction, smaller/larger batch sizes, etc. It is not difficult to see that these objectives may be in conflict with one anotherfor example, volume of sales can often be in conflict with the profitability of those sales. Local objectives in conflict are necessarily in conflict with the overall business objective. Put simply, the assumption that increasing local efficiencies is the way to increase global efficiencies is completely inconsistent with real world experience.

Changing assumptions to get a different perspective
According to Hutchin, this is the crunch for many manufacturers because they have invested, often heavily, in a technology solution which then becomes constrained by the very rules it has the potential to rewrite. And at the heart of this is the continued use of ERP as a tool to measure efficiency, either locally or globally within the company. Traditional management that focuses exclusively on efficiency fails, at great cost to itself, to take into account the real world variable of response time. Hutchin says: Management of productive systems is a bi-directional world, the variables being efficiency AND response time. These two variables are interlinked, with a trade off existing between them. You cant improve one unlimitedly without damaging the other.

By treating an organisation not as a collection of individual business units with individual goals, but as a revenue generating chain TOC immediately changes the focus from the local to the global. It also recognises the interdependent nature of each link, not just on the links immediately surrounding it, but on every other link in the chain. In other words, the focus should be on the entire organisation as a holistic entity. Therefore the only place to focus, maintains Hutchins, is on the weakest link on the chain, on the constraint as the constraint offers the area of greatest improvement.

But what does this mean for ERP? Simply this, says Hutchin, The capability to examine the whole of the revenue chain from supply to customer is made possible with ERP. The ability of this range of visibility coupled to the key constraint or weakest link offers a decision-making capability that is currently missing from the arsenal of tool and techniques available to most manufacturing managers. Yet so many times, the rules of the old way of doing things, most notably the use of cost accounting and efficiency measures still dominates, so the ERP system never has a chance to fulfil its true potential.

ERP and TOCa force to be reckoned with
Which is why Hutchin and those with the TOC movement see the use of TOC principles and ERP technology as an extremely powerful combination. If ERP systems are implemented in conjunction with the focusing power of the thinking process of TOC, then they will start to deliver results very quickly. This is what GM has already found in the USA, and companies such as Seagate with its disc drive design and manufacture. The combination of ERP and TOC enables a much quicker Return on Investment (ROI) while the other business opportunities that are opened up are much more attractive.

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