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Enterprise Resource Planning: Boom or Bust?

By Andrew P. Johnson

If you thought that ERP stood for “enterprise resource planning” think again. Many companies are finding to their great dismay that what ERP really stands for is extra risk potential. After spending millions upon millions of dollars to achieve greater operating efficiencies, all they have to show for their investment is the same old results. So they’re worse off now than ever before.

But how can that be you ask? Isn’t ERP supposed to be the application break though of the century? Isn’t it supposed to make us all smarter and better manufacturers? Well, yes and no. ERP does offer great promise but only to those companies that make it the centerpiece of a more comprehensive Knowledge Management System. Until it is linked to and used to manage the day to day operations its true potential will never be realized.

Take the example of Company A. They produce a commodity product and compete on the basis of volume and price. They saw ERP as a strategic initiative that would enable them to successfully underbid their competition on large orders. The reverse has proven true. With little to show in the way of cost savings or productivity gains and having to amortize the substantial cost of their investment in each piece sold they are actually less competitive now than before they installed their ERP system.

So where did they go wrong? To be sure they had better information than ever before. But they didn’t use it where it really mattered, to better schedule work crews and materials to save excessive over time and inventory costs. Had they added crewing and inventory management modules (known as “bolt ons”) to their ERP system they would’ve realized substantial savings. The problem was that their ERP vendor wasn’t familiar enough with their operation to spot the deficiency in time. As a result, they turned to a consultant with expertise in both manufacturing and Knowledge Management Systems for help.

Company B’s story is even more disheartening. They manufacture luxury audio components for the automotive industry. The big three insist on just in time delivery, high quality and the lowest possible prices. To earn a fair return on investment requires a most efficient operation starting with order input years in advance through timely delivery of finished goods.

Company B, taking a cue from its customers, bought a name brand ERP system with many standardized reporting features. But, when it failed to link the sales forecast to materials ordering and production scheduling, they fell behind in their delivery and ultimately lost a lucrative contract. The lesson to be learned is to make sure your ERP system addresses the needs of your business and not someone else’s. Off the shelf solutions aren’t for everyone and should be avoided if at all possible through custom designed applications.

And lastly, there’s Company C, a manufacturer of electronic sub assemblies used in satellite guidance systems for the aerospace industry. Quality and reliability are paramount considerations for its customers, each of which has many millions of dollars riding on every launch. Company C installed an ERP system to give it a technological edge on its competitors. However, when it failed to perform as advertised, they had to go through a costly retrofit to add computer added design (CAD) and quality control sub systems to help them achieve the exacting tolerances required for navigation among the stars. Their mistake was in thinking about it in a vacuum and consequently failing to consider all the applications they needed.

Are these companies inept? Did their vendors mislead them? Or, have I simply picked out the worst examples to make a point? Regrettably, the answer is all three. When it comes to ERP systems, a little knowledge can be a dangerous thing. All too often companies get caught up in industry trends without giving due consideration to their specific needs and that can cause a lot of problems as the above examples serve to illustrate. And, true, overzealous vendors often promise more than they can deliver. But the bottom lone is that an ERP system is only is good as what it does for the business it has to support. Brand name and reputation non-withstanding if your ERP system hasn’t made you more efficient it’s probably made you less competitive at what you do.

So how do you know which ERP system is right for you? When a Knowledge Management System is a more appropriate solution? When to build or even where to get one? Many firms turns to outside consultants without insider vested interests to help them answer these and other questions.

The company I work for, USC Consulting Group, is one such resource. We are unique in that we combine over three decades of manufacturing expertise with IT skills and know how to bring information all the way down to where it will do the most good. We don’t consult in just one phase of a project just because it’s all we have to sell but rather look at an organization as one continuous process with a singular purpose: to perform at its very best for all its stake holders.

Here then are some of the lessons we’ve learned by helping out clients who have hired us to salvage their ERP investments:

One size does not fit all. Make sure your ERP system (and investment) is appropriate for the size and nature of your business.

Standard is not necessarily better. Your circumstances may require customized applications (“bolt ons”) to realize the full potential of your investment.

ERP is not the end all be all of business optimization. If the information is good while the underlying processes or practices are bad, the end result will still be less than optimal.

ERP is but an IT concept. Knowledge based management takes ERP one step higher by applying and linking it to the manufacturing process.

ERP is not a standalone or turnkey solution. If a vendor attempts to sell you an ERP system without a full and comprehensive implementation, find another vendor.

Look before you leap. Brand name should be considered only after you’ve determined how ell a system meets the specific needs of your business.

And lastly, a shameless plug. Money spent on a knowledgeable and experienced independent resource like USC Consulting Group can be the best way to safe guard your ERP investment.

Andrew Johnson is Senior Project Manager-IT at USC Consulting Group where he has imparted his knowledge based management skills to dozens of well known clients who, for obvious reasons, prefer to remain anonymous.

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