The approach helped a BC food manufacturer control inventory and costs
In the book Thinking About ERP, the authors suggest ERP is no longer a competitive advantage. It is now, they contend, a competitive disadvantage not to have an ERP, or to select one that doesn’t operate efficiently and effectively.
To ensure the selection of an appropriate ERP, the executive decision-maker should answer the following questions:
What strategic business objective will be served with ERP?
According to John Fahey, president of SYSPRO Canada, one of the best ways to answer these questions is through the application of Eli Goldratt’s theory of constraints (TOC), a change-management philosophy helping companies consistently achieve their goals.
According to TOC, an organization can be evaluated and controlled by three measures: throughput (the rate at which it generates money through sales), inventory, and operational expenses. A business benefit, according to TOC, is only real if it results in increased throughput, reduced inventory, or reduced operating expenses.
TOC helps to clarify the linkage from a business’s constraints to its performance – as measured on the bottom line. This ensures ERP selection process is a business decision based on targeted objectives, and that the benefits will be verifiable.
Prior to July 2012, Basic Grain Products Inc., a private-label snack food manufacturer based in Burnaby, British Columbia, ran its business on a mixture of legacy products.
“Our data was stored in multiple places,” says CFO Norman Shung, “which impaired our ability to make timely decisions. When we wanted to know specifics it was very painful to get the information, and it was especially difficult to generate reports. Our business systems were not perpetual, not live, and definitely not up-to-date.”
Having identified the company’s constraints, Basic Grain Products went in search of an ERP that would provide an integrated, real-time view of its business processes. In the end, the company chose SYSPRO as the solution that best addressed their business objectives at a price they could afford.
“By connecting the inventory system with order entry,” says Shung, “and by continuously updating information on inventory quantity and availability as a function of doing business, our book inventory now gives us an exact image of our real inventory. That gives us a very high degree of control over our inventory, and over its associated costs. It also helps us keep track of our expired product, and makes it much easier to adhere to the FIFO (first in – first out) method, which wasn’t being properly managed before. We still have to gather more data, but at least, now, the visibility is there.”
Three degrees of freedom
The theory of constraints shouldn’t be abandoned once the selection process is over. “Every ERP implementation,” says Fahey, “potentially affects the enterprise on three basic levels: business processes, business systems and employees. We call these the ‘three degrees of freedom’ and their relative importance changes for every project.
“Some manufacturers think they only need to change their business system. In reality, ERP always has a degree of process review, and usually involves realigning roles and responsibilities. An understanding of the constraints along each degree of freedom, and of the change management solutions required to mitigate those constraints, is an important aspect of ERP selection.”
Basic Grain Products’ next big challenge, says Shung, came after the ERP implementation, and lay along the degree of freedom that symbolizes employee organization. “As is often the case, people are fearful of change, and with our new ERP came many changes to both our technology and our business processes.”
Change management, says Fahey, is always an important factor in a successful ERP deployment, adoption and return on investment. “Involving key employees throughout the planning, testing and training phase of a project is crucial. If a company does not define or predict the need for change management, its ERP project may not meet its business objectives.”
This article was sponsored and provided by SYSPRO Canada. To learn more about successful ERP selection and implementation visit www.syspro.com
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