Preparing for ERP with Manufacturing Best Practices

Nov. 5, 2008
Manufacturers can prepare for ERP adoption by benchmarking the organization against peers and then removing all non-value-adding activities from the supply chain.

Enterprise resource planning (ERP) is not a magic bullet. ERP systems have become more affordable, effective and -- to a significant degree -- essential, but manufacturers need to pause before joining the headlong rush toward implementation. Companies that do not ready themselves before implementing ERP find it nearly impossible to fully utilize their new systems, and risk upsetting their organizational culture with chaotic implementation phases. However, manufacturers can prepare for ERP adoption with straightforward activities that do not require outside consultation, require no investment other than time and can typically be achieved within three months.

These basic preparedness activities focus on best business practices and pave the way for smooth transitions to ERP adoption. Because best business practices vary across manufacturing microverticals, we will examine how best practices apply to subcontractors and process manufacturers. Additionally, we will see how manufacturers, regardless of their specialty, can prepare for ERP adoption by benchmarking the organization against peers and then removing all non-value-adding activities from the supply chain.

To establish best business practices before adopting ERP, process manufacturers first need to develop a comparison between their organizations and their peer group through benchmarking. This inside-out comparison will clarify the performance of the manufacturer's competitors. Once a manufacturer knows how many units per hour a competitor produces, and at what cost per unit or throughput per unit, understanding which areas within the organization need improvement becomes self-evident. The next step involves understanding what procedures and processes will best improve performance.

For example, if you measure your organization against a peer group and realize that you need to improve labor efficiency, the next step calls for an enterprise-wide assessment of assigned labor, specific labor activities and duplication of business processes. This allows you to identify unnecessary steps executed by labor, and in turn improve business processes by removing non-value-adding activities and retraining workers.

Or, if the benchmarking activity determines a disadvantageous yield compared to the peer group, you examine where and why waste occurs. This helps develop an awareness of how each phase of process manufacturing's continuous production cycles enhances -- or inhibits -- the overall effectiveness of the organization. If you discover that competitors' machines run at greater efficiency, plant maintenance requires a closer look. How is each machine's output measured? Have preventative-maintenance and production schedules been adhered to? Have bearing and electrical-motor performances been recorded? Process manufacturers do not need an ERP system to clearly answer these questions. However, this sort of basic, but rigorous, self-assessment establishes the procedures that pave the way for successful ERP implementations.

While process manufacturers examine how to strip away non-value-adding activities from their continuous production cycles, subcontract manufacturers need to evaluate their core processes. Because subcontractors pack out their partners' bulk production into smaller quantities, peer-group benchmarking most often focuses on efficiency. If the peer comparison shows the subcontractor lagging behind industry standards on packing out a given chemical within a specified time window, the sub-contractors needs to locate the deficient area. An examination of equipment, training procedures, labeling, pallet preparation, storage and third-party drop shipments will reveal the general problem. If mis-labeling proves to be the issue, what is the cause? By drilling down on labeling, the subcontractor will eventually discover the root cause, whether malfunctioning equipment or insufficient training.

Companies looking at ERP often assume that they will simultaneously implement enterprise software; translate redefined business processes into an optimized system; prepare the necessary data; and conduct flawless training, all while change management somehow takes care of itself. And, of course, all of this will happen on budget. In these cases, the consultant comes in and has to start at a whiteboard, because the organization has no point of reference for understanding their own enterprise needs. Business design and blueprints require four months and configuring that information into the system takes another six months. After training and testing, you're looking at an implementation that will consume an inordinate amount of time and resources.

However, manufacturers that undertake peer-group benchmarking and best business practices face a much more optimistic scenario. When these well-prepared organizations first meet with a consultant, they have an understanding of where gaps exist in their business processes, and therefore what areas the ERP system needs to focus on. With preliminary business process re-engineering already in place, these manufacturers can immediately begin working with conference room pilots, which are functional, pre-configured software embedded with best business practices specific to the manufacturer. Suddenly, implementation time is down to six months and the entire process costs far less. This approach is far more efficient than beginning with a consultant standing at a whiteboard asking, "What do you need?"

Preparedness activities are by no means limited to process and sub-contract manufacturing. Whether you produce bread or potassium hydroxide or a ceiling fan, you can achieve a lean environment prior to adopting ERP. Benchmarking and best business practices puts business process re-engineering in place, diminishing ERP risks, and minimizes organization disruptions related to change management. Because adherence to best business practices makes your data cleaner, when ERP arrives you have good procedures set up for how to create materials and interact with customers and vendors. In short, you have greatly reduced the soft issues that frequently plague ERP projects.

ERP readiness activities perform two essential functions: they prompt streamlining within the organization, and pave the way for ERP's robust collaborative functionality. Once intra-organizational best business practices become established, manufacturers can seamlessly implement EDI, XML, web pages and portals, in addition to other capabilities that allow companies to collaborate with partners. However, none of these technologies will benefit manufacturers until they clean house, beginning with peer-group evaluations.

Johann Heydenrych is industry solutions director at itelligence, the leading provider of SAP solutions to midmarket companies. For more information, visit

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