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ERP: Inte gra t i n g

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ERP: Inte gra t i n g

  1. 1. ERP: Integrating and Extending the Enterprise by Caron J. Ward E nterprise resource planning (ERP) has boosted the produc- tivity of the federal workforce and enabled tremendous growth in sales revenue in the private sector. ERP systems Senior leadership integrate data throughout the organization, speeding up processes, improving communication, supporting better decisions, examines the reducing costs, and eventually satisfying customers. But like all mod- ern-day panaceas, ERP has its challenges. benefits and challenges of What It Is ERP software suites are business applications that integrate enterprise processes across the enterprise and link them to a common data repos- itory. The definition from the Center for Digital Government is resource planning. straightforward: “ Business applications used by enterprises to manage and integrate best practice business, financial, administrative, and operational processes across ” multiple divisions and organizational boundaries.These applications act as the backbone of the enterprise and are designed to support and automate the processes of an organization. ERP provides greater access to accurate information, raising the visibility of business results across organizational boundaries. Private- sector organizations began implementing ERP systems in the late 1980s as a way to increase competitiveness. Cost reductions, productiv- ity improvements, and greater operational visibility resulted from con- solidating disparate sources of data and improving business processes. Initial ERP software automated and integrated core business func- tions—from materials management on the factory floor, to financial 30 WWW.THEPUBLICMANAGER.ORG
  2. 2. management in the chief financial officer’s office, to These guest speakers, a senior leader of a public- personnel management, to decision support for the sector “supplier” and an executive of a private-sector chief executive officer. According to Hawking and “manufacturer,” revealed that although the public and Stein, over 60 percent of U.S. Fortune 1000 companies, private sectors operate different business models, the ranging from raw materials processors to consumer benefits achieved and lessons learned from their ongo- goods retailers, have implemented an ERP system. ing ERP implementations are very similar. This article Today, private-sector firms are on a second wave of summarizes the discussion, which was “not for attribu- ERP implementation, upgrading software to leverage tion” to encourage frankness; thus, the remarks are not the Internet and employing product extensions for associated with individuals. greater business intelligence. This improved ERP soft- ware enables greater collaboration through information Benefits sharing and integration with trading partners, cus- The business results of ERP are well published, and tomers, and suppliers. New functions, such as customer our guest speakers reinforced the positive effect on the relationship management and supplier relationship bottom line. Both organizations have used ERP to management, have extended collaboration and the boost the productivity of their workforce and enable boundaries of management visibility. tremendous growth in volume and sales revenue. For Increased focus on more effective business manage- the supplier, in the five years since its ERP project ment and accurate financial reporting has driven the use began, sales have doubled while workforce attrition has of ERP in the public sector. However, the federal gov- led to the smallest staff in the organization’s history. ernment has adopted late and lags behind industry in ERP, once fully implemented, will enable the supplier implementing ERP systems; many agencies still seek to sustain this increased volume with constrained first-generation functionality. Most, if not all, govern- staffing. For the manufacturer, ERP has enabled an ment agencies are well educated in the benefits of ERP, increase in sales from $3 billion to almost $5 billion yet it is difficult to find a complete, enterprise-wide since 1998 (when they began their ERP program). implementation in the public sector. ERP systems integrate data from the core opera- Several civilian agencies have implemented ERP in tional areas—manufacturing, distribution, and sales— individual functional areas, such as personnel or finance, and make them available for dissemination across the but are pre s e rving existing organizational structures and enterprise. The accessibility to reliable data from across limiting full access to information. The Department of the enterprise exposes bottlenecks or weaknesses in the Defense (DoD) has pilot-tested several implementations, supply chain while speeding the time to solution. most of them within a limited function or organization Visibility of information supports rapid decision mak- and with legacy systems often intact. A remaining chal- ing, better operational control, and streamlining of lenge is to integrate these ERP systems with each other processes—leading to reduced costs. and with legacy systems, truly enabling efficient business Integrated data require standardized processes. ERP processes and allowing common access to information. systems impose business processes that require discipline and consistency. They seem cumbersome at first, espe- The LMI Executive Forum cially for operations used to ad hoc processes and In February 2006, the latest LMI Executive Forum workarounds. For example, one business would rou- invited senior managers from DoD, federal agencies, tinely ship product before it was “received” into the state government, and private industry to discuss the legacy system. “We’ll let the paperwork catch up,” was benefits and challenges they face in their continuing commonly heard. Such practices, while seeming flexi- efforts to implement ERP. Leaders from two organiza- ble at first, lead to inefficiencies later and are an accoun- tions that are seeing the results of successfully imple- tant’s nightmare. ERP will not permit this kind of pro- menting enterprise-wide ERP systems shared their cessing. Using ERP’s enforced process rigor, operations experiences and discussed lessons learned. are compelled to ferret out the causes for workarounds and re s o l ve the underlying pro blems so that the workarounds are no longer necessary. Caron J. Ward is an LMI research fellow, who leads work in business and IT strategy. She can be reached at cward@lmi.org. THE PUBLIC MANAGER ✦ SPRING 2006 31
  3. 3. In manufacturing, ERP makes each operational Challenges business area more accountable for results, reducing the Although ERP implementation is an investment in production cycle time and improving customer wait technology infrastructure, its impacts go beyond IT, time. The manufacturer has leveraged the use of elec- requiring cultural transformation throughout the organ- tronic data interchange to extend the information flow ization. Adaptation to change is not always easy for out to its customers, giving them greater control over employees, w h e re“improving productivity” often means their own inventory.With ERP, the manufacturer is also reducing staff. The federal worker—who, on average, is actually able to manage its largest customer’s inventory more than 40 years old and has served more than 16 for them. years—is especially sensitive to this perceived threat. Access to near-real-time customer demand infor- ERP brings new process models that must be mation has improved forecasting, enhancing supply adapted to the individual organization. The manufac- chain response and lowering inventory carrying costs. turer estimates that 80 to 90 percent of its processes had For the manufacturer, this has meant that new products to change. Resistance to change is a key challenge as can be introduced into the market more quickly, and both organizations and processes evolve, and the old slower moving products can be retired. For the suppli- way of doing things is no longer acceptable. Both lead- er, the result has been a transition from an “arm’s ers agree that the critical factor in successfully manag- length” relationship with customers to joint planning ing the organization through this transformation is the and collaboration. For both organizations, the right driving force of senior leadership and the passion with products are increasingly available at the right time for which it leads the organization through this change. their customers. Setting the direction and holding fast drives the The downstream effect of inventory reduction has message home that “there is no going back” to the old been an alteration of distribution networks.The consol- ways. Training reinforces the message for line manage- idation of supply functions across DoD, as part of ment and the individual contributor. The supplier recently approved base closure initiatives, will be facili- undertook a change management strategy, deploying in tated partly through the implementation of ERP sys- a series of educational steps, to take its employees and tems. Greater access to information has enabled the union leaders through various levels of acceptance as supplier to take on greater responsibility for products they moved ahead with the project. previously managed at installations that are downsizing Forum participants agreed that managers must be or otherwise realigning functions. Similarly, in the pri- set up for success with the right tools and support to vate sector, greater understanding of customer demand enable them to educate their employees. Managers must results in less finished goods inventory in the warehous- learn to listen to employees and coach them through es.The manufacturer was able to reduce the number of any resistance. Detractors will stand in the way at all warehouses from twenty-four to eighteen, and eventu- levels, and management must take a strong stance to ally to four. encourage them to support the success of the project. Beyond the operational benefits to the business, the One way to inspire acceptance and a sense of own- reduction in information technology (IT) cost has been ership is to engage managers and employees in the solu- significant. With a single, integrated commercial off- tion, making them part of the process change.The man- the-shelf (COTS) system, existing legacy systems can be ufacturer involved managers in the design of new busi- retired, reducing maintenance costs.With those retiring ness processes to train them in and prepare them for the legacy systems go the myriad smaller applications that new way of doing business.They then became respon- have grown up around the core software and the cus- sible for ensuring that the new processes were followed tom development required to build and manage them. once the ERP system was implemented. In the past, custom applications were developed to get Of course, the introduction of new technology around the lack of integration between core systems— poses technical challenges as well. The software selec- ERP provides this integration, so this software develop- tion process is a critical phase of the program because it ment is no longer needed. touches most, if not all, of the core operations of the business. The COTS packages don’t usually meet all of the specific requirements of the organization. The 32 WWW.THEPUBLICMANAGER.ORG
  4. 4. organization must choose whether to design the new working with the business users in designing the new processes first and select a nearly matching software or system, the staff will require stronger communication select the software first and implement the best prac- skills.Technical staff members must also understand and tices upon which it has been designed. manage scope to manage the risks and maintain control Our participants credited their success to under- over costs. If a third party is implementing the software, standing their own business processes well enough to the business must “own” the overall program manage- know which specific functional requirements to seek in ment and enforce discipline upon its implementation the software.They focused on what the software could provider. do to help achieve more effective business processes, The organizations agree that there is no one right rather than on the existing features around which busi- way to roll out ERP—except that a phased or iterative ness processes could be designed. They then compared approach is critical to managing the risk. They are the COTS packages to determine the best fit for the emphatic that a “big bang” scenario is doomed. The business. Our participants used benchmarking with like supplier is rolling out the system incrementally—mov- organizations or put the ERP software through “script- ing the management of various segments of inventory ed” or “concept” demonstrations to evaluate its fulfill- to the new system and adding approximately 200 users ment of their business and IT requirements. every month. It is also rolling out the business functions Another challenge was keeping the business oper- incrementally, and procurement is still in the process of ating in the legacy environment during the lengthy being implemented. Similarly, the manufacturer piloted ERP procurement and implementation process. The the new system in 10 percent of its business before roll- public and private organizations executed a similar out corporate-wide. strategy. New software development was essentially frozen and limited funds set aside for “break-fix” efforts. Summary Every year, less was spent on legacy systems as they were The private sector has adopted ERP to achieve retired or replaced. Overall, the software support envi- competitive advantage and greater profitability through ronment became less complex and less costly to sustain. increased visibility and control over their supply chain. Although the public sector does not have the same Managing Risk incentives, its need to attain greater management con- Once the software is selected, the organization trol, enhance supply chain responsiveness, and lower must either accept the package as is and make changes overall costs has led it to evaluate and implement ERP. in its business or customize the software to closely As a result, they face similar challenges, and they reap match its own processes.The latter approach introduces the same benefits: greater access to information, greater greater complexity and risk to the project. The way to process visibility across the enterprise, and better minimize the risk is through “ruthless scope control” in response to customers and the environment around managing the project, to which the manufacturer can them. Especially now, when logistics and supply are attest. By instituting a no-software-modification policy, critical to the mission of public-sector organizations, which senior management upheld, it was able to shave ERP is a key strategy for the twenty-first century. a year off the original implementation schedule. Strong project management is essential in mitigat- Recognition ing the risks of implementation. Those managing the We thank our speakers and the federal, state, and ERP project must have a specific set of skills and level local government leaders who participated in the of experience. The culture must also change, to one in forum, shared their experiences, and listened to and which scope is tightly managed and software is no learned from their peers. ✥ longer modified to accommodate variation across the business. The executive support must be in place and References strong enough to ensure that the project management Center for Digital Government. Going Beyond ERP: A Roadmap for Transforming Government Enterprises. April 2005. culture is established and the discipline is followed. Hawking, Paul, and Andrew Stein.“Revisiting ERP Systems: Often overlooked is that the technical staff will also Benefit Realisation.” 37th International Conference on System be faced with change. As it becomes more involved in Sciences. January 2004. THE PUBLIC MANAGER ✦ SPRING 2006 33