14 Jun Executive Guide to ERP Implementation
By Jeffrey Glaze, President, EpiCenter
ERP systems are complex. Many times executives don’t understand them—and they don’t need to. But what executives SHOULD understand is what they require from the system. Many companies we assist have no key performance indicators because they’ve never had a way to calculate them on a regular basis. Without KPIs, though, those companies are running their businesses by the seat of their pants. They don’t know which of their products is profitable, there’s no accountability for on-time delivery, and they don’t know whether their cash flow is getting better or worse.
This white paper discusses the concept of “values, vision and mission” as they apply to an ERP implementation. From the top down, every stakeholder should understand the values of their company, and what their vision is to achieve those values. That vision is their plan for success (become 95% on time, or increase profitability by 10%). Missions are the individual projects that work together to achieve the visions, such as “defining on-time delivery and capturing accurate data,” or “understanding the elements of cost and setting thresholds to help diagnose why we’re not profitable.”
In this executive guide, you’ll learn what should be discussed, and frankly demanded, in an ERP implementation. We successfully implement Epicor on a regular basis (12 successful go lives this year so far), and we know these items should be mandated for any system. If the system can’t accommodate this plan, then please call us to reset your project.
If you have made the decision to implement an ERP system for your business, congratulations! This is one of the biggest change opportunities you’ll have over the next 10 to 20 years. Because you may not be an expert in ERP systems, this document provides guidance on some best practices that can maximize your investment. There are great benefits to be derived when done right.
Communication is key in any business. As a best practice, it’s good to periodically step back from the day-to-day running of the business and examine bigger issues:
- What do we stand for? What values do we bring to the marketplace that distinguish us from our competition?
- How do we currently measure success and what opportunities must we measure in the future, using new and perhaps more in-depth and innovative ways?
- Who needs to understand the “management view” of our organization? How can we communicate this to our key management team and to those throughout the organization?
Recently, we interviewed a company President who had been criticized for micromanaging. His staff didn’t have a clear idea of what he wanted them to do and he thought his staff didn’t understand why he was finding fault with their actions. He said, “I micromanage because I have to. These people don’t understand what needs to be done for us to be successful. I am the ONLY one who understands what is necessary and gets things done.” Managers who feel this way cannot grow their organization, especially when they think they are the only one who “gets it.”
Our recommendation is to use values, vision, and mission to communicate key concepts. Many companies evolve over the years without a clear definition of these core concepts, and those organizations can find themselves with insular managers who do what they are asked but don’t feel part of the organization. Worse yet, they’re not invested in the business’s success. The values, vision, and mission method starts at the top and asks everyone from the CEO down the following questions:
- What are the core values of our company?
- How can we communicate these values throughout the organization so that all staff understand what’s important?
Here is a sample values, vision, and mission statement from a fictitious executive that can be used to illustrate what a CEO might put together for his or her organization.
My statement of Values, Vision, and Mission
J. CEO, President, Smith Companies
The values of the Smith Companies are personal integrity, honor, and service. We must all value ourselves, our families, and our fellow Smith staff. We honor each other with mutual respect, and reach out to share our successes together. We serve each other, our customers, and our community by providing world-class products to keep our nation’s homes, schools, and public areas safe.
My vision is to continually build Smith Industries, by recognizing opportunities and working with our talented staff to meet those challenges. Development of innovative and market-changing products, evolvement of ever-improving manufacturing capabilities, and providing ongoing opportunities for professional and personal growth are all tenets of my vision.
My missions include:
- Developing my management team to share my passion for staff and customers, so that all feel valued and are encouraged to achieve growth within our company. Personal integrity, honesty, and use of the Golden Rule are cornerstones of this mission, and cannot be compromised.
- Monitoring key aspects of the company while delegating day-to-day responsibilities to the management team, so that I can spend 25% of my time on administration and 75% on new products and opportunities. To successfully complete this mission, I know I must delegate decision-making to my staff, and I will do that by sharing my values, vision and mission, to ensure they make the same decisions I would in a given situation.
- Working with my management team to develop “Our Way,” a system of checks and balances and standard approaches to complex challenges, like new product development, that ensure the smooth functioning of solid business practices while always striving to meet customer needs. This system needs to be followed faithfully, without exception, so that all processes can be properly designed and communicated throughout the organization.
Key measurements that will be used to monitor and manage our company include:
On time delivery. We pride ourselves in providing excellent service to our customers, and understand the changing nature of customer requirements. To provide a fair report card, on-time delivery is measured a few different ways:
- On time to customer’s original delivery date request
- On time to the final date that the customer requested, and we accepted.
- On time per customer and part.
- On time per product group
- Sales per customer per month, comparing month over month of last three years.
- Sales per employee as a measurement of productivity, month over month, last three years.
- Profitability per part.
- Profitability per customer.
- Sales pipeline by month, with year over year comparisons.
- Internal quality rejections by reason code and associated dollars.
- External quality rejections by reason code and associated dollars.
- Supplier quality rejections by reason code and associated dollars.
- WIP by product line, monthly and yearly comparisons.
- A/R with comparisons month/year, and as percent of sales.
- A/P with comparisons month/year, and as percent of sales
There are some key considerations to be understood when setting up the Key Performance Indicators (KPIs). Because they depend upon reporting, it’s critical that the data being reported is accurate and accountable. Staff with responsibility for these numbers have to be able to understand and defend their numbers. The ability to change this data must be restricted to those who are accountable for the data. And, of course, as these staff members generate data, their additional responsibility is to evaluate the data and provide information based upon that evaluation. Management depends on their buy-in to formulate a fair and accurate measurement of their efforts. We understand that it’s not possible to run a business “by the numbers” only and that numbers can be interpreted differently. As a business begins to utilize these tools, fairness is critical so that all staff understand, agree to the measurements, and participate in a process to continually improve these numbers. Goals need to be set fairly.
As you proceed to monitor these numbers, you will see trends, and your goal will be to manage the business so that you will have an “early warning system,” as well as tools that you can put in place to prevent tough situations from happening. Epicor gives you the toolbox to utilize, but since every business is different, the solutions for various problems are different.
The key question for you to ask is: “What can we put in place to monitor this key part of our business and/or prevent it from happening again?”
Over the upcoming weeks, months, and years, your system will become more and more sophisticated and you will have time-sensitive access to key information that warns you of issues. This level of detection wouldn’t have been possible without an ERP system.
Each member of the management team needs to define their values, vision and mission and build their own expectations, in alignment with them. In turn, they can define measurements and incremental goals for their own areas of responsibility. This framework shares the responsibility of the entire management team, so that they all understand their roles.
Top management, and all members of the company, must respect the organization and work within it to understand and make incremental changes to continually improve the company. If we all follow our values and mutually share information and decision-making processes, we will understand each other’s motivations and build trust in each other. We’ll know that together, we’re all working toward common goals.
It is important to identify these KPIs early in the implementation process because decisions will be made early on regarding what data is kept and how it’s organized. If we are to measure the company by this data, we need to ensure that it’s set up correctly and accurately. Just like a baseball game score isn’t calculated based solely on touchdowns or goals, your business’s KPIs will be different from others.
Start simply and develop yours in a prudent manner. Don’t be too complicated right away—keep it simple. Think of your car’s dashboard. You can tell at a glance what your speed is, the temperature of the engine, fuel status, etc. There are hundreds, if not thousands, of sensors feeding this dashboard, but the simplicity of the display of information lets the driver know instantly if something is wrong. When there is a failure, a warning light comes on to signal imminent danger. Likewise, you can set up your data dashboard this way.
This is your opportunity to lay the foundation for your company’s future, communicating key information in ways you could not in the past. Take the time to do it right, and you will be rewarded for years to come.
If you’d like further guidance in this process, get in touch with EpiCenter. We’re here to help.