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.
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.
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
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