Despite the looming volcanic ash cloud, 60 UK manufacturing companies gathered in the Warwickshire countryside at the first ERP Connect conference to listen to industry speakers talk about ERP selection and implementation, network roundly and discuss with vendors their issues and concerns.
The conference was chaired by Simon Holloway, research director of Bloor Manufacturing. So what did we learn? Holloway, in his summing up of the conference, listed the key topics discussed as:
• Return on Investment
• The do’s and don’ts for implementation
• Understanding your business: type, complexities and real requirements.
Simon Moores, managing director of Zentelligence and the co-author of the Conservative party’s Digital Plan for Britain, opened the conference by discussing the changing ways in which we do business. Moores highlighted that ICT drives half of EU productivity, but still hasn’t met Lisbon Agenda goals of 2000. Accordingly, he expanded on how Europe was falling behind Asia and the US:
• In a world of ‘hub’ economies, our networks
remain narrower and slower than those of our main
overseas competitors
• Our high technology businesses are being held back by
over regulation and compliance costs.
• Our workforce is falling behind in the skills needed today,
let alone tomorrow
• Our public services are victims of countless expensive
failed transformation projects
Moores went on to explain that the greatest productivity growth has occurred in those business sectors that either intensively use, or produce, information technology. That said, greater productivity is not always a consequence of the introduction of new technology in the workplace.
While business needs to evolve to exploit new models, the danger remains in managing the technology life cycle rather than its uptake.
Quest to invest
Return on Investment (ROI) is almost always at the forefront of a finance director’s mind when approached to sanction any CAPEX expenditure.
But what should you focus on? Matt Eckersall, industry lead, Microsoft Dynamics UK, stated that, “It is the management of this change that determines the ROI,” which could be any combination of the factors shown in Figure 1.
This means that to determine ROI we need to set measures to ascertain how the project we are involved in has performed against our original expectations. Tyrone White, head of purchasing manufacturing and logistics with the Talley Group, said, “We had taken advice and planned the ROI for over two years. We achieved this within the first seven months, and with reduction in resources: 14% in administration in the supply chain, manufacturing and logistics, for example. We are still looking at the effects on the other functions within the business, and are forecasting this to be closer to eighteen months.” White, with a wry dig at financial directors, said that gains in the management decision making process are more difficult put a financial twist on, but the progress of the business and the feedback available to customers has seen opportunities reached and new business being made available.
The key is to keep monitoring the changes you have made.
Iain Fox, general business practice lead at IBM Global Business Services, examined those considerations driving companies to take the leap from the frying pan of an aging Application Framework to the fire of a new EPR/Application Framework. He looked at the factors to be considered when weighing up ERP compared to best of breed, and the pitfalls be avoided.
Unfortunately, there isn’t a simple answer, as IBM has found. It can thus depend on a number of factors, including:
• The existing landscape across which business processes
are executed
• Complexity of the business model
• Availability of solutions to address specific problems
• Level of complexity you can handle going forward
• Appetite for change/cost
• Where you want to take the business in the future
• Recent investment profile
What this means is that you have to fully appreciate your processes and what needs to change, as well as understanding your requirements and the associated return on investment(s) you are looking for. Fox’s advice was that you should not be constrained by what your competitors do, instead being thoroughly honest as to the needs and capabilities of your organisation. Nathan Bailey, operations manager UAV Engines Ltd, when talking about their objectives around reducing complexity, increasing productivity, reducing costs and risks whilst promoting compliance, said, “This only works if business processes are inter-connected.”
Strategy building
Dominic Oughton, from the Institute for Manufacturing at the University of Cambridge, opened his talk with the following challenge: “ERP is necessary, but not sufficient; you need the right strategy too.” Successful strategies are developed with enterprise-wide involvement, clearly communicated and visual, and driven by the external environment and/or customers.
In The Holloway Angle: Making Business Strategy, Ian Holloway wrote about the problems with business strategies, in that very often a strategy just becomes a piece of paper and isn’t actually used or even updated. Oughton went on to describe a new way to derive business strategy called ‘road mapping,’ which uses visualisation and collaboration techniques to get over involvement issues. Validating strategies today is difficult, and Oughton described the use of scenarios to counter the problems inherent in traditional methods for forecasting and planning where they were failing due to complexity and uncertainty, as well as change and discontinuity.
Strategy needs to start by looking outside the company. It is best developed by a multi-functional group, with input from all stakeholders to achieve buy-in. It must be tested against future scenarios, as well as being communicated widely, openly and visually. It is necessary to facilitate all stakeholders to define objectives in relation to their contribution; the role of leaders is to support delivery of these objectives. Lastly, you need to align performance measures with strategy.
AMR Research identified that the top business priorities for Europe in 2010 were the reduction of operational costs and increased profitability. So, nothing new there, it seems! Andrew Kinder, EMEA director of solutions marketing for Infor, saw that the largest productivity gains through the use of applications software were in the following areas of business:
• Manufacturing assets, including both equipment and people
•Warehousing assets, particular involving space utilisation and people
• Transport assets, where good management could result in a 5-15% reduction in transport costs, with improved fleet utilisation
IT Strategy
IT and business move at different speeds. Kinder stated that an evolving architecture whereby your IT infrastructure becomes adaptable is therefore key in responding to business demands. Strategies that support business agility include: Component-Based Applications; Service-Oriented Architectures; and Open Standards.
Kinder identified the following IT Strategies as having a positive effect on cost and risk reduction:
• Hardware Strategies, particularly those involving virtualisation
• Buy and pay for software in different ways, such as hosting, subscription based or software as a service (SaaS)
• Different agreements with ERP vendors around the implementation contracts, industry templates and licensing
IT investments are following the economy out of recession. Indeed, there are new IT buying preferences emerging which provide more flexibility and choice on how to buy, pay for and own software, as well as lower risk through vendor selection, implementation agreements and open standards.
Complexity
Holloway introduced the final plenary session by saying that while many small and medium businesses might associate ‘complexity’ with large enterprise, the ecosystem that any company operates in can be seen to be full of complexity.
Jeff McGowan, sourcing manager of Lifescan Scotland Ltd, part of the Johnson and Johnson group, discussed how to conquer complexity based on his own company’s experience. How do you know if your company faces complexity? McGowan suggested that you look for these factors:
• Cannot find the true cause of problems
• Change does not result in expected improvements
• Without effort, things naturally get worse not better
• Lack of predictability
• Lack of transparency
He suggested there were three main causes of complexity:
• Non-linear relationships – SKU proliferation, longer leaded times and product promotions which can skew demand;
• time delays; and
• the number of interdependencies
These latter two causes McGowan referred to as ‘Dynamic Complexity,’ as there are many variables and causes/effects which are subtle and separated in time and space.
Complex systems consist of a number of interconnected parts. Emergent properties arise from the way a system is organised, and even if the parts could be separated out, emergent properties may get lost. The dynamics of your business system will be influenced by a small number of simple policies. Often simple rules govern complex behaviours. Every company is different, and its business system will therefore have its own unique conditions. McGowan stressed that systems can recreate themselves unless we change the policies and process of the company. It is systems thinking that help you to unravel the mess of complexity.
Implementation
In the past, enterprise-wide implementations were typified by large amounts of customisation, but this resulted in increased levels of complexity being introduced for the project. Fox stated that often these cycles perpetuated themselves leading to further levels of customisation driving up TCO and making future innovation more challenging or, as he put it, “Applications can become the business if we are not careful and hinder progress”. What has changed is that now packaged solutions are more developed and verticalised than ever before.
Additionally, companies now recognise that the core process of the applications are common among 80% of like businesses, and it is the final 20% (not always in terms of cost, though) that drives differentiation.
So what should we do if we are faced with implementing an ERP package? John Haslam of FreeConsult described the process he takes his clients through. The first step is to set a realistic budget; this depends on the size of the company and complexity, as well as industry regulations and future growth plans. Haslam saw the next step was to identify the potential ROI of the new ERP system — he did add, with tongue in cheek, “That is if an ROI case is necessary or possible,” the 4 steps were:
• How to decide which vendors and many vendors to include
• Should you do an RFI and what level of detail to ask for at what stage?
• How long should the process take?
• How do you structure the process?
We would like to extend our thanks to ERP Connect 2010’s sponsors, vendors, speakers and all those who attended. The Manufacturer trusts that you found the day informative, comprehensive and providing much food for thought. We look forward to seeing you at our next ERP conference: Thursday 21st October in Manchester.
