managing with erp - a guide for c level managers

8/14/2019 Managing With ERP - A Guide for C Level Managers

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Managing Differently After Implementing Enterprise Resource Planningby Doug Howardell

Managing Differently After ImplementingEnterprise Resource Planning

by Doug Howardell

The information contained in this article is based on the results of a poll of

independent ERP consultants. The consultants were asked to answer thequestion posed by an executive at a company that was just about to go live withtheir ERP implementation. “‘Assume the implementation is complete. Now what do I do differently than I did before? How do I do my job differently?”

Enterprise Resource Planning (ERP) implementations take months or even years and cost 3% to 6% of a company’s gross annual sales to make ithappen. When the big day comes, the switch is thrown. It’s alive! So now what?

What do the executives of the company do differently today then they didyesterday? One possible answer is nothing. Senior managers don’t use ERPsystems. The system is for people who enter customer orders, who create

purchase orders, or who record labor or track inventory. Executives don’t do anyof that. Executives have a business to run, bigger issues to deal with. You could,then, answer the question by saying executives do nothing differently once theERP system is implemented. That is one answer, but it’s the wrong answer. Thecorrect answer is, everything; executives should do everything differently. Here’swhy.

The major difference between a modern ERP system and your old legacysystems is integration. You’ve gone from a series of independent or interfacedsystems to a single interdependent system. That changes everything.

“The company’s departments are now like a high wire trapeze act. Any

slip by even one person may cause everyone to fall. When the teamwork is well executed, on the other hand, the result is thrilling.” Kirk Prather, Sr. Manager,California Manufacturing Technology Consulting

Integrated ERP systems make the elements of the company highlyinterdependent. The interdependence of the elements of the company is bestexplained by looking at some typical examples. In many legacy systems, thesales order system may have been disconnected from the production planningsystem. If someone in sales made and error in entry, it was likely to be caughtwhen the order was re-entered in the planning system. In an ERP system, salesis integrated with production planning. Any error in sales entry may cause the

wrong products to be built or shipped. Like wise, in old systems the shippingfunction was not connected to anything else. Anything that showed up on thedock could be shipped. In an integrated system, the shipping function is linkeddirectly to the warehousing information. If the system doesn’t recognize that theitem to be shipped is in inventory, it can’t be shipped. Inventory errors canprevent you from making your projected sales forecast. In an integrated ERPsystem all functions, all departments directly affect the performance of theoperations downstream of them.




That integration is why senior management typically authorizes the largeexpenditure of an ERP system. Integration will reduce redundant data entry andsave money. Integration will speed time to market and reduce customer deliverytime. An integrated, real time system will give executives quicker access to theinformation that they need to run the business, and that information will be more

complete. But that time and money will not be saved if you do not change theway you run the business.

“If management attitudes, approaches and daily behaviors do not changefrom the "C" group down (CEO, CFO, CIO, etc.), the implementation will not reach its potential; the promised return on investment will not be achieved.” DonFrank, President Frank and Associates.

The change to an integrated ERP system requires a change inmanagement behaviors. The experts queried for this article agreed that therequired management changes fall into three categories; organizational design,

process design and metric design. The exact way in which these three elementshave to change will depend somewhat based on what the business was trying toachieve with the implementation in the first place but the broad categories of change are required for all implementations.

Organizational Design“After the cut over from the old system to the new, the focus shifts from

implementation to leverage,” Norm Raffish, Consultant, California Manufacturing Technology Center .

Management should ask, “Now that the system is up and running, how

can we achieve and even expand its benefits? How can we assure the return oninvestment we predicated?” One of the more common reasons to havepurchased an ERP system is to bring diverse pieces of the company together. Toassure the company achieves the benefits of integration it was seeking when thepurchase and implementation of the system was approved, executives must usethe ERP system to create an integrated strategic direction for thecompany. Senior management should create strategies and plans that requirethe business units to work together. They should require that the variousbusiness entities develop and execute common business processes, commonways of using the new system. They must manage the business as a whole, nota collection of parts. The new strategies must avoid local optimization and stressglobal efficiency. The ERP system is integrated; the way the company ismanaged must be integrated too.

“Implementation nay require redesign of intra and inter departmental structures and reporting relationships,” Kirt Behera, CFPIM, Behera &

Associates.




Executives need to examine how the company can exploit the processstructure that ERP creates. For example, a company organized aroundtraditional functional departments like Sales, Engineering, Scheduling andPurchasing may need to reorganize around business processes. So thetraditional departments may be combined along the Supply Chain Operations

Reference (SCOR) Model in to Plan, Source, Make, and Deliver. There may alsobe a need to develop new job descriptions and responsibilities to perform work inan ERP system. In the old system, the steps required to execute a process mayhave crossed and re-crossed departmental boundaries. The integrated ERPsystem may require management to reexamine who does the steps in theprocess to minimize hand offs from department to department.

To achieve that integration, the processes by which the organization doesits work must change.

Process Design“The most important change that management can make, must make,

after an ERP implementation, is to use the system to operate the business . Theformal system must rule over the informal systems. Top Management must understand this concept, practice it, and enforce it at all levels. The president that asks for a hot list, or who accepts a financial report created in Excel or accepts information not pulled out of the ERP system just doesn't understand. Failure to recognize this one concept is the primary reason that many of these implementations fail to achieve the desired results,” Jim Strong,consultant, The ACA Group.

Our panel of experts all agreed with the statement above. Executives mustrun the business by the numbers, the ERP system’s numbers. Every piece of

operational and financial information management looks at must come from thesystem. As soon as a manager accepts a spreadsheet or other type of manualreport, they are sending the message that not using the system is acceptable. If managers are not using the ERP system then they are creating and storing datain personal or departmental systems. Soon the company will right back where itstarted with a set of disconnected systems.

“At least 90% of the daily activities must be executed by standard systemsand procedures. While there are always exceptions, no more then 10% of daily activities can be exceptions handled outside the ERP system and then only dueto the limitations of the ERP system. The 90% rule means management must demand that all operational requirements be put into and executed through thesystem,” Kirt Behera.

Getting standard data out of the system is made possible by developingstandard business processes. When developing these new processes executivesshould insist that the processes are used by all segments of the business. Linemanagers will tend to say, “We’re different. We can’t use the common




processes.” This cannot be allowed. The business must be managed in adisciplined manner .

There must be a zero-tolerance policy against expediting, red liningengineering drawings, midnight over-the-fence part requisitions, non-documentedrouting changes, desk inventories, and other non-standard behaviors. Product

delivery schedules must be realistic, not dates in the past or dates that can't bemade. Using the formal system and standard processes must be the defaultposition and must be enforced by senior management. The return on the ERPsystem investment will be directly linked to how well the system is used. Howwell the system is used depends on everyone using the system and everyoneusing standard processes. The company’s executives can exercise direct controlover use of the system and use of standard processes by demandingadherences to the 90% rule and using only system data to run the business. Thisis the most important change that senior management can make after the ERPsystems goes live.

Metrics Design“The system's original objectives, the savings used in justifying theexpense, become the measurements that the company needs to track ,” SamThomas, Adjunct Faculty Member, University of Phoenix, and President, Agility Training .

The way management assures they are achieving the results they desirefrom implementing a new system is by creating and tracking appropriate metrics.Management of the system should involve tracking the organization’sperformance to see how well the original objectives are being met. Thecompany’s executives must redesign performance goals to drive ERP ROI. JimTarr said it best.

“Tracking organizational performance requires managers to develop and implement a comprehensive, fact based, integrated, performance measurement system. This system should be designed to drive behavior toward overall organization performance and away from maximizing individual department

performance and empire building. From a top management point of view, thebest performing department (and department manager) is not the one who hasthe best "numbers" but the one who contributes most to the overall performanceof the organization,” Jim Tarr, president of JD Tarr and Asscoiates.

Another of our experts stresses the need to make the entire chain of command feel responsible for assuring the return on the effort.

“Senior managers should ask each of their direct reports exactly how they intend to use the ERP system to increase profits for the company, decreasecosts, run their departments more efficiently, or provide higher levels of customer satisfaction,” Gunnar Sunstrom, Consultant .




For example, if part of the justification for the system was based on thereduction of inventory costs then every manager down the chain needs to beaccountable for that reduction not just the Materials Manager. All managersshould be asked what actions they will take to help achieve the goal. Everyoneshould be measured against that collective goal. We either all make it or we all

don’t make it. The same would be true if the original justification was to decreasedelivery time, or increased customer satisfaction. Everyone defines his or her role in achieving the goal and everyone is equally accountable for the results.Integrated systems must lead to integrated actions, which must lead to integratedrewards.

Process design will drive metrics design. That means the data used in themetrics must come out of the formal system and nowhere else. ERP createsplans; cost, schedule and quality plans. ERP collects actual performance data;cost, schedule and quality data. The ERP system must be THE source of theplan and of the data to used measure performance against the plan. Executivescan assure adherence to the process design by creating and monitoring metrics

using systems data.

If management doesn't have the right people organized in the right way,doesn’t make sure the fundamentals are well executed, standard and integratedprocesses, doesn't put the key performance measurements in place, and if management doesn’t change its behavior, nothing will change by merelyimplementing a new ERP system. The investment will have been lost.

Spending a lot of money on a new Ferrari doesn't do one any good unlessthey know how or quickly learn how to drive it safely and effectively. In fact thisexpenditure frequently results in a fatality. Would you give your 15 year old sonwho has just got his learning permit, the keys to your Ferrari that can go 160

miles an hour? Hopefully not.The organization’s senior managers attitudes, approaches and behaviorshave to change if the implementation of the ERP system is to reach its potential.Old behaviors will continue unless top management sets the stage and leads byexample in using the new system. Executives must drive new behaviors bycreating appropriate new organizational structures, insisting on new, standardprocesses, demanding adherence to those processes and by holding their people accountable to new measures.

We started by asking the question, what do the executives of the companydo differently after the implementation of a Enterprise Resource Planning systemthen they did before the implementation? The right answer is, everything.

About the author Douglas K. Howardell, CPIMSymbiotic [email protected]

Doug Howardell is an independent consultant who specializes in helping clients improve their operations management processes. During the past thirty years he has selected and

mailto:[email protected]

mailto:[email protected]




implemented new business systems, designed new processes and tools, and managed a varietyof improvement projects. He has extensive experience and expertise in all aspects of operationsmanagement. Additionally, Mr. Howardell has long experience teaching and training. He is anactive member of the American Production and Inventory Control Society (APICS) and theProject Management Institute.

managing with erp - a guide for c level managers

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