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Articles | September 26, 2013

Why Your ERP Got Fat

There is an urban myth circulating that ERP systems are bloated systems that don’t lower inventories, don’t improve fill rates, or fufill other original promises. We do see highly publicized...

By WorkWiseSoftware

There is an urban myth circulating that ERP systems are bloated systems that don’t lower inventories, don’t improve fill rates, or fufill other original promises. We do see highly publicized ERP implementation failures which some people point to as proof of this premise.

The fact is, however, that ERP systems perform their functions quite well, and to a precision level that is unequaled in any other automated business system. What we will address here, are some of the common problems that truly cause companies to be less than successful with their ERP implementations.

ERP Implementation Problem:   Purchasing Bargains

Many companies order materials from suppliers based on a discounted or bargain price.  These bargain suppliers often are quite unreliable when it comes to delivery schedules. Bargain purchases are often made to meet corporate mandates for price reductions which force people to order goods from less reliable vendors. Price decrease initiatives (and associated poor delivery schedules) tend not to consider the resultant cost of extra inventory, or lost production, or lost customers due to fill rate problems. To compound the problem, many “smart” planners’ managers pad the delivery times needed to help compensate for this problem. The results are disastrous for the whole organization.

ERP Implementation Problem:   Sloppy Vendor Deliveries

This is much like the bargain purchase problem, except that the cause is not the bargain part of the purchase. The problem here is the failure to apply discipline to your suppliers. If your suppliers are delivering late, you are causing major schedule disruptions on your shop floor. These disruptions will always result in extra inventory and additional costs.   If your vendors just aren’t performing, you simply need to fire them. Don’t ever take the course of adding inventory to compensate. Fire them and find a reliable replacement vendor.

ERP Implementation Problem:   Ordering Past the Bottleneck Capabilities

Once you load your bottleneck operations past their capacity, you are going to experience traffic jams that will build your WIP inventory, slow your production and decrease your on-time deliveries. You simply can’t plan beyond capacity, then order materials for this overload and expect that your inventories will not swell.   A similar example of this occurs when sales (or the President) push a “special” order that is necessary to save one of the best customers. The end result is the same- bloated inventories and poor shop throughput. The effect is similar to the freeway during rush hour, once you have exceeded the capacity of the road, it all jams up and slows to a crawl. If you would like to see where your bottlenecks are, take a quick peek across your shop. The operations with the most inventories stacked in front of them are probably your worst bottlenecks.

ERP Implementation Problem:   Maintenance Execution is a Foreign Concept in your Shop

You can’t plan your shop to utilize the full capacity of your equipment if you don’t have a method to maximize the uptime of that equipment. Too many shops are subject to the random shock of equipment failure. With the availability of today’s software, there is no reason why you can’t study breakdown trends, make updates before breakdown, and uphold a routine maintenance plan. When you leave your equipment maintenance to chance, your entire shop can become subject to breakdowns (similar to accidents on the freeway) which will cause slowdowns and excessive buildups of inventory.

ERP Implementation Problem:  Your Sales Forecast is Bad

This is one of my pet peeves, and is the worst excuse for poor ERP performance. I have long heard of push vs. pull approaches, which, to me, beg one question. If you customer requires your products in a lead time that is less than the lead time it takes to produce that product, you will necessarily have to forecast. It is that simple. And once you must have a forecast, you will always be subject to forecast accuracy. This is a problem that occurs with any system, and is not specific to ERP alone. If you must have a forecast, and that forecast is poor, it doesn’t matter whether you use Kanban cards, or ERP; your results will be poor. What is needed is an education for your forecasters on the immense cost of poor forecasts, and the importance of spending the time and effort to improve those forecasts. Once this is done, you can then balance the cost of forecast error, against the cost of lost customer orders (if you are short), or obsolescence (if forecasting too much). ERP will then execute precisely to your forecast.

ERP Implementation Problem:  Quality and Rework

Similar to the maintenance section, quality and rework problems can disrupt the shop work flow. If your processes are weak, and problems often occur, you will have problems executing your planning schedules. Quality programs now exist to correct these problems, but are beyond the scope of this article. However, correcting quality problems will not only improve the quality of the product for your customer, but will substantially lower your costs and inventories in your production operations.

ERP Implementation Problem:  The Multiplier Effect

There is an engineering phenomenon that illustrates how small deviations can have a big impact on final results. For example, if each individual part in an automobile was .001 too big, the effect to the total vehicle length could be as much as two inches. This, for quality reasons, would cause the car to be rejected and unavailable for sale to the customer.

Production planning has similar phenomena, whereby each failure in the production chain will cause the next operation to over plan in order to compensate. So, if supply parts are continually late, planners learn to pad the lead times to try and compensate for this. If machine uptime is considerably less than the planned amount, planner learns to pad the queue times to compensate for this. This process can be repeated over and over again, until the entire plant is bloated with inventory, bogged down in inefficiency, and finally late in everything delivered to the customer. The end result is a production operation that has substantial excess costs and subsequently fails to meet customer needs.

Like training for athletics, the secret is not to plan for failure, but to begin the process of executing for success. Top competitors are not better at planning for the worst case, they are better at executing to the best case. ERP is a precision instrument that can be the vehicle for your best case planning.

ERP Implementation Problem:  Your Standards are Ancient

ERP uses standards to plan your shop in great detail. Purchasing order lead times, operation cycle times, BOM’s, and a wealth of other standards are used (with great accuracy). Now, what would you expect to happen if these standards become stale and incorrect? Exactly, if your standards are bad, your planning is bad, and ERP will execute precisely to these bad standards. Taking a little time now to update your standards, will yield significant results.

In addition to ensuring that your more static standards are accurate, it is also critical that dynamic data such as your inventory balances must be very near if not at 100% accuracy in order to avoid MRP failure.

ERP Implementation Problem:  The Invisible Time

ERP is a masterful planning tool that matches parts, and operations to the exact moment necessary to lower your costs and improve your results. However, it can only plan what it knows. One common area that is often unplanned involves the purchase of raw materials. It is common practice to use standard lead times for parts that include a standard time for ordering. However, some of these parts require special ordering procedures that take much longer than the standard time of ordering. Not planning for this extra time will cause shipments to arrive later than the planned date, and disrupt the shop schedule. This, in turn, causes backups of inventory and delays in the scheduling while waiting for the late parts. There are other areas of the manufacturing process that are also subject to this unplanned problem. You need to make sure that you understand your processes completely and include all the required steps and time needed to execute your plan.

Summary – Get on a Diet Plan Now

ERP can produce exceptional results, if you have the discipline to run your operations correctly. If you feed your system donuts, and fatty cheeseburgers, you can expect lethargic results. If you use it as the precision tool that it is, you will see results that will exceed your expectations and win against any competition.

The first step to achieving these results is a complete analysis of your operation to determine where the problems exist. You can then establish a step by plan that will guide you towards success.

See your knowledge consultant today for help in how to implement these techniques and guide you towards the results that are possible.

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