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Electronics ERP systems can reduce time to ROI

By A.J. Guikema

When selecting a new ERP system, manufacturing executives already expect ROI from their investment.

Tying your quotes and sales efforts to work order, procurement and production planning can be detailed and costly work so you want to do it properly. Keys to a successful ERP choice and implementation can also result in noteworthy improvements in the following areas:

  • Lower inventory management cost with reduced lead-times and cash-to-cash cycles
  • Scalability to manage growth expectations
  • Ease-of use for customers when ordering, tracking, receiving, and paying for products and services they purchase
  • Improved integration and interoperability between business units
  • Shorter financial close cycles

 

By including three key tangential processes in your business requirements, you can help speed ERP system adoption and decrease time to ROI from an ERP implementation. These are:

  • Master data management
  • S&OP (sales and operations planning)
  • Supply chain collaboration

 

Executives have a compelling desire to limit project scope to core system of record functions. But, if key processes are left out it is harder to get your ROI because data flowing into core ERP control the business processes as much, or more, than the core ERP.

Scope creep often starts when companies fail to address “white space risk” during the business requirements phase. A 2003 Harvard Business Review article, Why Good Projects Fail Anyway describes white space risk as the risk that required activities aren’t identified in advance, thus leaving gaps in the project plan.

Master data management
Master data defines your business model in ERP. If you need a supply chain with short predictable lead-times, but have deep bills of materials, rigid configurations, long component lead-time, combined with detailed costing and production routings, implementing ERP will force your business into a confrontation with your product data structure.

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Much of the maligned inflexibility attributed to ERP is actually caused by product data that conflict with best practice supply chain models.

 

The data you need may actually be in someone else’s database.

 

By virtue of its integration, the same product structures your engineers and cost accountants use to define your products are de facto what’s about to show up on sales orders in supply chain planning screens.

You may need to structure your product differently in ERP than in your PLM system.

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Consider if a subset of your entire product data and planning bills of materials and just enter the items that are actively managed in your supply chain.

The cost of converting all data can be excessive, especially if it lands on the critical path of an implementation project.

Forcing planners to review hundreds of materials records for items they don’t manage is an unfortunate side effect of converting entire product structures into ERP and a real hindrance to system adoption. (Click for tips on setting up programs, hiring and managing planners and buyers for electronics manufacturing)

Consider data users actually need in the business process, but keep in mind ‘perfect is the enemy of good’.

S&OP
Your ERP system needs an overall plan to drive it. Look under the hood in a standard ERP system to find the plan you just approved and you will probably discover it is not anywhere to be found.

In core ERP, the materials requirements plan (MRP) is typically a separate function tangential to financial plans and forecasts. In reality, these need to be tightly coupled. This is necessary in order to have a closed loop between financial and operations plans.

To effectively control assets, a plan needs to be translated into and out of dollars and units. This process is highly data dependent and requires user-specific processes and reporting. Core ERP can give you pieces, such as the dollar value of a plan at standard cost, but does not offer depth of information needed for executive S&OP presentations.

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Depending on whether you are looking at implementing a tier 1, 2, or 3 ERP, you will find different add-on packages for S&OP that have their own master data requirements and directly replace key MRP functionality.

Some ERP vendors have programs written in native code of the core system whereas most others were obtained through M&A activities with other companies.

Add requirements for your extended planning model to user requirements to help with your ERP selection process and to scope the project appropriately.

Speed user adoption and ROI by doing it right the first time and avoid re-implementing key functionality and repeating data ETL (extract, translate, load) effort later.

Collaboration is king
The data you need may actually be in someone else’s database. Playing off the axiom cash is king, the better your visibility is within your supply chain, the less cash you have to put on the shelf to cover uncertainties. Considering today’s business models are virtual, outsourced, and collaborative, data replaces cash as the medium to match supply and demand.

But a single enterprise rarely controls all of this data, and connecting these systems is not something base ERP systems do as standard functionality.

Depending on the ERP package, software vendors offer different ways of integrating vendor and customer data into ERP. Some offer EDI functionality using ANSI x12 standards, other offer Web integration.

A couple of new platforms are being written in the SalesForce.com platform providing good potential and valuable integration with the popular CRM package.

Meanwhile, if you are using spreadsheets to run your business today, you may not be aware:

  • Your employees are spending countless hours doing manual steps to fill integration gaps in master data, S&OP, and collaboration to create the reports you need to run the business.
  • Importantly, the longer they continue with these manual steps, the harder it will be for them adopt your new ERP system and drive it to ROI.
  • Help them succeed by giving them ALL the essential tools needed to turn a plan to execution and cash to cash.
  • Some companies want to use their system of record to forecast ending inventory balances based on the plan of record. If you are doing this today using spreadsheets, it’s a perfect example of a report you want that will be challenging for even a class 1 ERP vendor to generate.

 

The bottom line? Scope these integrations as part of your business requirements to speed system adoption and ROI.

Expand your provider choices

Standard MRP works out of the box in ERP software. So, a major success factor in your ERP implementation is getting your data aligned with your solution process and moving in and out of core ERP. Address these first and build them into your solution roadmap to save valuable time and mitigate scope creep while the burn rate is high. (See also: Various articles on manufacturing strategy in the cloud)

Include this scope in your business requirements and carefully evaluate how your ERP vendors address these requirements to see which package has the best solution for your business model. You’ll find interesting differences in solutions once you move from core ERP functionality to the solution roadmap for the extended enterprise.

 

Connect directly with Warren McCullogh in GlobalNet community, the largest peer-driven resource and community for electronics supply chain; finance, manufacturing and procurement professionals for gathering information; exchanging ideas and networking to help mitigate risk, reduce cost and make more informed decisions on management concerns, products and services impacting the global enterprise. Learn more.




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