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THE BENEFITS OF EXTENDED ERP

The benefits of extended ERP are multi­dimensional and compelling. In covering the benefits we will discuss the results of the APICS/University of Minnesota and Clemson University studies on MRP/ MRP II, and how to calculate/estimate the benefits of implementing extended ERP in advance. We will review the intan­gible benefits and how they might be viewed in economic terms. The benefits discussion will conclude with a look at the defined body of knowledge on re­source management and its value in the era of the "knowledge worker."

APICS/UNIVERSITY OF MINNESOTA AND CLEMSON STUDIES

A picture is worth a thousand words. Figure 8 shows a few common measures from both studies side by side. The first study was done in 1981 and the next in 1986. This is the five-year period during which, on a very mixed basis, com­panies moved from MRP to closed-loop MRP or MRP II. Although the Clemson study had a different mix of manufacturing environments, the information is indicative of significant progress in resource man­agement. Note the inventory turnover performance in the 1981 study is 4.3, and 7.9 in the 1986 study. Estimates of future performance are 5.3 for the '81 report and 11.2 for the '86. I'm not aware of any study since '86 (although I'm confident one must exist), but from my personal experience the inventory turnover performance has improved still more. One large, mul­tinational firm, which builds complex electronic de­vices with 150 factories worldwide, has a goal of 20 turns on an aggregate corporate basis! I've only dis­cussed one of many performance indicators in the interest of space and time. The numbers tell the story. Extended ERP produces considerable business ben­efit, and can't be ignored.

How does one determine the potential for improve­ment within a company? First, identify what perfor­mance measures are considered in determining "world class" performance. Considerable time, effort, and prac­tical experience have gone into their compilation. Then determine how your company measures up to them. Often some of the data re­quired to make these determinations aren't easily found, but since you'll fre­quently use this information in the fu­ture, the investment to find this data is worth it. Since the benefits projection will be read by a mix of conservatives and progressives, a return on assets (ROA) cal­culation should be done. Figure 9 high­lights the major elements. For each box, there is a set of calculations that have long been accepted by those in finance, and ROA logic is in the public domain. For those who have mastered or are dabbling with activity-based costing (ABC), I would suggest that for purposes of decision support, a benefits calculation would be useful. Movements such as business process reengineering focus on processes, the natural domain of ABC. The intangible benefits associated with extended ERP could have considerable economic value, benefits such as

     Improved customer service

     The ability to grow without proportional cost in­
crease

     Reduced management expediting, more time to plan
(appropriate in the era of the knowledge worker)

     Improved product quality, less rework

     The ability to maintain accurate records for govern­
ment regulations

     An improved "quality of life," employee morale, and
job satisfaction

     Improved accuracy of management information.
An overlooked benefit of extended ERP is that there is a need for considerable education and training re­quired to successfully implement it. While at first that might sound like a negative, it isn't. Virtually everyone is reintroduced to what is now a huge and rich body of knowledge. Being aware of and expanding the body of knowledge is important in holding onto a competitive advantage. The world isn't standing still.

In summary, the economics of ERP are proven and compelling.

A multiple choice quiz—strictly to test the effective­ness of the discussion facilitator. Please choose all that are correct:

     The quantitative benefits of extended ERP have not
yet been established but are projected to be consider­
able.

     Predicting benefits is an art and not yet a science.

     Reputable institutions have established the quanti­
tative benefits of extended ERP.

WHAT IT REALLY COSTS TO IMPLEMENT EXTENDED ERP

For those of you who have implemented MRP or closed-loop MRP, MRP II, or ERP in the past, you might recall the "TEN COMMANDMENTS OF." The Ten Com­mandments really addressed issues of leadership, intent, affecting positive change, focus, and quality of effort. These are the real currency of organizations. Guess what? When I pulled out the list and compared them to the success factors for extended ERP, they are a perfect fit. Talk about a timeless document! The commandments:

1.        Thou Shalt Acquire and Sustain thy Management's
Support.

2.        Thou Shalt Establish Accountabilities for the Accu­
racy of thy Data.

3.        Thou Shalt Set Objectives and Measure thy Perfor­
mance Against Them.

4.        Thou Shalt not Place thy Least Experienced in thy
Company's Most Critical Position.

5.        Thou Shalt not Economize on Educating thy People.

6.        Thou Shalt not Endeavor Implementation Without
Experience.

7.        Thou Shalt not Duplicate the Informal System on
thy Computer.

8.        Thou Shalt not Bear False Witness Declaring Ex­
tended ERP a Data Processing System.

9.        Thou Shalt not Omit Tasks in thy Haste nor Pro­
long Them for thy Comfort.

10. Thou Shalt not Expect Extended ERP to Eliminate
all thy Problems

IN SUMMARY

Extended enterprise resource planning is the result of over 30 years of trial and error, innovative thinking, and leveraging of computer technology. The business con­cepts embedded in it have and will continue to produce tremendous competitive advantage and economic ben­efit to the manufacturing industry. Extended ERP is the right tool for the challenging new millennium.

A multiple choice quiz—strictly to test the effective­ness of the discussion facilitator. Please choose all that are correct:

      Extended ERP is essentially a data processing system.

      Data accuracy does not influence the successful use
of extended ERP.

      Senior management support and involvement is re­
quired to successfully implement and use extended
ERP.

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

Lean Manufacturing Articles and click on Series 13


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