The ERP Dilemma

The reactions range from dismay to
bewilderment. Why is the ERP roll-out taking so long? Why the huge cost over runs? And
when we’re done, what will we have? Part of the confusion is that ERP and reengineering
are only loosely related. It is the chemical industry which has bound them inextricably
together. The reengineering project grew out of chemical executives’ desire to gain
control over the ever-more complex management of a global business through standard
business practices and shared information.

The ERP system was brought into the
equation as the vehicle for forcing all sites to conform to common practices and to
simplify the data sharing. The result? ERP implementations are taking ‘forever’ to
complete. Why? Because reengineering is a complex and time-consuming problem to tackle.
And, for some, the ERP tool does not provide the ideal functional fit for the operational
side of the business. However, the problem is a little more grave than this. All
industries these days must recognize that time is of the essence. Changes in the markets,
products, competition and technology-all must be detected early in their cycles, and the
corporation must move to leverage any and all changes to its advantage. The reengineering
focus should not be to ‘finally get it right’ but to recognize that it will continue to
change over time-most likely before they finish their reengineering projects and the
so-called ERP roll-out.

Which one is the question?

“ERP or reengineering? Which
comes first?” My first reaction is, “What a nonsensical question.” The two
ideas-the two projects-have very little to do with one another and yet seem to be
inextricably intertwined. Reengineering should be a project which assesses the corporate
strategies, determines the proper tactics and transforms the corporate business processes
to align all parts of the enterprise in a new direction. ERP is a software system which
provides information in support of these business processes. By looking at the history, in
generalities granted, of how these two projects came to be looked almost as one, we will
see how we got off the track-and may be some ways to get back.

ERP and reengineering have become
inter-woven together because of the chemical industry’s strategies and tactics in trying
to solve another problem. But it won’t surprise you to know that I don’t think the problem
was, in the beginning, either ERP or reengineering. The problem the chemical industry was
trying to solve was: how do we gain control over a global business which is growing more
and more complex with each turn of the wheel? That is certainly a problem which must be
wrestled to the ground, and the sooner the better. But many elements have come into play
here to get us to the point where ERP and reengineering are being used, in some instances,
almost synonymously.

A struggle for control

Where does control at the executive
level come from? The answer seems fairly universal-access to timely and accurate
information. What kind of information? Financial information first and foremost. But,
financial data is summarized data, symbolic of all the detailed information of the total
operations from PLC data stored with data historians to production schedule history and
shipping records. As pressures mounted each week to take difficult decisions faster and
faster, the need for more concrete data-in reality for the assurances that the symbolic
data was completely accurate-drove most chemical companies to question their information
systems. Were they getting all the information they needed from their vast, global
operations?

The ‘timeliness and accuracy’ mantra
was quickly taken up by ERP vendors who saw this as a wonderful opportunity to spread the
‘gospel of integration.’ Without integration, their story went, how would the executive
ever have quick access to the information which they required? The vision was appealing to
many. One CFO even used the example of ‘drilling down’ into purchasing records in remote
locations when specific accounts in the corporate divisions exceeded their budgets. The
fact that no CFO has (or should have) the time to do this level of detailed checking
seemed to be lost on him. Most CFOs would simply pick up the phone or nowadays send an
email and ask the local controller what was going on.

Nevertheless, the integration gospel
spread. I should state here that I am not against integration if by that we mean,
“the easy access to and sharing of information throughout the enterprise.” But I
am more ardent about the usefulness of this information. Is it accurate? Does it reflect
the realities or the operation? What I am against is, the belief that in order to have
this easy access to and sharing of information, there is a need for a software from the
same ERP vendor every where, for everything, for everybody.

Once it was decided to have the same
software everywhere for everything for everybody, other problems began to surface which
seemed to block the path to easy access to information. Different sites had different part
numbers for the same products, different formulations for the same end-items and different
allocation methods for calculating product costs.

First of all, at the data level, how
would information ever be consolidated? How would users ever understand the information
they were looking at, if all of a sudden they were in another computer system and the part
numbers were different? Secondly, the executives were beginning to understand that
inconsistencies in business practices were thwarting efforts to compare performance
between sites.

Reengineering introduced-but off
target

So suddenly, reengineering projects
started defining consistent business practices throughout the enterprise. The vision from
management was that ‘world-class’ business practices would be defined and agreed to. Every
site would adopt them. The business would jump ahead of the competition because each and
every site would be performing each and every function with ‘best in class’ precision.
Sounds good, but it’s off the mark.

The vision and the resultant
reengineering project is founded upon a false assumption: that there is a final answer.
There is no final answer. These are the very best answers of the moment. But in the next
moment, the business climate changes, the customer’s demand changes, and the best answer
of yesterday needs to evolve to meet the new challenge.

Transformations of any scope are
difficult and these reengineering projects-taking on the redefinition of the whole
enterprise-are mammoth tasks which seemingly take forever. The dilemma is that by the time
you define the ‘best practices’ of the moment and drive the total reengineering project,
the world will have changed and your ‘best practices’ now implemented as the final answer
could already be obsolete.

Reengineering is a very good idea in
this world of fierce global competition. However, the reengineering project should be
reshaped. The driving force must be changed. The goal must be shifted. The hard work of
all employees to transform the business must be redirected. The objective must be to
transform the organization into a change embracing enterprise, working as a
cross-functional, cross-geography team for the common goal of ‘best for the day,
everyday-no matter what.’ The irony of this kind of a reengineering project is that it has
little, if anything, to do with software.

ERP? Off target, too

There is no doubt that you will need
an ERP system. People do need information with which to manage the global business. But,
first things first. Until the organization determines how it will shape itself, what will
be its business practices and what it will take to adapt to changes, how else will it know
what kind of information system it requires?

We know some things already.
Information must be shared throughout the whole enterprise-both vertically and
horizontally. We know that the organization will need software which acts as a mirror not
a monarch- reflecting the way they choose to manage the business, not forcing them to
conform to restrictions already built into the software. We know that the organization
will never get to ‘end of game.’ There will always be a new acquisition, a new joint
venture, a new competitor and a new way of doing business.

We know that integration, the easy
access to and the sharing of information throughout the enterprise, is a fundamental
requirement for the peace of mind of the corporate executive who is struggling with
difficult decisions which require complex and comprehensive information. Since we also
know that the next month, quarter, or year will introduce into your organization a new
sister plant or operation, the idea of the same software ‘everywhere for everything for
everybody’ is not practical. In the complex world of merging two new organizations ripping
out an information system for the sake of complying with the new owner’s corporate
standard is not good economics, and certainly not a method of winning friends.

Finding the right software tools for
this emerging, complex, amoebae-like organization will require a serious look at the tools
already in place in the organization. It is time for that ‘necessary stop’ to determine if
we need to change directions.

There are choices…

Some organizations will find that
they have already chosen the right software tools. The choice of the financial software
coincidentally provided, from the same supplier as the operational software which meets
the needs of the other parts of the enterprise like customer service, maintenance
management, distribution and plant operations. Others will find that the financial
software is an excellent fit-best in class-but that the fit for other parts of the
organization rates only a ‘good’ or a ‘poor’ rating. This is when the operations personnel
at the plants must make their voice heard in the corporate halls. Why should the plant
level tool work less well for operations personnel than the tools which the financial
planners have at their disposal? Is operations being forced to use the wrong tool for the
right job?

I know the counter argument. There
are costs to tying two different systems together. The integration is never seamless.
There are always holes or overlaps which have to be managed. Who will support the programs
written to exchange the information? The answer here is "it all depends". There
are obvious places where the integration points have very little overlap and the sharing
of the information is-because the systems are on separate computers anyway-acceptably
shared in batch mode where the updates can occur as often as you wish.

Financial data and operational data
from remote sites is just one example. The overlapping information are the customer master
records, the vendor master records, the account numbers form the ledgers. The need to
share information has to do with credit ratings of customers, authorized pricing from
vendor quotations, updates to ledgers because of the movement of inventory into, out of,
and through the operation.

What about different part numbers,
different currencies, different legal entities? Real problems all, I grant you. However, a
single vendor solution throughout the world will not necessarily solve these problems
either. There will always be different part numbers, I’m sorry to say. Because when you
buy that competitor’s operation in far-flung part of the world, I can guarantee you that
their part numbering schema will not match yours.

Can’t it be simpler?

Your management tools can not be
simplistic. Though they can be simple to use. But your software tool under the covers must
be as robust, as sophisticated, as intricate as your business operations. In some ways the
technology is the easy part. And is getting the organization to change directions and
allow each part of the operation to choose the right tool. The hard part is finding the
balance between robust functionality and the simpler world of a single software supplier.
I can start the debate. I can provide facts and ideas. You must carry on the debate until
you find for your organization, the right answer.

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