ERP – Do We Need It?
Today’s business world is rapidly changing, bringing a combination of danger and opportunity for materials and operations professionals. Every company is looking at the Internet, some eagerly and some because they are frigthened about being left behind. There are success stories about companies changing how they deal with their customers and their suppliers and how they leverage Web technology to bring their employees together.
However, there are other stories in the press about companies putting in ERP systems that took years of effort and millions of dollars, which ended up failing miserably, or companies losing market share and sales because of computer sustem failures. These events have led to a question quietly being asked: Do we need ERP or is there another way?
The answer is simple. We need ERP or something like it because the fact is that companies need systems. Companies are going to be designing products, managing change of the products, processing orders from customers, producing the product, shipping the product through scheduling transporation, etc. All of these activities need information systems to complete the process and transaction. Plus, companies also are doing different types of planning.
Companies need and generate a great deal of vital information, so they must have systems to manage the information and present it in a usable form. More importantly, these information systems interact and they need each other to maximize the benefit for the customer and the organization. Organizations need ways of collecting and analyzing data to support the “what-if” scenarios management needs to develop the future vision of the organization. All these facts are behind the growth of ERP systems over the last decade. The vision of combining actions – transactions in departments, sharing information between departments, and analyzing the data for management action – led to SAP, Peoplesoft, BAAN, etc.
If these facts are true, then why the questions? To be blunt, it’s because of management and leadership failures. Companies can fail in implementing these sophisticated and complex pieces of software. The failures can be of such magnitude the companies’ very existence can be threatened. But, I’ve never heard that the failure was caused by the code not working or the computers failing. What I’ve heard, seen, and read abouot in business journals, reports, and at meetings is a combination of management incompetence, petty politics, and ignorance.
I’ve been involved in several major ERP installations. I’ve seen or been part of projects that were two years behind schedule and millions of dollars over budget. I’ve seen an aerospace company spend millions on an MRP system that, when implemented, the only benefit was that the organization knew in real time instead of in batch mode that it was 80 percent past due on the floor. However, I’ve also been involved in ERP implementation projects that were completed in 6 or 8 months and greatly benefitted the company implementing new procedures in master production scheduling, forecasting, and purchasing and improve performance by 50 to 80 percent and cut costs by 50 percent.
Most people reading this column probably have had similar experiences and are also wondering why. The answer is simple – it’s called management. Companies and organizations that successfully use information systems have competent, driven management and leadership, who are competent in their understanding of how organizations work and how powerful information systems can give organizations a major boost, and driven in their ruthless drive to achieve the required results. A third characteristic of this competent management is a willingness to listen and involve people.
Unfortunately management like this is rare. Peter Drucker once wrote that 85 percent of companies have incompetent management. Dr Deming stated that 85 percent of problems in an organization are created by management. Both of them are right. Competent management that can visualize the future and motivate the organization are rare, so failures of systems are likely to continue.
What has changed is that today’s business climate is much more demanding and less forgiving. Organizations will either successfully meet the challenges or they will fail. The tools and information will be there. The key will be in using them properly.