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The continuing challenges of a volatile economy require middle market manufacturing companies to keep their operations as lean as possible.
The demand for a lean, effective operation must be balanced with never-ending customer requirements, complex supply chains, increasingly competitive market conditions and other scenarios that consume available time and resources.
Given this scenario, one of the most compelling questions faced by a manufacturing company is how to effectively organize to meet the demands of an ERP selection project.
After managing hundreds of successful ERP selection and ERP implementation projects in a range of vertical manufacturing industries, we suggest a series of seven steps to effectively organize an ERP project.
A first step, briefly outlined here, involves taking a hard look at the expected Return on Investment (ROI) from the ERP project.
ROI Defined
Most sources define ROI as a performance ratio that measures the efficiency of an investment. For our purposes, the investment is the direct and indirect costs and benefits of a new ERP system. ROI can also be used to evaluate the efficiency of different investment scenarios.
At its most fundamental, ROI is achieved by the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
ROI and ERP
In most cases, the need for a new ERP system is felt within the entire organization.
As an ERP project gets underway, management must clearly understand the needs, the alternate solutions, the cost, the benefits of the solutions, and the return on investment. Management needs to be educated so that it understands the ROI of improved business processes throughout the organization.
In terms of ROI, it’s wise for manufacturers to track both direct and indirect benefits that are anticipated from a new ERP system. The anticipated return must consider process improvements including a more streamlined ordering process, reduction of physical inventory counts, improved production quality, better scheduling and more. Other savings should come from access to real-time information for more accurate materials planning, integrated databases, streamlined information reporting, dashboard reporting and other uses of real-time data.
We also suggest manufacturers assess the economic impact of a return achieved from customer satisfaction, enhanced supply chain communication, improved decision-making quality, delivery performance, and more.
Keep it Relevant
We’ve found the most effective ERP ROI calculations are achieved when the entire enterprise teams together to assess how a new system is anticipated to save time, effort, and improve business processes.
We’ve also seen that an ROI exercise is an effective way to gain company-wide buy in and acceptance of the ERP project.
The seven following steps are suggested by Ultra to effectively organize an ERP project.
- Understand the ROI
As an ERP project gets underway, management must clearly understand the needs, the alternate solutions, the cost, the benefits of the solutions, and the return on Investment. Management needs to be educated so that it understands the ROI of improved business process throughout the organization.
- Set the ERP project priority
An ERP project is a major undertaking which impacts the entire organization. An effective rule of thumb for the CEO is "if a new ERP system is not one of your top three priorities, delay it until it is". Without setting a clear priority, the project is doomed to failure.
- Executive commitment, communication
The ERP project requires the commitment of the entire organization, including all top executives of the company. The executive team needs to set the tone by communicating the importance of this project. The project cannot be viewed as an expense, it must be viewed as a productivity improvement investment to make the company more competitive, profitable, and successful.
Here's where thorough communication comes into play, set up a detailed communications plan to bring the news of the project to each department.
- Establish the team
The project requires the best resources from the organization. The project needs a steering committee, and executive sponsor, a project manager, and a team of the best business users. The steering committee should be made up of the CEO and the top executive from each function of the business that will be affected by the new system.
- Educate the team
An ERP project is a "business process improvement" project. The overall purpose is to implement improved business processes that are enabled with new technology. To effectively chart a course toward a "vision" of improved processes, the team needs education in current capabilities of today's modern systems. Team members know their current system or what they knew in their past. This is why it is suggested that this part of an ERP project include a thorough education curriculum using vendors, Internet subject experts, webcasts, seminars, consultants and other resources.
- Establish a project charter
The ERP project needs a well-defined charter that clearly states its mission and objectives. The project charter should be endorsed by the entire project organization.
- Consider project timing
In any ERP project, sooner or later the question arises, "how fast can we select and implement this ERP project?" Taking into consideration the steps outlined above, the question should not be how fast can we select a new ERP system, but how fast can we get the team educated and ready to get through the project on the most direct path. Don't focus on ERP selection speed; focus on ERP education and understanding how new business processes in new ERP software will improve the business.
I agree with MR Rehan Qureshi
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