Author: Kathy

Earlier this week, I had the opportunity to sit down (technically, via video conference) with an actual business process consultant and discuss how companies migrate to a new ERP system in the real world. Elisa Bertelli (LinkedIn profile) is a Deloitte consultant based in London, UK, and has several years of experience consulting various companies through their ERP migration.

We started off talking about some of the first tasks she usually does with clients during the beginning of a project. “First we look at all of the business functions, all the business departments – sales, finance, production, human resources. And then we interview them on what their daily tasks are. We try to piece together the operational steps involved in the various tasks that they do. Then once we understand the steps, we can then find where the processes can be improved.” So, say if a tasks usually takes ten steps to complete, the consultant may present a new process that only takes four steps. “Because the main goal is to make the tasks take less time, which saves money and resources for the company.”

“After the mapping, we [then] use industry benchmarks as a comparison of how long a certain process should take. Deloitte, and all consultancies, have a repository on industry leading standards and practices, which we refer to in order to make a recommendation of which ERP system is best suited for the client.”

As far as the types of ERP systems used, “sometimes it mainly depends on the industry of the client. Oracle tends to be suited to financial companies while SAP serves manufacturing quite well.” But interestingly, an enterprise can end up using different software for different functions. “For example, a company may use SAP for the back end, while in their front end use a more flexible system – one that is more of a niche system to handle specialized operational needs.”

When it comes to the common challenges or roadblocks when advising clients on a new ERP system, I had expected something along the lines of accurate information gathering during the interviews. Instead, it’s “resistance to change: many people see change as a threat.” The people who usually performs the every day operational tasks are not the ones who decide to switch to a new system. Plus, many have been doing their jobs for a very long time. “In this case, we bring in our Change Management (a dedicated team that helps people with change) to work with the people and reassure them about the new methods and systems.”

 

 

 

 

 

 

Over the course of the quarter, we’ve seen how an EPP system integrates the various departments while maintaining silo walls within an enterprise. Having a successful system in place not only ensures effective data sharing, but also eliminates any inefficiencies in an enterprise’s day-to-day operations. Implementing an ERP system can be quite complicated, and there have been well documented cases of when implementations went over budget, over schedule, or did considerable business damage. One of my earlier blog posts covers some well known disaster stories.

While successfully completing an implementation is certainly a reason to celebrate. The work doesn’t end there. When your entire enterprise relies on the system for your financial and operational functions, how secure the system is becomes a top priority. In fact, a couple of months ago, the U.S. National Counterintelligence and Security announced that it will share classified security threat reports to critical telecommunications, energy, and financial businesses in the U.S. These threats target the supply chain by attempting to hack and manipulate ERP/supply chain software systems in order to disrupt and/or steal enterprise data.

While this piece of news sounds serious enough, there are some basic guidelines that all organizations can follow. Based on ERP Software Blog, below are some risks to watch out for and how to manage:

• Outdated and unsupported software. Using outdated software can lead to integration and compatibility problems, but not updating software also means that the system is open to software security vulnerabilities. Updating software as soon as new security patches become available makes it harder for hackers to gain entry.
• Technical personnel has access to make large scales changes to program behavior. Oftentimes, security is focused on external threats and end-user security and permissions. But controls should also be placed on the developers of the ERP software/system so that technical staff cannot make unauthorized changes that can drastically change the behaviors of the system or interfere with the business data.

Nintendo has done it again. A few days ago, Nintendo released the NES Classic Edition to much anticipation, only to have units sold out within minutes from stores across the country. This certainly hasn’t been the first time the company seemingly fall short in terms of meeting demand with sufficient supply. The Wii console was notoriously difficult to obtain for nearly years after its début, and more recently, Nintendo’s amiibo (a near field communication device in the shape of popular Nintendo characters that lets players store personal gaming information) also experienced supply shortages.

Since Nintendo has always been pretty hush about any internal manufacturing problems, this has lead to a lot of speculation about whether the company’s supply issues have been intentional or if they’re just really bad at demand forecasting. Purposely keeping supply way below demand might seem counter productive when it comes to selling products, but it’s actually a technique that could drive up sales in the long run. For instance, when lots of customers are hoping to buy a product but cannot, then these stories tend to quickly generate quite a bit of hype and attention. It gets more people interested in the product, which usually means more sales once units arrive back in stores.

So what does this mean for Nintendo’s material planning process? Nintendo would need to determine how many units of the console it hopes to sell and over what period of time. Generally, forecasting is done on past sales data coupled with some market analysis, but for new products, this is not always a sure thing. I would imagine that they have a pretty high sales target in mind and have planned out the materials for an initial production plus future production after the first release. The extra public hype generated from the early storages is supposed to bring actual sales closer to the targeted sales goals.

However, there is a risk to releasing a limited number of units during the first round. Nintendo has other competitors in the gaming console market (Xbox, PlayStation) and making customers wait could lead to those customers losing interest and buying another console altogether. If they don’t end up selling as many units of the Classic Edition as planned, then the unsold units means lost sales and a loss write-off.

When choosing an ERP software, companies have countless options on the market today, both proprietary and open source. But the main ones that most people talk about are the big three: SAP, Oracle, and Microsoft Dynamics. Being unfamiliar with all three I decided to look into what the differences are amongst them.

SAP

For me, SAP is the face of ERP software. They are popular with large enterprises that are global and complex in organization levels. Since SAP primarily built its product from the ground up, the various software components are very much standardized and are known to function well together. However, enterprises will have to rely on third party vendors if they need significant customizations for their business needs. As a result, it can become rather expensive.

Oracle ERP

I actually didn’t know Oracle had an ERP product before looking more into this topic. That’s most likely because Oracle acquired other companies with ERP components rather than building one in-house. This approach lets Oracle reach niche markets by obtaining small software companies that cater to specialized needs. Oracle tends to be favored by mid-sized companies that want a more flexible implementation process (as compared to SAP) and have unique needs. It’s noted that Oracle is rated as the most expensive system.

Microsoft Dynamics ERP

Microsoft is somewhat of a hybrid between SAP and Oracle when it comes to their ERP software creation. Microsoft acquired an accounting system software back in 2000. Since then, they have built on it and turned it into a line of enterprise planning software. MS Dynamics works well for small and mid-sized companies due to its simple implementation and similarity to MS Windows. It also offers lots of customization abilities and integrates well with other MS products. Though, users have mentioned that it can take longer to install and tends to have issues integrating with non-MS products.

We all like to hear about success stories. Especially about business applications, where through careful planning, problem solving, and teamwork, Company EFG overcame the odds and achieved greatness. Or how Company LMN did this, this, and this, and became a textbook example of how to do something. How inspirational!

But I think the best stories are the failures: the bigger the disaster, the better the drama. So, I collected some of the best known ERP fails over the years below:

1. U.S. Navy. U.S. Navy began implementing a new ERP system back in 2000 when they tried to integrate their existing subsystems (all 44 of them) into one single system. They tried four different pilot projects (each of them failed), and ended up spending over $1 billion. Nuts. Ultimately, the failure was due to a lack of coordination between project, poor process standards, no transaction standards, and exclusion of enduser for requirements. (Source)

2. HP. HP in 2004, was migrating to a new order-processing and supply chain system in their North America division. Things were going smoothly until a series of small problems snowballed into a massive one that ended up costing the company $160 million in lost revenue. There were three main issues in play: first, the project team had some difficulty working with other parts of the company; second, there were lots of data-integrity issues (Orders fell out between the legacy front-end system and the new system on the back end, which needed significant manual intervention); third, increased demand of products, which put more pressure on the new system. (Source)

3. Nike. In 2000, Nike invested $400 million in updating their ERP and supply chain system… Only to see $100 million in lost revenue and a 20% dip in stock price (not to mention a bunch of class action lawsuits) when they produced too much of one shoe and not enough of another. The new system was suppose to match supply and demand and run a tighter manufacturing cycle. But due to poor software testing and too much faith on the demand forecasting features of their new software, their plans backfired rather spectacularly. (Source) 

What these cases show is that ERP implementation is very complex and things can go wrong very quickly with significant financial impact. But by keeping disaster stories in mind, you can watch out for common pitfalls.

Last week, we were introduced to the basics of ERP systems and went through an interactive class activity that showed us how information gets passed through various organizational departments with the silo effect in place.

The importance of having an ERP system isn’t just to ensure faster communication between departments, but how the departments can access core data faster and with greater accuracy. Nowadays, incoming data can change rapidly and customers often times expect organizations to respond quickly to their needs. Then add the fact that business is now essentially non-stop and comes from all over the world (such as e-commerce), having a sound ERP system in place helps to keep the everyday operational business processes flowing smoothly.

The insurance industry is one type of business that can really benefit from ERP systems. In order to stay competitive with others offering similar products, an insurance company could offer a more customized policy with better rates for customers through an effective ERP system. It’s also possible to see changing purchasing trends in order to come up with new products or target specific types of people for potential new customers. These are common challenges facing the insurance industry today.