All ideas are fuelled by necessity, improved by efficiency and made sustainable by adaption and innovation – as with ERP.
“Friends Romans, countrymen, lend me your ears
I come to bury Caesar not to praise him
The evil that men do lives after them,
The good is oft interred in their bones
So let it be with Caesar. The Nobel Brutus
Hath told you Caesar was ambitions
If it were true it was a grievous fault
And grievously hath Caesar answere’d it”
Enterprise resource planning (ERP) is like Caesar – everyone knows about it, it’s powerful, few understand it, many fear it, it has many enemies and it sets standards for the future. ERP’s enemies, like Brutus, want to be emperor, fear change, don’t understand or wish to learn new ways or even good old ways, are protectionist and seek market share rather than general market beneficiation. But to reap the rewards from ERP, just like Caesar, ERP needs more than ERP.
Early days and manual ways
Some of you remember the days of reorder point (ROP), reorder quantity (ROQ) and rows of Kardex cabinets. Planning started with raw material. We pulled out the right drawer and looked at the Kardex card (marked with the product number), like an old library index system. We checked what the last planner had written – stock on hand, order quantity, order point. We calculated what our job needed, updating the card to reduce the stock and, if required, marking a new order and its need date. We or another planner created a purchase order on the supplier.
It worked for decades because we understood why we were doing it, the chaos we caused if we got it wrong (which we did) and it was shared data, a team sport. These tasks became second nature as everything was manual and planning skill became invaluable to efficiency and cost management. This was the start of material requirements planning (MRP).
Another innovative planning idea was the bill of materials (BOM) to link finished goods to assemblies and/or raw materials in a structure of quantity and lead time relationships. This advanced thinking was only really used at the time by very large ‘progressive’ organisations. The MRP innovators in the 1950s were Rolls-Royce and GE aero engine manufacturers who used MRP for the first time, followed by Polaris nuclear submarine manufacture. Quite fitting that the defence industry was first to use BOMs.
New technology innovation
Enter the IBM mainframe with 16kb (not gigabytes) of RAM, walls of mag tapes, two impressive industrial engineers, Joseph Orlicky and Oliver Wight, plus Toyota and Black & Decker as customers. In 1964, Orlicky innovated more for MRP to be computerised for Toyota, capturing the immense computer processing power. And, in 1975, he published the MRP bible – creatively titled Material Requirements Planning – to share with the world, and, by the end of 1975, over 700 manufacturing and distribution companies were using MRP.
Another milestone in 1978 was when SYSPRO was born to produce the first South African mini computer-based MRP system – one that is used globally today, 43 years and many versions later.
Business process enablement – MRP to ERP
Most companies start their process enablement journey with systems to control materials or stock, reducing working capital. But, in 1983, Oliver Wight documented manufacturing resource planning (MRP11), enabling production jobs and operations to be efficiently scheduled and have the right materials supplied to production at the right time.
Distribution requirements planning (DRP) came next – planning and scheduling finished goods through the supply chain from customer demand to purchase location back to manufacturer or DC (and vice versa).
Mix in just-in-time (JIT) to modernise the MRP crusade, initially in the automotive industry. Rather
than MRP and BOMs to push materials to the factory for assembly, Kanban – a signal-based pull replenishment system – supplied just-in-time. Quality was the next crusade, Kaizen and Poka-Yoke and right first time, targeting maximum one defect per million, or Six Sigma, now Lean. Today, Six Sigma Black Belt equates to skilled business process Guru. Beware, like IT, this needs application of techniques and systems, not just knowledge of them (check for signs of oily hands and callouses!).
Let’s not forget Drum Buffer Rope, the Theory of Constraints (TOC) developed by Eli Goldratt. Basically, if you’re going to schedule a factory that is not balanced (or difficult to balance), find the bottlenecks (look for the long queues or chaotic areas in your factory), schedule this first then schedule all other workstations to keep the bottleneck working, releasing critical materials in time to feed it.
Then we get into finite vs infinite capacity scheduling – a great topic to Google with a cup of tea. Add some or all of these theories and you’ll end up with the manufacturing and distribution planning content of a best practice, business process-enabling ERP system (such as our SA-born SYSPRO ERP).
Engineers ok – what about the accountants?
Effective commercials achieved by integrating financials is what changes MRP, JIT, TOCs and the rest into a fully integrated business system – enterprise resource planning (ERP). Since the emergence of computers and software, the first business processes computerised were the already well-governed and understood financial and management accounting principles and processes. The trick was to move month-end accounting and periodic cost analysis using the transactional side of MRP to feed real-time or at least day-end financial and cash positions, creating auditable financial journals at the same time as material issues, returns or movements. Add to this pricing / discounts, credit agreements/checking and cost build-up to compare against pricing, and you get a real ERP system.
In summary, ERP enables and provides supply chain visibility to inbound processes like procurement
and storage, outbound processes like sales issues and warehousing, dispatches and returns, and all the associated financial transactions at the same time. The one source of the truth myth is real.
A quick breath – some perspective
ERP emerged from the Second Industrial Revolution and from armaments manufacture supplying the 1939-45 World War. Budgets were not the issue as demand was either war critical or driven by the post-war demand bubble. Time to market was a competitive advantage and still is. US guys wanted to look cool with MGs, but unlike the UK guys, they didn’t agree that waiting was part of the
brand value.
Industries blossomed as did the consulting industry with the Big 7, then Big 5, or the guy one book ahead of the client on business process re-engineering (BPR). Remove non-value adding activity and optimise value add. This still applies and always will. The process review / modelling craze highlights that some processes are common to all, but others drive competitive advantage in different ways for different types of manufacture, markets and cultures.
In the last 10 years, focus has become customer first. Customer needs are broadening continuously. They increasingly seek environmentally conscious suppliers. Consumers are IT-literate, preferring to be in charge of delivery channel and date. They often know more about the product than your sales executive. In fact, they don’t want the sales process with oversold promises and unmatched delivery. They have money to spend, but the value they seek is a deal priced right, described by the brand promise, delivered as expected, or better – a good experience that isn’t time wasting or inconvenient.
Industrial buyers simply expect quality built in – delivery as expected on time. They need collaboration between planners – if it’s going to be late, tell me so I can plan around it. Keep me informed.
Marketing is still paramount and must set the appropriate market expectation and brand trust, but selling is morphing for many into a facilitation of buying process – make it easier, fair, respectable, a good experience.
ERP for industries and today’s users
It is not unexpected then that all planning and execution IT is being further innovated to meet the new savvy or ‘do it right or I drop you’ customer. If you want to grow, you need IT that enables the relevant peculiarities of your business, including delivering all ERP basic benefits.
That’s why we focused on manufacturers and distributors in target industries like food and beverage, fabricated metals, industrial products, automotive components, packaged chemicals, electronics and more. The result is specific industry functionality that’s built in and critically relevant for each industry – functionality that may not be used by the other industries – all in packaged
software.
Extending and innovating to future proof
Business analytics and business intelligence are fundamental to enabling companies not just to manage materials and production, but to optimise business service and performance leading to profitability. ERP storing all the data makes business analysis / business intelligence (BA/BI) and ERP perfect partners. ERP data is mined, analysed and presented to bring real business insights to executives and managers alike. Yes, you can BA/BI your spreadsheets – data sources that never lie, but don’t be surprised when those insights prove to be unreliable.
Helping to enable the Fourth Industrial Revolution, BA/BI is further enhanced by artificial intelligence (AI) fuelled by machine learning (ML). ERP contains static master data like customer details, product details, BOMs and more, but it also contains thousands of transactions, many collected automatically from machines and devices via the Internet of Things (IoT), where planned versus actual delivery, quantities, discounts and more can be analysed by product, company, channel or customer. This history of trends and changes held in ERP systems is used to find patterns and predict where you need to act. It helps you realise before it happens that a customer may be heading towards non-payment or a supplier lead time extending may indicate you need to chat, change the price or change supplier.
In the end, ERP is a fundamental business need, but it still needs people to arm it and keep it honest, people who understand application of the concepts and impact. They need to keep up with the emerging technology that innovates ERP to continue to deliver value as it has for more than 50 years.
We did not come to bury ERP. It enables manufacturers and distributors in 2021 and into the future. Differentiating the various solution offerings today are the people who create, sell, implement, partner and support ERP, and the great customers who really use it.
Contributed by Doug Hunter, Manager: Customer & Ecosystem, Syspro doug.hunter@za.syspro.com
Article first appeared in Logistics News – visit www.logisticsnews.co.za for more content
