By Joe Paradza
STRICTLY speaking, enterprise resource planning (ERP) is not software. It is in fact an enterprise wide set of management tools that balances demand and supply with the ability to link custom
ers and suppliers into a complete supply chain. This is done by employing proven business processes, and providing cross-functional integration among marketing, sales, operations, manufacturing, logistics, finance, product development and human resources.
ERP emerged about four decades ago in the manufacturing domain as material requirements planning (MRP). This relatively simple technique uses the master schedule, bill of material and inventory records to determine future material requirements based on what is planned for production and current stock levels. MRP evolved into closed-loop MRP, which provided a feedback mechanism from the execution functions back to the planning functions.
The next step in the evolutionary process was manufacturing resources planning (MRPII). This is a method for planning all resources of a manufacturing company and incorporates capacity planning, marketing, financial planning and overall business planning and provided the ability to do “what-if” analysis.
After MRPII came ERP, which is a set of business processes broader in scope and more effective in dealing with multiple business units in a global environment.
ERP systems are the software applications and architecture that support the ERP philosophy and extend to usage in non-manufacturing organisations.
ERP implementation success and failure
Many companies in Zimbabwe and elsewhere have implemented ERP systems since the nineties, attracted by the promise of seamless integration of critical information flows.
A successful ERP implementation can provide management the unified view and business intelligence needed to develop the best strategies in a volatile environment. The potential benefits include increased sales, increased direct and indirect labour productivity, reduced purchase cost, reduced inventories, reduced quality costs, increased compliance and improved cash flow.
And yet it‘s not pretty out there. Success in implementing ERP is generally rare and in many cases, benefits have not been realised, system functionality is barely used and business processes have not changed.
From documented history, common reasons for ERP implementation failure include;
Poor education (not understanding the objectives of the new system);
Lack of top management commitment ;
Inadequate requirements definition;
Poor ERP package selection;
Poor project management;
Inadequate resources employed by the client;
Internal resistance to changing the “old” processes
Unrealistic expectations of the benefits and the ROI;
Inadequate training (users do not properly know how to use the new tools);
Unrealistic time frame and expense expectations.
An ABCD classification system, developed by Oliver Wight for MRP, is still relevant today for gauging the effectiveness of an ERP system. Class A implementations show effective use of the system company-wide and generate significant improvements in customer service, productivity and costs. At the other end of the scale, Class D implementations are characterised by information that is inaccurate and poorly understood by users, providing little help in running the business. It would be informative to discover how many ERP implementations in Zimbabwe would be classified better than C or D!
The prescriptions to the implementation failure problem are many. However, one key lesson to learn from these past failures is that a company must have a good internal team and an effective external partner. This author has watched in horror as a self-proclaimed “expert”, who couldn’t tell the difference between lean manufacturing and a lean piece of steak, tried to implement a production planning system!
Another key lesson is the importance of people and management of change. About 75% of all organisational change programmes fail, and it is largely because employees feel left out of the process and end up lacking motivation, skills and knowledge to adopt new systems and procedures.
Implementing the right technology infrastructure and streamlining business processes are essential ingredients for organisational change. But the human element that needs to make use of these systems in order to supply the leadership, judgement, flexibility and innovation needed to eradicate organisational silos and achieve business success is the most critical element, and the least understood.
Most executives will have heard the phrase, “Change is the only constant”. However, when it comes to ERP systems implementation, they appear to forget this maxim and tend to view change as a discrete event, a disruptive aberration that needs to be accomplished quickly so that the organisation soon settles back to steady state operations. They adopt an “unfreeze-change-refreeze” model that does not support continuous improvement. In this environment, ERP benefits are not tracked, effectiveness is not evaluated, retraining is not done and new functionality is never considered.
The future of business applications
In the 1990s, the evolution of business software solutions was characterised by ERP and business process re-engineering combining to give us productivity increases. In this decade, service oriented architecture (SOA) and business network transformation are promising competitiveness gains. Drivers of the networked economy are globalisation and speed of change. The imperatives of this economy are a focus on the end customer, collaborative relationships and co-innovation.
SOA is an architectural style that guides all aspects of creating and using business processes, packaged as services, throughout their lifecycle, as well as defining and provisioning the IT infrastructure that allows different applications to exchange data over networks and participate in business processes regardless of the operating systems or programming languages underlying those applications.
Forward-looking providers of business applications have begun using Enterprise SOA to provide solutions that allow configuration of the business more easily to needs.
Regardless of whether one is considering traditional ERP systems or Enterprise SOA, it is important for executives to remember that it is not the organisation that adapts to change, it is the people. If one is embarking on a new ERP implementation, one might want to consider emblazoning the front page and the header on every page of the project charter with the words, “It is the people, stupid!”
Paradza is an associate director (advisory: systems implementation & effectiveness) at PWC.
Disclaimer: This publication contains information in summary form and is therefore intended for guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. Neither PricewaterhouseCoopers Zimbabwe nor any other member of the global PricewaterhouseCoopers organisations can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. For further information or comments please contact marketing email@example.com or 338362-8.