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ERP Implementation
Part 1 of 4


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THE PROBLEM

The ERP software industry is having a profound impact on manufac­turers. Boston-based Advanced Manufacturing Research (AMR), among others, estimates that the ERP software market will reach ap­proximately $19 billion by the year 2001.

Yet worldwide, manufacturing organizations report losing hundreds of thousands of dollars during an automation process. Companies re­port months of chaos, canceled orders, and even negative returns-on-investment (ROI). According to Dick Kuiper, vice president of Expert Buying systems, an American company specializing in helping manu­facturing organizations choose ERP systems, an estimated 25 to 50 percent of all ERP/MRPII projects experience significant failure dur­ing implementation. In addition, 75 percent of all new systems imple­mented are considered poor implementations because they fall short of customer expectations. An astounding 90 percent of all major system projects are significantly over budget, either in money, time, or both. In fact, a 1997 article on the frontpage of the Wall Street Journal claimed that implementing an ERP system was the corporate equivalent to "root canal"—ouch.

Why so many implementation failures? The answer is simple— manufacturing companies do not spend the initial time or effort to pre­pare their existing business processes for automation. In a manual sys­tem, many "workarounds" and compromises can be utilized to circum­vent bad or inefficient processes. However, when processes are auto­mated, circumvention becomes difficult and tiny mistakes are magni­fied. Automating complex or non-value-added processes with an ERP system will not increase production or improve performance.

THE SOLUTION

ERP implementation failures are a result of focusing the implementa­tion on automation without the critical steps of attempting to under­stand and then simplify business processes. Unfortunately, many com­panies believe that automation alone will improve performance and lead to productivity gains. However, automating complex or non-value-added processes with an ERP system will not increase productivity or improve performance. The most important element to a successful implementation is to follow what is known as the USA Principle— understand, simplify, and then automate.

Understand

The first step toward avoiding implementation failure is to carefully conduct a business needs analysis. Manufacturing organizations need to understand the actual business need driving the ERP implementa­tion prior to implementing or even purchasing an ERP system. This is part of the "understand" step of the USA principle. This initial step is of extreme importance. In too many cases, an ERP system is purchased to achieve vague and somewhat idealistic goals that cannot possibly be accurately measured. An example of this type of goal is "reduce inven­tory." What exactly does that phrase mean? Reduce what inventory? Purchased parts? Work-in-process? Finished goods? All inventory? At what point in time are you measuring the level of inventory?

After you identify what inventory you are going to reduce, by how much are you going to reduce it? Why? What is the anticipated ROI? Is it possible to reduce inventory without the expense of the ERP sys­tem? If so, by how much and how much more can you reduce inven­tory with the ERP system in place?

The analysis of business needs provides an organization with mea­surable, concrete results that can be used to determine the progress of the implementation and to see if the implementation should be under­taken at all. The reason why so many ERP implementations fail to meet customer expectations is that the implementation project has an inadequate or missing business needs analysis.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 11


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