Will an ERP system solve my problems and make my company profitable?

This is the question on every company owner’s mind when they think “let’s upgrade from our accounting software and look at implementing a proper ERP system. I am sure that this will ensure profitability and increased revenue”. The immediate answer that would come to mind is no. Being part of a company that implements ERP systems, this response might seem surprising!

Let me explain.

I have been trying to lose weight for a couple of months and joined the best gym in the suburb. It had the best ad claiming to help reduce weight by 2-3 kilos in a month. Two months down the line, my weight has increased a couple of kilos. My cousin pointed out the problem: simply joining the gym is not going to help. It’s actually going and exercising that would help me fit into my old pants.

We can apply this lesson to implementing new software. No software is capable of solving all of your business problems unless they are used to their fullest efficiency and used to serve the purpose they were essentially implemented for. An ERP tool is not meant to be the magic wand. It is but a tool that if used properly, will help improve areas of the business that need attention.

In saying that, it is important to understand what exactly an ERP is. As the full form suggests, an ERP is an Enterprise Resource Planning tool that is used to plan enterprises resources!

My first job after graduating university saw me employed by a construction firm as the IT Engineer. One of the responsibilities was to look at processes within the firm and impart recommendations to improve efficiencies. The first area I looked at was the purchasing department. The immediate concern I saw was the non-standardisation of cost codes. This meant that KPI’s per project could not be measured. As an example, “Manlifts” were rented for a period of time for the project as a whole. The Project Manager in essence could not recognise how many man hours of the Manlift were used for piping works as opposed to electrical works. Since the company took on EPC projects, it was an important phase in budgeting and bidding for new projects to have data on old similar sized projects to forecast costs of equipment hire. Implementing the CSI cost code model into the ERP system implemented helped standardize the stock items and lookups alike over a range of projects that were undertaken by the company. This improved efficiencies as data was made available to planning departments. This meant they were able to plan activities and resources in a more efficient manner, also helping future project bids and budgets.

Another issue noted was the procurement strategy. Every purchase required sending out “Request for Quotations” to vendors and each time the vendor was chosen based on certain criteria. Most ERP systems are capable of storing supplier pricing. The ERP system implemented was capable of vendor scoring as well. A capability not used at the time. This was due to a lack of knowledge of what the ERP was capable of in this domain. Implementing the vendor scoring system meant that the system could suggest the most favourable vendor based on history of pricing, lead times and vendor ranking as suggested by historic relations. It could also be used to give equal opportunity to vendors thus allow to trial new vendors and build better relations with some recording the pluses and minuses of procuring from them. Over a period of time, data increased which helped projects in Qatar make an informed decision on whether to buy from a vendor in Bahrain or to keep the purchase local, for example. Forecast purchase algorithms again helped automation of recommended quantities to buy at regular intervals.

To sum up everything above:

In theory it is not enough to simply buy and implement an ERP system. The ERP system is just a tool. It is also not enough to implement and use the same process day in and day out. An efficient business believes in improving processes at regular intervals. At K-C we call this “sharpening the spear”.  What works today might not tomorrow. It is important as a business to review your processes and check with your implementer if reviewed processes can be mapped into the current ERP build or what could be done to map the change into the build.

A great man once said “Nothing is permanent but change”— (Heraclitus). As suggested by the “Theory of Constraints” find a bottleneck, fix the bottleneck, review the business process and rest assured you will find a new bottleneck. This process of fixing and reviewing is essential to a growing sustainable business.