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Many companies experienced great pain when implementing their enterprise resource planning systems — but still haven't exploited the full potential of that technology, says Jay Freeman, principal with Reveal.
SCB: After years of preparation and implementation, are companies making full use of their enterprise resource planning (ERP) systems?
Freeman: Unfortunately, our experience is that it's quite the opposite. What we find with our clients is that at best they're utilizing 10 to 20 percent of their SAP systems today.
SCB: Why have they fallen short in terms of full application?
Freeman: When people began implementing SAP, especially back in the late nineties, they were generally focusing on integration of the system itself. There wasn’t a focus on what the capabilities of the system were. Fast forward to today, some 20 years later, and we find people circumventing the system. They’re often working in what we term personal information systems, more commonly known as Excel. They’ll either export data from their ERP and then put data back in, or in many cases they’re running a lot of the business outside the ERP.
SCB: It sounds like a symptom of siloed organizations, where different departments create their own spreadsheets and don't interact with one another. Is that the case here?
Freeman: Absolutely right. The [lack of] change management is a big piece of it. Those silos have come back to haunt organizations. Now, when they’re focusing on digitalization and trying to leverage new technology, they're still not addressing the linchpin, which is their ERP system. It’s not going to bring the value that you expected if you haven't first addressed the core problem.
SCB: You have all these add-ons that are supposed to talk to the ERP. But if the ERP isn't being fully utilized, that's not happening, right?
Freeman: Exactly right. You need to go back to the basics and focus on educating people, so they understand what the ERP is capable of. And you need to align people to an end-to-end process. Somebody in operations should have connection points with people in purchasing and logistics. There needs to be end-to-end discussions on a daily basis, so that people understand the impact of what's happening upstream and downstream. Then you can begin to leverage the system properly.
SCB: What’s the point of such discussions if they’re not all talking the same language? Who can coordinate that?
Freeman: You need to have someone who can facilitate it, to help everyone understand how you can become aligned. Once those structures are put in place, they’ll stay there, and you can continue to operate in a manner that aligns with the system.
SCB: What are the benefits of doing so?
Freeman: Once you're using the system properly, and people have been educated, you can make full use of new technologies. You’re also going to have satisfied employees. There’s a lot of discussion today around how you keep people in the supply chain. Good employees are hard to find, and hard to retain. You're certainly not going to keep someone who's unhappy with their job. And what we see time and time again is that when people see what the system is capable of, they're much happier. They can get away from tactical day-to-day firefighting, and become much more strategic in their jobs.
SCB: How do you deal with the issue of upgrades? Every few years, SAP rolls out a new version of its ERP, supposedly with more functionality and capability. If companies weren't even making full use of the previous system, how do they absorb this whole new thing?
Freeman: We try to explain to clients that if they can't get to as vanilla a state in their current version of SAP as possible, they’ll have to do an all new implementation, and that will be very costly. But if you can get to a standard version of SAP, and align your organization so that you’re using what you already have, it's a simple migration.
SCB: What about big companies with multiple instances of ERP around the world? Is there an issue in trying to standardize and harmonize those systems?
Freeman: People need to understand which elements are necessary, and which can be done away with. Often they don't realize what the standard technology is capable of. So they create customizations, and make tweaks and changes. One of our clients said to us, "I had two employees working all last year, spending 12 months creating a report that you just showed me came standard with the tool, and I didn't even know it existed."
SCB: Who is typically your main point of contact within the client organization? Who can drive this educational initiative and bring everybody together to make full use of their ERP?
Freeman: Usually our primary stakeholder will be a senior executive on the supply-chain side. We see that as essential, because while IT experiences a lot of those challenges, it's the business that has to live with the results. Often IT understands the technical aspects of the system, but not the operational side.
SCB: So the message here is about the value of unlocking the potential of existing technology.
Freeman: Absolutely. The ROI is tremendous, because the way to mask these sins is often by carrying higher levels of unnecessary inventory. By freeing up working capital, companies can help fund the eventual migration to a new version of their ERP systems.
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