I just watched a promotional video produced by the developers of an ERP that is targeted directly at SME manufacturers. The narrators proudly boasted of the gains found by “having all your data in one place” and showcased a video endorsement by a customer, exclaiming that they found a $22,000 payroll savings given the employee productivity their new ERP system has enabled.
I felt that I was watching a 1980’s action film on Netflix.
It’s a real problem: since MRP-II/ERP, ERPs designed for manufacturers have stagnated. I don’t mean that there aren’t new ones nor am I overlooking the push to the Cloud and browser-based ERPs. I’m speaking directly to the lack of meaningful tools to help these manufacturers with what they are most often worst at: right-sizing inventory, lead time compression, and lowering barriers to flow. In short, reducing and eliminating artificial constraints and prioritizing actual constraints in their business.
Theory of Constraints (TOC), Critical Chain (CCPM), DDMRP, Lean, Six Sigma, and other philosophies address these business constraints. Each has its best use case, its success stories and evangelists, are implemented with various proportions of strategic versus tactic goals, and have different levels of reported (purported?) success rates. They all are implemented, at best, peripheral to an ERP or, at worst, with an avoidance of the ERP. Not because a given philosophy can’t be at least partially implemented in software; some are always implemented in software. Not because they are agnostic to the data in the ERP; most require ERP data for definition, analysis and KPI. But because large ERP vendors aren’t embracing them and offering them to their customers.
Why? If these philosophies work at least some of the time and much, if not all, of these philosophies are implemented in software, why doesn't the big hunk of software that practically every manufacturing company is using embrace at least one of them? I can guess at the answer but I’m not in the board rooms of the firms maintaining these ERPs so it’s just that, a guess. And my guess that there’s no market reason to spend the R&D expense when a) the customers aren’t demanding it and b) the competition isn’t forcing them to do it to remain competitive. Vendors are all staring at each other, hands on their holstered guns, waiting for the first one to invest the R&D and marketing dollars to implement and promote some of these philosophies, and nobody is. (My geeky co-answer is that the bigs ERPs are build on technology cores that are so old that the addition of true analytics is too much of a strain.)
Smaller manufacturing companies buy an ERP as a solution. The sales guys tell them about the increased visibility (more noise) and increased employee productivity (low hanging fruit), and shows them a slick Gantt chart scheduling tool (shop-wide finite capacity scheduling has, unquestionably, the lowest success rate of any scheduling tool). Then the sales guys fire up their tablets or smart phones and show how mobile their ERP is. And look, it’ll even send an email to the purchasing manager when he or she need to approve a purchase order! I mean, how could this fancy ERP, this solution with so many interesting, sizzling features, not deliver on ROI?!
Well, because none of these features address the real goal: to reduce and eliminate artificial constraints and prioritize actual constraints in the business. Yes, they may increase employee productivity or give the CEO access to fancy graphs on his or her phone, but that isn’t the constraining problem. That does, however sell ERPs, especially when the competition is making exactly the same sales pitch. So ERP vendors are arming their smaller customers with sticks and stone while larger firms are buying the best weaponry in the form of hugely expensive consultancies focused on one or more of the philosophies that actually make offer competitive advantage. Think I’m wrong? Show me a Fortune 5,000 manufacturing company that isn’t deep into TOC, Lean, or Six Sigma.
Don’t get me wrong, modern ERPs should be about the Cloud and mobile. They should be able integrate well with other softwares and services (i.e. Post-Modern ERP). And, yes, they should send some sort of mobile-friendly signal to tell the purchasing manager about a P/O that needs approval.
An ERP is an expensive, painful, disruptive tool to implement and use at any organization, and any decision to use a given ERP should always be weighed against its ROI. If an ERP can’t demonstrate how it can help optimize production bottlenecks, ensure inventory availability without forcing the firm into a cash crisis, and prioritize an ever more complex list of work, sales, and maintenance order and project tasks then its purchase is a false economy, in one case, to the tune of a mere $22,000 return via employee efficiencies.
There is good news. Forward thinking ERPs (and you can all guess which is my favorite) do embrace some of the philosophies that, in a word, work. And, because most of the data is already in the ERP, the deployment of these philosophies become less painful and expensive. They still require a shift in thinking at the management level (sometimes a dramatic shift), but, when pilot projects can be started with a couple of button clicks and the results can be measured with integrated tools the barriers to entry are dropped to a much more palatable point.
Of course, it’s not that easy. Education is key: my current favorite read is Demand Driven Performance but people far smarter that I would insist that it all starts with The Goal. And, with tools already at hand, even smaller manufacturers with limited budget and staff, can get their hands on the big guns.
Leave the 1980’s action flicks for date night.