Thinking of an ERP? You got to know when to hold ‘em.

Prefer to watch rather than read?  Just click here to watch the video – 5 mins, with captions.

The ubiquitous ERP – technically “Enterprise Resource Planning”, the technology system that in theory connects up all of your stuff so the magic can happen…and in reality, the cause of significant pain and ongoing justifications throughout many organisations.

Here’s what you need to know if you’re anywhere near one of these – it’s not too late.

Introducing Gerry Fish

This is actually a story about Gerry Fish – a fictional character in one of the brilliant Eli Goldratt’s last books called Necessary But Not Sufficient.

I would make this compulsory reading for anyone involved in deciding about ERPs…particularly CEOs.  From Goldratt’s description,  I reckon Gerry would look like this:

Gerry’s situation was being the MD of Stein Industries, a manufacturing business (and don’t get fooled into thinking that this won’t apply to you because you’re not manufacturing  – you can make the tiny leap just like you can swim in pools and the sea).  In his industry, time from order to delivery was crucial.  He’d been successful at 10 weeks, but if he could get the lead time for customers down to seven weeks…he’d be on a winner.

Enter the ERP

The way to do this was the ERP, and in particular through being able to do ‘pre-production’ (the quoting and arranging of materials stage before production itself) much faster, a stage that would usual take three weeks.

Visually…this was the idea:

And….Gerry went to the effort to talk to customers to ensure that they indeed would give him more business by being able to deliver their orders three weeks faster than anyone else.  With the answer being yes, it was therefore simple maths to see that investing in the ERP would make him money.

So he did.

And it didn’t happen!

Here’s what did:

By taking the 3 weeks off the front of the process (to keep things simple we’ll say this stage now happened instantaneously), this now meant that an extra three weeks worth of work was pushed into production.  So a system that was set to handle seven weeks of work at any one time now had to handle 10 weeks of work.  Like having three extra bags of shopping thrown on top of the seven you’re already carrying – things get heavy!  And when things get heavy….things slow down…and the total lead time from a customer point of view was back to 10!

And therefore all the extra profit that was going to pay for the ERP…gone!

Sound familiar?

Looking Closer

So…it was time for another look.  The book doesn’t go into detail, so I’ll embellish with some numbers so it make sense.

Under the old system, it worked like this – 3 weeks pre-production, 7 weeks of production, with production broken down into three stages that took two, four and one week in turn. Here’s production:

As you can see, the work would naturally build in front of the middle stage in production, so this is our ‘constraint’ work centre, or as I prefer to call it – the ‘Pacesetter’.

When the extra load came in thanks to the ERP making things so fast in pre-production, the pressure naturally fell onto that Pacesetter work centre.  As more customers complained because their promised seven weeks wasn’t happening, the Pacesetter had to continually change orders and scramble. Imagine working in a service deli without a numbering system so customers all shout at once.  Hard to be efficient right? 

So, the Pacesetter’s average time crept up from four weeks to seven due to all the chaos…and we ended up at production taking 10.

But all was not lost.  The key to delivering on customer expectations would be to make a system that could handle the 10 weeks of load coming through in the original seven weeks.  And this is where the ERP came in. 

By using the technology not just for fast quoting and materials arranging, but to also connect the way work occurred so the Pacesetter work centre was always provided with the right work at the right time…their efficiency rapidly increased.  In other words, giving full effect to the ‘E’ in ERP, by making the whole Enterprise work better…and this was done by helping the Pacesetter area.

But wait, there’s more

Gerry then realised that some customers would be willing to pay a big price for super-quick service.  Under the old way of doing things, expediting an order would be good for that one customer, but the chaos it would cause for all the other orders would slow things down to the point that they would lose other customers.  Not anymore…

With some modifications to the ERP, they were able to ensure the materials and sequencing of expedited work could occur without any negative impact on the cycle-time of regular work.  The extra profit from offering the expedited service easily covered the cost of making the ERP changes, leaving the organisation not only in a better financial position, but operating more smoothly.

What To Learn From Gerry

A better financial position, happier customers, and operating more smoothly.  Sounds like what ERPs promise doesn’t it? 

Here’s what Gerry did that isn’t as common as you might expect:

1. He got clear on the benefit first

Before any investment in an ERP, he had the analysis done as to how his work could be improved to create more value.  As my Dad once said when I showed him a webpage in 1997 and I enthusiastically told him that his business needed one:

“Son, that’s great.  And if you can show me how that will make my business more money, I might even get one.” 

It’s a simple question to ask any ERP salesperson, and I’ll give you a hint – nicer looking financial reports are not the answer.

2. He confirmed the changes would be valued

Even after doing the analysis that revealed an ERP would in fact create more value, Gerry went to customers to confirm they would see it the same way.  Your industry might have profit or funding as a support to its ultimate purpose, but if the implementation of an ERP is supposed to create, say, more value for the community…it’s incumbent on those deciding to figure out how that will happen and ask whether it in fact would before investing.

3. He redesigned the processes before implementing the ERP

Still before implementation, he worked out the redesigned work processes.  The analysis of the system, the identification of the constraint or ‘pacesetter’, the deciding upon the information and set up that would be required to create the value…all that was done at the start so the ERP would in fact create that value.  We might say that he ‘pulled’ the technology toward him to make the improvements, rather than ‘pushing’ it onto existing work processes.

4. He used the ERP to support the new ways of working

By doing all the above, the ERP was not foisted onto his people.  Instead, it became a support to a better way of working, the enabler of a way of operating that created more varied and faster throughput, therefore providing more value to customers.  The ‘enterprise’ was indeed able to act as a more unified whole because the benefits and mechanisms of doing so were worked out and put in place before the ERP was let loose.

Bringing it Home

A word of warning – going through steps 1-3 above can result in disappointment if the idea of a spanking new magical system has got you excited.  You’re likely to discover that a bit of work on your old systems can create a large portion, perhaps all, of the benefit you’ll uncover by looking at how your enterprise’s work processes actually create value.   And a small investment in some connecting applications and architecture can handle a lot of the rest. 

And if a full or half-blown ERP can deliver that value you can now be confident is possible…you’ll have a much easier time selling it to your staff. They are facing the reality that knowledge and skill they’ve built up in the old systems over the years is not going to be worth much anymore.  Sure, we can all learn how the new system works…but it’s nice to have a good reason to go through that learning pit!

Bells and whistles are great…when those who you give you money value bells and whistles.  For everyone else…let’s do the work first.

Because, as a man who looked a lot like Gerry Fish once said:

“You got to know when to hold ‘em”

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