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Tuesday, October 07, 2014

The quest for a competitive edge in a global environment has prompted organisations to look at many innovative ways to reduce costs and maximise their returns. Integrated systems such as Enterprise Resource Planning (ERP) have largely figured in these improvement strategies.

Whilst there are organisations that focus their energies on the operations of their ERP systems and use them following the defined ERP logic, there are many organisations that view ERP as a computer system and the management become disengaged limiting the benefits the system is capable of achieving.

We have visited many organisations that have had ERP systems for some years but do not understand the full potential of the systems capability. An example of this is an organisation that prides itself on the use of their ERP system but did not understand that inventory replenishment systems such as reorder point based on a quantity trigger is not the same as a materials requirement (MRP) calculation driven by a master schedule. In fact when referring to their MRP calculation they actually meant reorder point.

Using ERP in this organisation was more complex than just switching to using MRP. Effective ERP requires the collaboration from many different areas of the business involving engineering for bills of materials, production for routings, planning for scheduling, purchasing for buying of parts, inventory management for keeping the inventory accurate and sales involvement in the forecasting and demand activities. Complicating this is each area has its own management structure and in many cases their own objectives that are broadly in line with the business objectives but may not facilitate the effective use of ERP.

The corporate structure, designed to manage the different activities often conflicts with the overall objectives to the detriment of the systems operations. There is no one person that is responsible for ensuring each activity is carried out to ensure the systems operate at the maximum efficiency.

These issues can only be resolved by the chief executive who are typically focussed on more strategic issues and see the ERP system as a technical computer issue and not a management issue.

For the majority of organisations the struggle to obtain the benefits the ERP technology offers is illusive and frustrating. The key is management focussing on the technology and addressing the issues that prevent the technology working as originally intended. The need for management and user education is a strategic issue and this must be communicated and understood firstly by management and then by users of the system.

Experience Worth Listening To!

Ray Atkinson