Ad for Infor ERP at O’Hare Airport, image by Steve Brodner, CC license

If you search for “lean ERP,” most of what you’ll read is about whether or not the traditional ERP system supports “Lean Management” concepts. The argument is that Lean Management is based on the pull of demand and Just-in-Time principles whereas traditional ERP is based on set lead times, planning windows, and building inventory based on a forecast. It’s a fair point.

But what about a truly “lean” (skinny!) ERP system – one that is simple, inexpensive, and easy to implement and maintain? Everyone knows that the typical ERP project, and the maintenance of the system thereafter, has more in common with the word “fat” – as in fat timelines, fat cost, and fat (extensive) complexity.

Stripped to its essentials, an ERP system is supposed to

• Tell you what resources (materials, labor) you need to make and sell your products;
• Serve as a system of record for standard business transactions;
• Record and store the financial results of all transactions

But many companies want their ERP system to do everything from managing specialized customer service rules to providing supply chain analytics – that is a mistake. There are better alternatives.

And ERP vendors want the footprint of their product in your business to be as big as possible (more modules, more users = more revenue).

Both of these factors make the typical ERP solution complex, bulky, and expensive.

A Skinny ERP is one that is limited in scope, relatively un-modified out of the box, and no more complex than what is needed for your business. It largely delivers the essentials mentioned above, and no more.

Here’s how to get there:

• Make peace with your ERP solution. Let it do what it was designed to do, and give it accurate and consistent data across the enterprise. I’ve seen companies try, and largely fail, to modify the guts of their ERP system to automate workflows for order processing, customer claims, weight-based pricing, inventory reservation, and other processes with complex business rules and logic the ERP package wasn’t built to do. The modifications usually delivered a fraction of the intended functionality.
• Use other, nimbler tools and 3^rd party services to manage what doesn’t naturally fit in your ERP system. It’s now possible, for example, to send your all of your transaction data, automatically every day, via file extract, to a vendor’s cloud-based server, and use the vendor’s very rich analytics software to create the facts and insights you need, with no upfront costs, on a pay-by-month basis, with no annual contract. Stop trying to make your ERP a reporting system.
• Start managing the “enhancement request” desk that most IT departments have to entertain the user population’s list of desired improvements to your current systems. Some needs may be a natural fit with an ERP and you should do them. But many will be enhancements — suggested by smart and creative people — that improve only the part of the canvas they are looking at, and really don’t belong in the core ERP system. Go ahead and build them anyway, and you’ll have a very fat ERP.
• Question why you want to manage the business process at all, rather than letting a 3^rd party handle it for you. Is the process so important to the business that you need to control it in-house? You can outsource almost anything, and one advantage of this is that usually the 3^rd party specializes in the processes you want to jettison. An example is transportation: instead of trying to make your ERP manage shipping, or buying expensive transport software, let a logistics firm handle the whole thing – dodging the whole question of how to enable the process with your own software.

Start thinking of your ERP as the basic plumbing – the core – and begin to explore not how you change that core, but how you supplement or compliment it with the many alternatives now available.

Image by Andrew Becraft, CC license.

Business people complain their IT team is understaffed, uncooperative, slow, and deploys lousy systems. IT claims business people are disorganized, unwilling to learn, bossy and never available.

Such is the just-under-the-surface functional rivalry that regularly plays out every day in many organizations, a tiff that delays and sometimes stops a company’s technology evolution.

Where does the animosity come from?

Mars and Venus. Business and IT do come from different planets. IT is methodical, structured, detailed, and logical. Business functions are impatient, practical, and focused on quick solutions that work. The language, terminology, and methods of one are incomprehensible to the other. Right from the start, there is an inherent lack of understanding.

Turf and different agendas. Your CIO insists on controlling every aspect of technology in the workplace, but your Manufacturing VP asserts the right to acquire any information system that best meets the need. One side explores solutions and comes up with its favorite; the other side isn’t even consulted. People become locked into a viewpoint, start a campaign for their side, and nothing gets done.

Unrealistic expectations. The business side expects new stuff – innovation – from IT. But only 10-20% of a typical IT budget is slotted for innovation – the rest is consumed by keeping the lights on, a hard budget reality for most companies. The result: an unfair perception in the business that IT never delivers anything new.

Proximity. If a company occupies three floors of a building, where does IT usually sit? In the basement, first floor, or an annex somewhere (and sometimes halfway around the world). This telegraphs that IT is not important, and the physical separation creates gaps in relationships and communication. IT people want to be thought of as part of the team and having a seat at the table.

Misunderstanding of roles. Business and IT teams are often thrown together on a project without clear definition of who is going to do what. The business side expects much more from IT than IT expects to do, and vice versa. IT people also resent having to lead a project while the business side remains dis-engaged and absent.

Bring back some harmony with these practical moves:

Recruit the crossover people – those who understand and speak the language of both Mars (business) and Venus (IT) – to bridge the two sides. Put them in engagement roles with “the other side.” There aren’t enough of these people today because most companies still cling to ancient uni-functional career paths, but you know who they are, or could be, in your organization.

Establish together how IT solutions will be acquired. Business people are much more agreeable if they know there is at least a process where IT requests can be considered, prioritized, and acted on.  Agree that any exploration of solutions will be done together, that objective, score-based criteria will be used to evaluate system alternatives, and set a joint annual budget for IT investments.

Put people together: Co-locating IT people with their functional business counterparts is a big plus: 1) the business side feels valued because IT is paired with them; 2) IT people feel valued because they are “on the field” with business teams; and 3) communication and understanding have a better chance of emerging.

Negotiate roles upfront like you would any team effort. For a large project, what people resources are needed from business and IT, for how long? Who determines what each team member is expected to deliver? How self-sufficient is the business expected to be, in terms of learning and testing the new application? Write these down, publish them, and get signatures if you have to. Think of it as a team charter.

A final thought: is it time to re-think the traditional functional roles and the career paths that go with them, where IT is IT and sales is sales and supply chain is supply chain?

Processing orders in Chicago, 1937; image by gallimafry.blogspot.com, CC license

In the most recent annual Deloitte supply chain study only 38% of executives felt they had the right skills in their organizations.

Why? Theories range from supply chain not being cool for new grads, to the predominance of men in the function (scan the room at a supply chain conference and you mostly see ….middle-aged men).

But another reason is that most supply chain jobs are tedious and boring. Ship stuff in. Ship stuff out. Key data into a PC, transfer it from one system to another. Look up stuff in tables. Compare what’s in the system to paper documents. Fix problems in failed transactions, summarize inventory figures, change or fix purchase orders, and create another report using pivot tables. Yawn.

Despite the hype about technology revolutionizing the supply chain, organizations simply haven’t adopted in a widespread way the automation needed to eliminate repetitive functions, because most large enterprises are risk-averse, slow to change, and don’t bother to make the business case.

Companies that have adopted expensive ERP systems still need people to shepherd transactions in and out of different applications. Companies that for years have had extensive EDI networks — which were supposed to automate basic commerce between businesses —  still touch every customer order.

The next generation of supply chain leaders is not drawn to jobs involving  banal tasks performed in 15 year old systems. You can see for yourself in many organizations – bright college graduates with supply chain or business degrees, bewildered at the dumb things they have to do in outmoded systems.

Companies staying on non-automated platforms guarantee that a certain percentage of their work force will never perform at their highest potential, despite the many commitments by nearly every employer to “developing talent.”

Consider logistics claims processing. A company making 75,000 deliveries each year will have to manage anywhere from 7,500 to 15,000 claims, maybe more – these are refusals to pay all or a portion of the invoice because of damage, unsatisfactory service, faulty products, incorrect pricing, late deliveries, etc (there are a million reasons).

In a non-automated environment, firms will staff people to collect paperwork, look up data in systems, copy delivery and invoice documents, investigate claims with warehouse and transportation providers, and assign a status to the claim for future credit (or not) to the customer.

Substitute PCs for typewriters and you have a work environment not unlike the one pictured above, from 1937.

In an automated environment, documents are scanned without human touch, sorted, filtered through business rules, and categorized into a database from which humans glean valuable information, such as which customers have a pattern of making claims for the same reason month after month.

In a non-automated environment, human talent is used to process claims; in an automated setting it’s used to reduce claims. Which role would a young supply chain professional find more interesting?

There are many solutions on the market today for automating these transactions but the best ones go a step further by not only automating but managing processes for you – removing completely from your enterprise the most burdensome non-value added work, yet delivering to you the valuable data needed for management decisions.

Some companies acquire and manage automation software – a viable option but less valuable than outsourcing. Software you acquire has to be configured, integrated with your systems, and maintained via license agreement and user support.

In the end, however, how you automate is much less important than whether you do so. With automation services priced where they are today, an attractive payback is not difficult.

Image: Island Peak, Nepal, by McKay Savage, CC license

“Scope,” or “footprint” in software terms refers to the number of business processes that an application will “cover,” or enable.  The scope of an accounting system is usually: general ledger, accounts payable, accounts receivable, fixed assets, P&L and balance sheet.

The scope has to fit the application, and vice versa, and it has to be feasible for the project team and deliver the benefits expected to pay back the investment in the new system.

Too big a scope can overwhelm the team and the application you select.  It will also cost more.  Too small a scope might not be worth the time and expense, and may not yield the financial benefits expected.  A creeping scope starts out small and feasible, then as the project progresses scope is added in the form of requests for features and functions not originally planned.

Money pits are usually found at the end of projects with too big of a scope or a creeping scope.

How do you find the right scope?

Determine which areas of the business would benefit the most from a new or better application. Can you define the specific problems that are leading your enterprise to consider new software? Where are those problems located – in what functional areas and related to which current (legacy) system? Is the problem that a) a particular application is too limiting; b) a group of applications are islands and that integration of them would yield benefits; c) none of your applications are integrated; or d) something else?

Consider a range of scope options to find the optimal one. In some cases, expanding the scope of a new application beyond “problem areas” can be the optimal choice. The process is iterative, and you should consider several alternatives. For example, implementing a new accounting system may satisfy most of a company’s needs and produce a good ROI on its own. But expanding the application footprint to, say, payroll and purchasing, may result in an even better return because it simplifies integration costs, eliminates more manual work, and may strategically be a better decision.

Set up a framework to evaluate each scope alternative. In a framework (Excel comparison) you can evaluate each scope option according to such factors as cost, complexity, length of time to implement, risk to the business, ROI, required internal resources and strategic value. Then you have a logical basis for your decision.

The scope of an ERP project does not have to be huge. You can be selective in what processes to migrate to an ERP system, and you don’t have to convert everything at once – both of these steps will reduce the overall risk of the project. For example, you can implement demand planning systems first to shake out the bugs in what is traditionally a complex and parameter-sensitive application. The core financial systems of an ERP can also be phased in first before everything else.

One easy way to improve supply chain efficiency is to automate customer claims processing. In my experience, a company making 75,000 deliveries each year will have to manage about 15,000 – 20,000 claims over that time. And while there could be a million reasons for refusing to pay all or a portion of the invoice – these are often because of damage, unsatisfactory service, faulty products or incorrect pricing.

In a non-automated environment, claims processing works like this:  

• Collect paperwork
• Look up data in systems
• Copy delivery and invoice documents
• Investigate claims that matter
• Assign a status to the claims for future credit (or not) to the customer.

Apart from investigating the root causes, the only value that a human adds here is to make sure that data is where it’s supposed to be.

On the other hand, in an automated environment, all relevant documents are: 

• Scanned
• Analysed
• Sorted
• Filtered through business rules
• Categorised into a database.

All of this happens without human touch. However, once this data is in a database or system, that’s when humans can glean valuable, actionable information, such as which customers have a pattern of making claims for the same reason month after month.

This is when your supply chain team adds the real value – critical thinking, analysis, and creative problem-solving. The result is actually a reduction in the cost of claims.

In a non-automated environment: human added value = processing claims.

In an automated environment: human added value = reducing claims!

In automated environments, it really is possible to redeploy staff to more profitable work, and these roles are bound to be more satisfactory because of the added challenges and greater opportunities for creative thinking. And that can make all the difference in attracting the supply chain leaders of the future (because talent management could actually give your supply chain a competitive edge).

How do you make the shift from non-automated to automated environments?

In 1992, the Harvard Business Review published the influential and now famous article: Staple Yourself to an Order, a piece about how organizations can eliminate inefficiency and bad customer service by following each step an order takes across the supply chain.

This is what you need to do when it comes to order and claims processing…read more

Image: Singapore Finance District, by Joan Campderros-i-Canas, CC license

“Financials” is a term used by software vendors and others that normally includes accounts payable, accounts receivable, balance sheet and P&L. There can be extensions of this definition to include such areas as payroll, treasury (bank account inflows and outflows), and tax management.

In an ERP system, all of the required financial postings are made as other transactions take place. A shipment to a customer generates an invoice and posts the accounts receivable for that customer. Production of finished goods creates inventory with its corresponding value on the balance sheet. Benefit: reduction in administrative labor needed to manually post transactions from one system to another.

Because the Finance module in an ERP system records all the operating transactions, that data resides in the main ERP database, which means it can be extracted for reporting and analysis purposes.

If the Finance module is “robust” enough, it will already have built-in queries or user-defined reports to analyze the basic transactions such as sales by customer, manufacturing costs by product, and other “intelligence” needed to manage the enterprise.

But my experience is that a standard ERP system never satisfies the analytics needs of a good finance department. In this case, you have two choices: spend a good part of your budget building custom reports in the ERP system (not recommended), or invest in an application-neutral reporting database.

This means more information is available that is critical to evaluating the performance of the business. Calculating actual dollar benefits of a new ERP system here can be difficult, but consider what you could save if you knew things like how much overtime pay you incur and in what areas of the business, how much profit or loss you are trending year to date, and which products generate the least profit margin.

ERP systems usually define authorization levels for different types of users, allowing control of sensitive transactions. The Sarbanes-Oxley law and other regulations require separation of duties to ensure financial controls are followed. Benefit: centralized control of transactions users have access to and a system infrastructure that satisfies auditor requirements.

An ERP system can enable you to match invoices with receipts and purchase orders so that what you pay for is what you ordered and what you received. The purchase orders, receipts, and invoices are all in the same system, so the system can compare them and immediately determine if the invoice is valid and should be paid or if it’s not. Benefit: elimination of overpayments or duplicate payments to vendors, reduction of paperwork and manual comparisons reducing administrative overhead.

An ERP system can also manage your contracts with vendors, including pricing and terms of payment. This means that data from invoices can be instantly compared to contractual terms to make sure the invoice is correct. The benefit is the same as above – elimination of overpayment. If your enterprise is large and is processing a large volume of vendor invoices you are bound to have at least a small percentage savings – say 5% of the amount you spend — and 5% of a big number may be enough to pay back at least part of the ERP investment.

A price-shopping or auctioning application or an online buying service can be an extension of the ERP system so that you can search for the best price for your materials, goods, or services, select the vendor, and place the order. Usually these apps and web-available services are specialized according to what you are buying, such as transportation and delivery services, office supplies, basic materials such as standard corrugated packaging, shrink wrap, paper stock, chemicals and industrial supplies, and more recently energy sources such as electricity and natural gas. Benefit: getting the best price and terms and automatically creating a purchase order which is integrated to your financial system for proper payment. Again, the dollar benefit can be a percentage of your total spend, especially if you think you haven’t opened up your purchasing to alternative vendors for awhile.

When purchasing is part of your ERP the proper postings to financial accounts are automatically done. When you issue a purchase order an entry is made in the ERP system that authorizes receipt of whatever you are buying. When you receive what you are buying a payable is created which goes on the balance sheet as a liability. All the accounting is taken care of.

Image by Nicolas Will, CC license

Behind every idea is a set of assumptions.  These assumptions can be exposed by simply by asking “why”?

When it comes to good technology management, it’s your job to test these assumptions, to kill the losing propositions or to make them more viable as sound investments.  Sometimes these assumptions are wrong – and a lot of them need to be right in order for a project to succeed.

Many people don’t realize the number of assumptions they make when a technology project is launched. Among them:

• what they saw in the demo or pilot will work in the real world;
• the software will meet all the business requirements that were specified before the project started;
• the team won’t have to make any customizations other than what was already identified;
• users will quickly learn and accept the new system;
• the project will be completed on the promised date.

In my book I described a hypothetical conversation between a manager and a CIO/CEO.  The manager was explaining that “the new system will give us real-time visibility of our vendor inventories and plant inventories, and instead of waiting for reports we’ll see our inventory positions and planned production and receipts real-time.”

Taken at face value, this statement implies acceptance of the following assumptions:

1. The way we think of “real-time visibility” of inventories, production and receipts is the same as what the system can provide.
2. The view of said data will be in a useful format and will provide all the data we need to make better/faster decisions.
3. These better/faster decisions will enable us to let our customers order within a shorter lead- time window and will reduce our on-hand inventories.
4. The savings from lower inventories and the additional sales from our late-order customers will more than pay for the cost of this new system.
5. A change in business process (i.e., how we manage inventories and production) would not produce these same benefits.
6. Out of all of the possible system solutions this one is the best choice from an IT strategy, cost and ongoing support standpoint.

A pause for a minute to question these six assumptions may well be the most valuable minute ever spent on the proposed project.  All kinds of havoc and wasted money can be avoided just by testing these assumptions.

And as you can see you don’t have to be an IT expert to successfully manage technology.  You just have to use common sense, by testing the logic that if we do X, then we will receive Y benefits.  If you are going to invest in technology, you may as well do it the right way.

Image by Joel Bez, CC license

Digital commerce isn’t just about selling your goods on the internet; it’s also about digitizing the whole flow of information in your company. Loads of activities within your enterprise can benefit from simple digital technologies, such as Optical Character Recognition (OCR).

Writing about OCR is right up there with writing about advances in FM radio, right? OCR is like what, from the 70s? And haven’t most companies digitized most or all of their paper documents?

No.  Where studies have been done, they have found that, for example, more than half of U.S. businesses still use paper invoices, and globally less than 10% of total estimated invoices are paperless.

And, OCR + software = big benefits.  Advanced OCR has

• Template-matching so that the software looks for and finds the right value in the right place on the page;
• Self-learning whereby word and character images are compared to a standard over time and the software learns which images have high probability of a match; and
• Re-purposing of the digital content created from paper scanning.

These advances have opened three large avenues of opportunity for nearly every business.

Audit.  Anything on paper documents can be compared to digital contracts, shipping documents, tax laws, official government documents, calendars, tariffs, tax tables, utility rates, pricing tables, or any other established numeric parameters.

Exception Management.  Everything that is digitized and audited against numeric parameters will have a result: the value is within the contract limits, matching the contracted rate, etc.  Exceptions can be identified, routed to email, returned to sender.  Reports can be written that summarize number of invoices processed and paid according to contract parameters, and number rejected, along with the contents of the rejected invoices.

Analytics.  Tens of thousands of paper documents (like Bills of Lading) of which thousands may have adjusted quantities or notations can be isolated, summarized and categorized.  Patterns can be established depending on the item, customer, delivery point, or mode of transportation.

Plenty of vendors will sell you software, but why bother – its much easier to contract with service providers. Better yet, outsource the whole business process; this has at least three advantages: 1) no software to buy and maintain; 2) low per-document and per-transaction costs you could never achieve on your own, and 3) flexibility to apply a variety of business rules to filter, sort, check, route, summarize and analyze data from documents.

Use a service provider with solid technology credentials and demonstrable abilities to do more than just convert paper to digital files. Your provider should be able to demonstrate profitable “use cases” where other companies have already achieved success. And the service partner you choose should have multi-language capability and knowledge of legal document retention rules for countries around the globe.

Please choose the door through which your next software vendor will take you.  Image: Doors of Dublin, by Tim Sackton, edited to fit 569 X 368px, CC license.

Selecting a software vendor is difficult at best in the 21st century; here are some must-have criteria, in addition to, but perhaps more important than, cost and time:

Does it solve my problem? Does the software company’s system solve your business problem? Does its existing functionality match the business requirements you drafted?
Does it pay back? Do the financial benefits from the solution pay back the total cost of implementing it in three years or less?
Do I understand all of the solution’s costs? Have you accounted for initial license, recurring support fees, custom development costs for changes you want to make to the software, hardware costs, upgrades to your network bandwidth or operating systems on your current servers or PCs, the cost of the next version upgrade, the cost of consultants, of hiring backup staff for project team members, and travel?
Is the solution in line with my strategy? Does the system match your criteria for what types of information solutions you will invest in, now and in the near future?
Do I understand all of my alternatives, besides this particular vendor? Have you done your homework regarding software options available? Have you constructed an evaluation matrix and compared all the alternatives to one another?
Does my team have the time and skills to implement this solution? Can you secure near full-time people to manage this project? Is the system easy to learn? Is it intuitive? Has your team evaluated it and are they comfortable they can master it?
Do my users have the aptitude to learn it and become proficient? Can you envision your end users quickly learning to use all aspects of the software? Are there enough users who could become proficient enough to serve as key users and help other users with training and troubleshooting?
Does my team fully understand how this solution will integrate with the company’s other systems? Has the vendor demonstrated to your satisfaction the ease with which the system will integrate with your other systems? Are other enterprises already running the software with systems like yours? Try to get at least a conference call with those references to gauge the level of integration complexity.
How risky is this particular software alternative compared to others? Can the software be phased in without interrupting the business? If the solution fails or the team encounters startup problems, how easy will it be to keep mission-critical activities running?
Vendor reputation. How many enterprises are using the vendor’s software, and for how long? Get references and check them.
Can I find programming help in the open market? If you need customizations, can you readily find people to do the work? Or are you locked in to using the vendor to make all your changes?

All of this is of course after you have submitted and reviewed detailed RFPs from the most appropriate vendors.  You can build a grid or a table, with vendors/solutions across the top and your most important criteria down the left hand side, and weight the relative importance of each. The result is an overall score that points you to a solution that best fits your needs.

Nearly every discussion about the evolution of the modern supply chain is about technology – big data, the internet of things (IoT), analytic platforms, and the tools used to reach digital channels. But little is said about the supply chain talent shortage.

In fact, in a recent study only 38% of supply chain executives felt confident they had the right skills in their organizations.

Why does the supply chain skills shortage exist?

Theories include:

• A negative perception about supply chain work (young people think it’s not cool)
• The fact that there’s a lack of women in supply chain roles
• The exiting of baby boomers from the workforce.

These seem to ring true. When I’ve attended supply chain conferences and scanned the crowd there, what did I see? Middle-aged men.

I have another theory: most supply chain jobs are boring. Ship stuff in. Ship stuff out. Type data into a computer. Transfer data from one system to another. Scan documents and send them somewhere. Look up stuff in tables. Fix problems in failed transactions. Yawn!

Tedious and repetitive tasks are still the norm

Despite the hype about how technology is revolutionising the supply chain, software and other tools that are used to eliminate the numerous tedious and repetitive jobs have not yet been widely adopted. Why? Because most large enterprises are risk-averse and slow to change (a topic for another blog).

The problem with supply chain processes

Two areas that suffer from energy-sapping tedium are order processing and logistics claims processing. These tasks, problems, and processes are the same day-in and day-out.

But while some companies have hundreds of people processing orders and claims, the irony is that these same companies have adopted technologies such as an ERP system and EDI – but they still need people to shepherd transactions in and out of systems. I know of companies who have used EDI for years and still have a human being checking every single EDI transaction for accuracy! (As an aside, just imagine what would happen to your orders if your customer service representatives disappeared!)

Why is all this important?

Read the rest of the blog here to find out why