An enterprise wide ERP implementation can prove to be a real daunting task and by the time the organizations reach the finish line, they are typically in an overstressed and fatigue mode. A lot of time & effort is subsequently spent in firefighting i.e. stabilizing the systems and ensuring that the core transactional backbone is in place.
A minimal number of implementations thus end up measuring improvements over baseline key business metrics. The intended results are not achieved and the objective of moving from mere transaction enablement/automation to business transformation remains a pipe dream. The end result: an elusive ROI, missing user satisfaction, non-alignment with business objectives etc.
The success of any organization can be largely attributed to performance on a set of core business metrics which drive its competitive advantage. If we however dig up a typical implementation project charter, it will in all probability be littered with generalized niceties such as improved operational efficiencies, reduced reconciliation efforts; improved decision making etc. without giving a detailed thought to the finer aspects that can actually render the true competitive advantage.
What if we could craft a roadmap which provides a manageable step by step incremental path for an organization to achieve measurable benefits on key business metrics? If we can thus turn the clock back and spell the engagement objectives (a.k.a. target business metrics and their respective constituents) in clear black and white at the start of the implementation that would be an ideal scenario. ERP adoption is however at a mature stage, and hence there is a definitive need for organizations to adopt business metrics oriented framework post-fact. Such a framework can be rolled out to the multitude of already implemented sites which still struggle to derive the ERP implementation benefits.
A Business Metrics driven framework can help derive enhanced value through a detailed evaluation of an organization’s core business metrics and its respective constituents. The system enabling features that will provide the detailed drill-down and real insights to support decision making for the achievement of targeted improvement on the identified core metrics need to be exploited to the maximum possible extent.
The typical broad levers available to any organization’s management team from an ERP implementation could typically be classified into two broad spectrums i.e. ‘Cost optimization’ and ‘Revenue Enhancement’. The ‘Cost optimization’ ones could be further sub classified as ‘Working Capital optimization’ related and ‘Overhead Cost optimization’ related. Likewise ‘Revenue Enhancement’ initiatives could broadly relate to ‘Customer/Partner/Channel’ related and ‘Product’ related initiatives.
Without getting into the trap of generalized niceties, let me illustrate the business metric anatomy concept and conclude this article through a concrete drill-down example on how to optimize working capital requirements. Inventory is a typical ‘usual suspect’ and lot of ERP vendors sell their wares based on the promised land of ‘improved inventory visibility’ and hence inventory reductions based on the same. The benefits of inventory reduction still stay elusive in most cases in the post ERP scenario. The primary reason is that despite improved visibility on the gross level inventory, a detailed drill through on the inventory levels is not performed. The devil however lies in the details and without a baseline benchmark and a defined target, there is typically no established framework on what to measure and how to optimize.
Drilling further on our inventory example, let’s focus further on 1 primary category of production materials related inventory i.e. WIP. WIP constitutes an absolute crime based on ‘Lean’ tenets. It however constitutes a necessary evil which needs to be kept in constant check. WIP is essentially an outcome of a few primary categories i.e. missing critical parts, niche skill labor shortages, frequent job rescheduling driven by changing customer priorities, frequent breakdowns etc.
If we were to target ‘missing critical parts’ as a sub-category for targeted WIP reductions, we would then need to have information available for a deep dive analysis on specific missing critical parts & their suppliers which render an assembly/finished good to lie incomplete and pile up the inventory levels. This would point to non-compliant vendors who miss their schedules and put the production plan to peril. The corrective actions could include vendor improvement action plans, alternative sources of supply/ alternative part strategy etc.
The example above provides a simple illustration on how to break down top level business metrics into their constituent components and deliver targeted improvements through a detailed diagnosis of root cause issues.
The need of the hour is hence to define a comprehensive Value Engineering framework which taps deep into the reservoir of the software’s capabilities, aligns the organization’s intellectual assets and creates and analytic strategy to drill down from Level 1 to Level 2/3/4 metrics thus creating a roadmap for targeted business improvements through objective actionable insights. It’s high time for the distant pipe dreams of enhanced Return on Investment (ROI) and reduced Total Cost of ownership (TCO) to be finally realized effectively.