Enterprise resource planning systems as competitive advantage

ERP Systems

Best Practices in ERP Systems Performance

Lessons from Market Leaders

Enterprise Resource Planning (ERP) systems are going through a fundamental transition from a system of record and enterprise-wide accounting system to being the catalyst of entirely new business strategies and initiatives. The intent of this analysis is to evaluate the best practices companies are adopting to fully realize the many benefits of having their ERP systems from a strategy standpoint. The last twenty years of ERP systems' growth has been accentuated by add-on applications and modules including Customer Relationship Management (CRM), Pricing and Revenue Management, Supply Chain Management (SCM), and Manufacturing Execution Systems (MES) that have extended these systems' reach into functional areas of organizations that required financial and manufacturing data to be more efficient. Attaining best practices in ERP system development, installation and use is more centered on how well these enterprise systems are first aligned to long-term or strategic plans and initiatives (Forslund, 2010). Transitioning from system of record to the center of corporate-wide strategies and initiatives, ERP systems are increasingly being relied on to significantly increase business process performance, deliver role-based data and intelligence securely, manage and optimize supply chains and also optimize manufacturing plans as well. Organizations who manage all of these tasks using their ERP systems as the synchronization hub or system are attaining exceptional levels of financial performance as a result. Throughout this analysis these companies will be evaluated on how they are capitalizing on their ERP system as a competitive advantage in turbulent global markets they compete in.

Introduction

Companies are realizing that in order to be more competitive globally they must attack the process inefficiencies that get in the way of their better serving customers first, and then work to increase the performance of internal processes (Chtioui, 2009) from manufacturing and service to supply chains and logistics. ERP systems are being used as a means to streamline these customer-facing and customer-facing processes more than ever before. The reasoning behind this is that massive amounts of data in an ERP system can be selectively applied to selling situations, strategies and opportunities often with positive results. Instead of ERP systems being used purely for internal control process management, they are increasingly being used for creating demand-driven strategies that center on streamlining and making more effective selling and service strategies. The global economic recession of the last three years has clearly changed the mindset of many organizations, making them reorient their entire organizational structure, strategies, systems, processes and people towards meeting and exceeding customer expectations over time (Rothenberger, Srite, 2009). Best practices in ERP performance concentrates on these customer-based strategies and seeks to optimize them from the customers' perspective, therefore earning more loyalty and sales as a result.

Options

Companies whose ERP systems are oriented towards supporting pricing, contract management, supply chain integration and manufacturing scheduling are adept at automating the quoting and product configuration process (Helo, Xu, Kyllonen, Jiao, 2010). Many ERP systems have been purpose-built for financial reporting and analysis and do not scale well to support customer-facing processes. The transition to automate processes vs. reporting and financial analysis is a major one for many ERP systems and the companies relying on them. This becomes a major impediment to their ability to respond quickly to market conditions, especially when relationships with customers and the processes supporting them need to be re-designed to be agile and quick to respond.

As a result of this wide variation in how ERP systems have been designed, the ERP-based quote-to-order process workflow prior to process improvement shown in Figure 1 can take up to 21 days or three weeks to be completed. Please see the bottom of Figure 1, ERP-based Quote-to-Order Process Prior to Process Improvement for the total elapsed time it takes companies to respond to quotes when they choose to do this process manually. Even with an ERP system installed and with the necessary product, market, pricing and contract management data, companies who have not automated this process with their ERP systems quickly fall into a significant competitive disadvantage over time. This condition is exacerbated in industries where product lifecycles are very short and the commodity-like nature of these products makes price and availability the only differentiators over time. All of these external factors, combined with the fact that many ERP systems have not been designed to be more customer-centric, turn this critical process area for future revenue growth into a bottleneck.

Figure 1:

ERP-based quote-to-order process prior to process improvement

Source:

Based on analysis of Helo, Xu, Kyllonen, Jiao, 2010)

Even in those ERP systems implementations where the ERP system integration with Engineering is present as is shown in the left side of Figure 1, companies still struggle to gain the necessary process improvements to stay at competitive parity in their markets. This is the primary catalyst for their decision to completely modify their ERP systems and make them more customer-centric as a result. Despite many ERP systems being designed primarily for financial reporting, the modification of key process areas including document generation, ERP workflow integration, ERP integration to product configuration databases and taxonomies and more as shown in Figure 2 are the most critical process areas that need to be integrated into ERP systems to make the quoting and product configuration process as efficient as possible. The net result of these investments in process improvement through the use of ERP system integration and process reengineering are selected in the turn-around time for a quote of one hour.

Figure 2:

ERP-based Quote to Order Process after Process Improvement

Source:

Based on analysis of Helo, Xu, Kyllonen, Jiao, 2010)

Companies then have the option of manually updating the quote-to-order process, attempting to streamline specific areas of the overall process shown in figure 1 and 2 or attempt to integrate their ERP systems into these processes and accelerate their performance with better information. Best practices in ERP performance is clearly the latter, with many companies choosing to take very potential wasted process or step out of this process. Companies attaining best practices in ERP performance also concentrate on how to streamline this process over time, often concentrating on usability of their quoting and product configuration systems at the dealer, distributor and channel partner levels of the organization.

In conclusion the options available to companies who rely on the quoting and product configuration process to gain additional revenue and also increase customer satisfaction range from the very manual to the highly automated (Helo, Xu, Kyllonen, Jiao, 2010). Best practices focus on this process from the perspective of taking every conceivable wasted step and second out of it so that the company and its distribution partners are as responsive as possible to customers. The essence of best practices in this area concentrates on time-to-value from the customers' standpoint, alleviating bottlenecks potentially caused by their ERP systems and its lack of alignment to key process areas.

Recommendations

The first step in attaining best practices in ERP system performance begins not with technology or system integration at an enterprise scale, but with a re-orientation to the key processes that need to be automated to make selling strategies more effective (Chtioui, 2009). In fact best practices in ERP systems performance is more attuned to aligning ERP systems to the key strategic plans and initiatives of an organization first, then selectively using technologies to attain higher levels of performance over time. This alignment of ERP systems to strategies is critical for companies to attain profitability in the midst of a recession as well.

To attain the greatest value from this first recommendation companies need to re-evaluate their quoting and product configuration strategies from the perspective of their customers. And then determine how best to integrate their ERP systems' into the workflows to make this customer-facing process as efficient as possible. Once this process re-engineering is complete, companies need to look at how to streamline the communications and collaboration processes across each functional area of engineering, sales, marketing, and sales operations as possible. Once this is complete companies can move onto the next recommendation, and that is to re-architect the actual quoting and product configuration systems themselves to make them reflect the real-time data and intelligence from their ERP systems while also striving for greater levels of usability (Dezdar, Sulaiman, 2009).

The second recommendation is to re-define the ideal quote and product configuration system from the user's perspective. This is critical because the usability of systems that are not integrated well to their back-end ERP systems are often difficult to work with, inaccurate in much of the date and commitment dates they produce, and often lacking in pricing validity as well. The re-architecting of the quoting and configuration system needs to include real-time data integration for the ERP system and its associated components including the pricing database, product data masters, Product Lifecycle Management (PLM) and production scheduling systems as well. When all of these systems are integrated into the quoting and product configuration system, sales representative, channel partners, distributors and dealers will also have more confidence in the application as well.

The third recommendation is critically important to the success of any ERP system long-term and that is to gain top management buy-in and have them champion the program. Research studies suggest that when top management actively promotes and sponsors initiatives subordinates, managers and other senior management make a significantly greater level of contribution and endorsement to the programs as well (Rothenberger, Srite, 2009) (Wenrich, Ahmad, 2009) (Dezdar, Sulaiman, 2009). A senior executive must champion the overall program to streamline the quoting and product configuration processes if they are to be successful over the long-term.

Fourth, for the revised quoting and product configuration processes to be adopted at a relatively high rate their graphical user interface design, usability, navigation and customization all must be tested with the sales teams, channel partners, inside sales representative and senior sales management. As these are the teams who will be using these applications the majority of the time, their input is crucial. Yet it goes beyond just designing these applications to their approval; what is critically important is that they begin to take ownership of them and have a vested interest in their use. By asking for feedback and actively taking actions on their comments and concerns they will have greater ownership of the end application. It is highly advisable to also have the entire series of graphical interfaces designed on templates so they can be quickly changed over time. When revised applications including quoting and product configuration are modified to reflect more streamlined processes and real-time integration to ERP systems, their functionality often changes drastically as well. For example sales teams will need to be trained on how best to get supplier data on more complex configurations to ensure the delivery dates quotes are going to be accurate even with constraints of complex orders included. In addition the inclusion of Special Pricing Requests (SPRs) is a common application that is included in quoting and product configuration workflows when ERP systems are integrated into them. SPRs are used for competing on product orders that may be below the pricing threshold of a business. Automating the SPR process can generate significant sales quickly as many companies are including rules-based decision software to interpolate the customers' pricing request and then evaluate it relative to the pricing thresholds and baseline profitability levels necessary for the products the customer is interested in. All of these processes can be automated through integration to the ERP system, thereby saving sales teams many hours cumulatively, freeing them up to spend more time talking with customers.

Fifth, the project leaders of the business process improvement initiative to increase the quoting and product configuration system performance must also concentrate on change management strategies and initiatives (Lee, Lee, Olson, Chung, 2010). Inevitably when processes change, people's jobs change and there is significant stress. Overcoming resistance to change through a series of programs and initiatives to illustrate how the more integrated approach to quoting and product configuration will actually deliver more accuracy to orders, greater profitability, and more effective selling strategies in the long-run needs to be communicated clearly. In addition the need for training on the new system including the use of reports and a clear definition of why the quoting and product configuration strategies are being streamlined needs to also clearly be defined. Companies attaining best practices in this area also are able to illustrate how through business process improvement and process re-engineering their systems can be at competitive parity or even more competitive than their closest rivals in the market.

Finally the process re-engineering of quoting and product configuration predicated on better integration to ERP systems is a critical competitive strategy in many industries known for highly commoditized products. To survive in turbulent times these process areas of quoting and product configuration must be as efficient as possible to win new business and keep current customers.