So why implement ERP systems?
It would seem that this issue has long been resolved and everything is clear. No, guys, it's not like that, it's not like that, guys. I myself wrote on this topic a few years ago, but as the years passed, the situation changed. And our country has changed a lot, it is also important.
I constantly negotiate with business owners and I can say unequivocally that understanding why to implement ERP systems has come to far from everyone.
When you ask such a question, you can hear many different answers.
For example:
')
And less often (but more and more often) such answers sound as:
Let's still try to understand why even in difficult economic times, you need to implement ERP systems.
When I am told that to automate business processes, then I ask the question "why?". Let's imagine the situation that business processes are still automated. And if at the same time stocks increased?
You will say that this is impossible. No, it is possible. Simple, mindless automation does not always lead to positive results.
Real life example:
A couple of years ago, I went to a large enterprise that produces pipe fittings. We conducted a tour of the plant, the chief engineer was very praised by the new crane and processing center. And then there was a meeting with the financial director, where everything was not so bright. The financial condition of the company has not only not improved, it has worsened. And the new automated processing centers only exacerbated this situation. Work in progress began to creep up.
Here you have implemented the ERP-system. Your business processes are automated. Let's now take a look at your financial statements. The expenditure part has clearly increased. After all, the implementation of ERP is a costly business. And then it also needs support. This is an additional expense. If, at the same time, the implementation of ERP did not give even a chance to increase the revenue side, then, unfortunately, I have to admit - the introduction of the ERP system brought only losses to your company.
If you are automating coolly, for example, the process of accepting applications from customers, invest in promotion, but do not solve the problem with procurement management and with competent inventory management, the situation from such automation will only get worse. In this situation, the flow of orders will increase, but the percentage of satisfaction of demand will fall, and stocks are likely to grow.
When they tell me that they are implementing ERP to get rid of the mess, I ask the question "do you think that, until the era of ERP systems, there were no companies in which there was order?". After all, ERP systems were invented not so long ago. And before that, what did the company do?
Yes, and what is really there to conceal something, people who know this market, will confirm that often the introduction only introduces even more chaos and mess.
Personally observed such situations, and repeatedly. When after several years of operation I was invited as a bulldozer, who will have to demolish everything and redo it.
Life shows that this is not always possible. Sometimes you have to integrate with third-party applications through an API, and there’s nothing wrong with that. If the company has some kind of software that perfectly covers some part and brings real effect, then why remove it? Let it work. Yes, in the end, the entire information system will not be monolithic. Neither what?
If not a monolithic and not a single system brings more effect than a single, then ...
Until now, many of the world's largest companies still have DOS products. Why?
And because the bourgeoisie can count money.
Management genius Jack Welch , when they came to him with another project, asked one simple question: “What profit will the company receive after the introduction of this innovation?”. If the speaker mooed something unintelligible, Jack simply put it out the door, and sent the report to the waste basket.
Therefore, if you are offered to implement the ERP-system, because it is modern, then ask the old man Jack, who offers a brilliant question, to the proposer))
Toyota Kanban initially worked not only without ERP, but without computers at all. Toyota’s performance is an icon in the area of ​​efficiency. Yes, at the end of the last century, the market paradigm changed. The market has become a buyer's market, not a manufacturer’s market, and the use of kanban has become problematic. In many enterprises, even impossible (wrote in more detail here ). But the fact of the brilliant work of this method of production management speaks volumes.
I do not know where this myth came from, but this is 100% bike. Who will you fire? Storekeeper? Accountant? The seller? Purchaser? Financier?
Well, well, if you had a separate financier who was involved in the preparation of financial statements, then ok. But this is a drop in the ocean.
In 2008, a rather large company approached me, several hundred employees. At this point, the company introduced the American ERP system for several years, for which it spent about 600 thousand euros. So not only failed to dismiss the financiers, who were three. But we also had to contact us so that we could build the financial statements of the company, because we didn’t succeed in making it fully into the pathetic ERP. And we pay not only for the introduction, but also to pay for support.
An excellent reason for implementing an ERP system. Bravo to the one who puts it as a task to be solved.
It is the quality of planning that brings a huge effect to the company. But only in one case - if the corresponding techniques are incorporated in the ERP system . Otherwise, the company will not receive anything other than an increase in the expenditure portion in the income statement. Where are you, old man Welch ...
A competent approach to this process can reduce inventory, weaken the company's dependence on loan funds (and, consequently, reduce the cost of their maintenance), increase customer satisfaction / loyalty, reduce production time, etc.
Those involved in manufacturing / trading know that poor logistics management often leads to disruptions in delivery times. The stock is what is now not needed and what is not needed.
And there is nothing to blame the buyers. Sometimes they have to buy hundreds and even thousands of items. And a person is simply not capable without the help of special techniques to correctly build a procurement queue. Without the help of these techniques, he, at least in 50% of cases, will not be doing what is necessary and not to buy something.
The same applies to logistics. Without special techniques for managing stocks of warehouses / shops can not do. Yes, using simple kanban for inventory management (bring what you sold) will already give a hypereffect. But the kanban is not able to respond to changing demand and is not able to automatically adjust inventory levels. And the techniques of the Theory of Constraints are capable.
Improper dispatch of tasks in production that can drive production to a dead end. Literally. The speed of output drops just to catastrophic values, work in progress is growing.
The very factory about which I wrote above got this problem in full. The real output speed from the factory differed from the design hundreds of times !!!
The customer ordered many items, but the order had to be shipped immediately and all. Half of the order was fulfilled and lay in the open area and frankly rusted, and the other half got stuck in production. For the "rust" and then fines have to pay. For late delivery, too. To combat rust, special preventive measures are invented that cost money. In short, horror.
A very interesting task that can bring real, real money to the company. And you can write here endlessly.
To reduce inventory, there are several main areas:
Here you can also talk for quite a long time, I have already written many times on this topic, cited examples. For example here .
The use of working methods can dramatically solve the issue with stocks.
I remember such a dialogue. I sit in the office of financial director. An assistant calls him and complains that the banks are attacking. Need to pay interest on loans. At the same time, stocks in the warehouse exceed a billion rubles. And constantly growing. That's where these loans go.
The situation when there is a product in one warehouse / store that is not for sale, and in another store this product is not enough, I think, is familiar to many. This is also a consequence of the lack of management techniques. And the ERP system is implemented, and everything seems ok, but there is no benefit from it.
Optimization of the range is also an important nuance. What goods should be withdrawn from circulation, and which one should be kept in warehouses? Which product brings more revenue to the company, and which less. One product can bring 100r profit, and another 1000r. But in the warehouse it is necessary to keep the one who brings 100 rubles, and the one that brings 1000 rubles. In general, withdraw from circulation, because it is stupidly not for sale. This is easily possible.
This is the time for which you are able to complete the order. This is not the time for which you are performing an operation. This is the rate of output. From the moment the order is launched into production until the moment of shipment.
A very important point. And here without management techniques with the task can not cope.
Here and methods of dispatching tasks and methods of procurement management and synchronization of procurement with production and many other things must be applied. Otherwise, production turns into a black hole that absorbs orders. Everything enters into it, but nothing comes out. Production begins to devour the company's money. Orders are literally stuck in production and it turns into hell. Chiefs run around the shops and push orders. I myself have observed such a picture repeatedly. And the ERP system there is also implemented and the whole department in the company was created to support it. And there is no money to pay% on loans ...
And the philosophy is very simple - the faster you release products from the factory, the faster you get the money. The longer the order is in the process of production or lay on hold, the worse for the company. To solve this problem, it is absolutely not enough to implement an ERP system. To solve this problem, an ERP system is needed, which incorporates techniques capable of solving this problem. Feel the difference?
Shiping orders on time is the Achilles heel of many companies. This is a very difficult task.
However, if you apply the correct methods of procurement / production management, it can be solved.
I have a client who immediately tells clients that in case of non-loading on time, he will pay a fine. It is the only one on the market who can afford to say this to customers. Because he has no problems with shipping on time. We somehow thought he had this percentage, so he exceeded 99%. This is just space for an average company. This level is impossible if you just implemented a modern ERP-system or automated business processes. This is only possible if the implemented ERP system knows how to achieve this result.
Here is a simple example. An owner of a regional construction company came to me to negotiate. The company finishes two years in a row with losses. But no one knows the reason. And there is no investment, but there are losses.
Transactions are very complex, last for a year or two. Some projects just eat up the profits. And to understand which ones the company cannot.
When the project starts, it is definitely profitable. But then it changes in the process and the profit disappears. This is a difficult question, we spent several years developing methods for its solution. I briefly described these things here . This task is also impossible to solve simply by automation. Because it has nothing to do with automation.
ERP-system should bring the company a very specific effect, which should be expressed in money. And this is only possible if the company will apply certain management techniques that can give this effect and which are incorporated in such a system. And it touches me a little when the main advantage of an ERP system is its solidity . I, of course, also for solidity, but it does not matter at all whether your system is monolithic or modular. This is important for its maintenance, that is, a purely technical question, a minor one, one might say.
And if the modular system brings the company an economic effect, but not a monolithic one, which one will you choose?
I constantly negotiate with business owners and I can say unequivocally that understanding why to implement ERP systems has come to far from everyone.
When you ask such a question, you can hear many different answers.
For example:
')
- to automate business processes
- to get rid of the mess
- to make a single monolithic system
- to introduce modern technologies in the company
- to cut staff
And less often (but more and more often) such answers sound as:
- to improve the quality of planning
- to reduce inventory
- to increase flow rate and turnover
- to produce just in time
- to increase the profitability of projects
Let's still try to understand why even in difficult economic times, you need to implement ERP systems.
Automation of business processes
When I am told that to automate business processes, then I ask the question "why?". Let's imagine the situation that business processes are still automated. And if at the same time stocks increased?
You will say that this is impossible. No, it is possible. Simple, mindless automation does not always lead to positive results.
Real life example:
A couple of years ago, I went to a large enterprise that produces pipe fittings. We conducted a tour of the plant, the chief engineer was very praised by the new crane and processing center. And then there was a meeting with the financial director, where everything was not so bright. The financial condition of the company has not only not improved, it has worsened. And the new automated processing centers only exacerbated this situation. Work in progress began to creep up.
Here you have implemented the ERP-system. Your business processes are automated. Let's now take a look at your financial statements. The expenditure part has clearly increased. After all, the implementation of ERP is a costly business. And then it also needs support. This is an additional expense. If, at the same time, the implementation of ERP did not give even a chance to increase the revenue side, then, unfortunately, I have to admit - the introduction of the ERP system brought only losses to your company.
If you are automating coolly, for example, the process of accepting applications from customers, invest in promotion, but do not solve the problem with procurement management and with competent inventory management, the situation from such automation will only get worse. In this situation, the flow of orders will increase, but the percentage of satisfaction of demand will fall, and stocks are likely to grow.
Get rid of the mess
When they tell me that they are implementing ERP to get rid of the mess, I ask the question "do you think that, until the era of ERP systems, there were no companies in which there was order?". After all, ERP systems were invented not so long ago. And before that, what did the company do?
Yes, and what is really there to conceal something, people who know this market, will confirm that often the introduction only introduces even more chaos and mess.
Personally observed such situations, and repeatedly. When after several years of operation I was invited as a bulldozer, who will have to demolish everything and redo it.
Single, monolithic system
Life shows that this is not always possible. Sometimes you have to integrate with third-party applications through an API, and there’s nothing wrong with that. If the company has some kind of software that perfectly covers some part and brings real effect, then why remove it? Let it work. Yes, in the end, the entire information system will not be monolithic. Neither what?
If not a monolithic and not a single system brings more effect than a single, then ...
Modern technologies
Until now, many of the world's largest companies still have DOS products. Why?
And because the bourgeoisie can count money.
Management genius Jack Welch , when they came to him with another project, asked one simple question: “What profit will the company receive after the introduction of this innovation?”. If the speaker mooed something unintelligible, Jack simply put it out the door, and sent the report to the waste basket.
Therefore, if you are offered to implement the ERP-system, because it is modern, then ask the old man Jack, who offers a brilliant question, to the proposer))
Toyota Kanban initially worked not only without ERP, but without computers at all. Toyota’s performance is an icon in the area of ​​efficiency. Yes, at the end of the last century, the market paradigm changed. The market has become a buyer's market, not a manufacturer’s market, and the use of kanban has become problematic. In many enterprises, even impossible (wrote in more detail here ). But the fact of the brilliant work of this method of production management speaks volumes.
Staff reduction
I do not know where this myth came from, but this is 100% bike. Who will you fire? Storekeeper? Accountant? The seller? Purchaser? Financier?
Well, well, if you had a separate financier who was involved in the preparation of financial statements, then ok. But this is a drop in the ocean.
In 2008, a rather large company approached me, several hundred employees. At this point, the company introduced the American ERP system for several years, for which it spent about 600 thousand euros. So not only failed to dismiss the financiers, who were three. But we also had to contact us so that we could build the financial statements of the company, because we didn’t succeed in making it fully into the pathetic ERP. And we pay not only for the introduction, but also to pay for support.
Improving planning quality
An excellent reason for implementing an ERP system. Bravo to the one who puts it as a task to be solved.
It is the quality of planning that brings a huge effect to the company. But only in one case - if the corresponding techniques are incorporated in the ERP system . Otherwise, the company will not receive anything other than an increase in the expenditure portion in the income statement. Where are you, old man Welch ...
A competent approach to this process can reduce inventory, weaken the company's dependence on loan funds (and, consequently, reduce the cost of their maintenance), increase customer satisfaction / loyalty, reduce production time, etc.
Those involved in manufacturing / trading know that poor logistics management often leads to disruptions in delivery times. The stock is what is now not needed and what is not needed.
And there is nothing to blame the buyers. Sometimes they have to buy hundreds and even thousands of items. And a person is simply not capable without the help of special techniques to correctly build a procurement queue. Without the help of these techniques, he, at least in 50% of cases, will not be doing what is necessary and not to buy something.
The same applies to logistics. Without special techniques for managing stocks of warehouses / shops can not do. Yes, using simple kanban for inventory management (bring what you sold) will already give a hypereffect. But the kanban is not able to respond to changing demand and is not able to automatically adjust inventory levels. And the techniques of the Theory of Constraints are capable.
Improper dispatch of tasks in production that can drive production to a dead end. Literally. The speed of output drops just to catastrophic values, work in progress is growing.
The very factory about which I wrote above got this problem in full. The real output speed from the factory differed from the design hundreds of times !!!
The customer ordered many items, but the order had to be shipped immediately and all. Half of the order was fulfilled and lay in the open area and frankly rusted, and the other half got stuck in production. For the "rust" and then fines have to pay. For late delivery, too. To combat rust, special preventive measures are invented that cost money. In short, horror.
Stock reduction
A very interesting task that can bring real, real money to the company. And you can write here endlessly.
To reduce inventory, there are several main areas:
- Proper procurement management
- Proper production scheduling
- Proper management of the distribution of stocks between warehouses
Here you can also talk for quite a long time, I have already written many times on this topic, cited examples. For example here .
The use of working methods can dramatically solve the issue with stocks.
I remember such a dialogue. I sit in the office of financial director. An assistant calls him and complains that the banks are attacking. Need to pay interest on loans. At the same time, stocks in the warehouse exceed a billion rubles. And constantly growing. That's where these loans go.
The situation when there is a product in one warehouse / store that is not for sale, and in another store this product is not enough, I think, is familiar to many. This is also a consequence of the lack of management techniques. And the ERP system is implemented, and everything seems ok, but there is no benefit from it.
Optimization of the range is also an important nuance. What goods should be withdrawn from circulation, and which one should be kept in warehouses? Which product brings more revenue to the company, and which less. One product can bring 100r profit, and another 1000r. But in the warehouse it is necessary to keep the one who brings 100 rubles, and the one that brings 1000 rubles. In general, withdraw from circulation, because it is stupidly not for sale. This is easily possible.
Production flow rate
This is the time for which you are able to complete the order. This is not the time for which you are performing an operation. This is the rate of output. From the moment the order is launched into production until the moment of shipment.
A very important point. And here without management techniques with the task can not cope.
Here and methods of dispatching tasks and methods of procurement management and synchronization of procurement with production and many other things must be applied. Otherwise, production turns into a black hole that absorbs orders. Everything enters into it, but nothing comes out. Production begins to devour the company's money. Orders are literally stuck in production and it turns into hell. Chiefs run around the shops and push orders. I myself have observed such a picture repeatedly. And the ERP system there is also implemented and the whole department in the company was created to support it. And there is no money to pay% on loans ...
And the philosophy is very simple - the faster you release products from the factory, the faster you get the money. The longer the order is in the process of production or lay on hold, the worse for the company. To solve this problem, it is absolutely not enough to implement an ERP system. To solve this problem, an ERP system is needed, which incorporates techniques capable of solving this problem. Feel the difference?
Right on time
Shiping orders on time is the Achilles heel of many companies. This is a very difficult task.
However, if you apply the correct methods of procurement / production management, it can be solved.
I have a client who immediately tells clients that in case of non-loading on time, he will pay a fine. It is the only one on the market who can afford to say this to customers. Because he has no problems with shipping on time. We somehow thought he had this percentage, so he exceeded 99%. This is just space for an average company. This level is impossible if you just implemented a modern ERP-system or automated business processes. This is only possible if the implemented ERP system knows how to achieve this result.
Losses in the project business
Here is a simple example. An owner of a regional construction company came to me to negotiate. The company finishes two years in a row with losses. But no one knows the reason. And there is no investment, but there are losses.
Transactions are very complex, last for a year or two. Some projects just eat up the profits. And to understand which ones the company cannot.
When the project starts, it is definitely profitable. But then it changes in the process and the profit disappears. This is a difficult question, we spent several years developing methods for its solution. I briefly described these things here . This task is also impossible to solve simply by automation. Because it has nothing to do with automation.
Conclusion
ERP-system should bring the company a very specific effect, which should be expressed in money. And this is only possible if the company will apply certain management techniques that can give this effect and which are incorporated in such a system. And it touches me a little when the main advantage of an ERP system is its solidity . I, of course, also for solidity, but it does not matter at all whether your system is monolithic or modular. This is important for its maintenance, that is, a purely technical question, a minor one, one might say.
And if the modular system brings the company an economic effect, but not a monolithic one, which one will you choose?
Source: https://habr.com/ru/post/256959/
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