Lean ERP Implementation
According to a report from a research carried out by an independent firm, out of 900 implementations, 840 could have yielded 10% more profit had it been adopted the “Lean Way”. The questions “How to leverage the ERP to the fullest?” and “How minimize the investment and wastage while implementation? ” are not new for the CIO’s and have the same answer and that is ” Lean Philosophy for ERP Implementation “. Gone are the days when big budgets and years in the name of time used to be dedicated for ERP Implementation. Lean ERP Implementation is what the world today demands. In this competitive world today, any non value adding manufacturing or business process is straight away dropped for a business to grow.
We know that ERP software digs in the data from all the departments to provide us with statistics and reports that enables businesses to analyze the data to improve and increase profits. However the current shift in the principle of implementation cannot be ignored either. CFOs are discovering that going lean way for ERP is helping them make their business better and reduce investments by a significant percentage. It is indubitable that many businesses are deploying lean initiatives for elimination of waste and reduction of cost and clutter. It is imperative to a business to get rid off anything and any process of ERP implementation that would not be of advantage to the company. “Only a fool would walk in with an army when it is certain that the war could be won single handedly.”
Now, lets answer the big question,
What is Lean Implementation?
Quite simply, it is an implementation methodology that eliminates non value-add activities in a software implementation, re-implementation, or release upgrade. It empowers the business implementing the software to have complete control on the cost of their software project.
“Lean is all about getting the most out of people, cutting out the white noise created by clumsy systems and streamlining the work process so it is as efficient as possible.” Experts say that lean organizations have better systems and experience improved profitability. Digging deeper into this well hyped up topic of LEAN PHILOSOPHY,
We have uncovered the ways through which lean ERP implementation helps a business minimize expenses and maximize profit. Firstly, we are very well aware of the fact that implementing a software to fully utilize it involves pertainment of certain principles, The principles of Lean Philosophy. These principles go as follows:
1. Specify Value
Value Specification is the most talked about and undenyingly the most critical principle involved in lean implementation of any software. You have got to know the value of your work to let customers know what your work offers them. It’s important to know a process in and out in order to be able to specify the requirements for that process. To make the process more efficient it is important to understand what the process is capable of and what is that it is lacking so that you can incorporate it within the process. Also, this way it becomes easier to understand the additional superfluous features that are more like burden than advantages. Its always wiser to get rid off features and processes that would do no good to your business.
It certainly is very important to completely discard the operations and processes that generate no value to company. However, conscious considerations should be given to processes that might seem that they generate no value yet are compulsory for the business to run efficiently. For example legal requirements such as preparing financial accounts. This step would make it clear to you, what all you need to be implemented and which features, you would like to be removed or in case of new ERP implementation, not at all be implemented. ERP Software is implemented by SME’s and other large or small companies in order to streamline processes, get a better control on the workflow on most important to cut back on resources and work that are not delivering value. This step is most important and forms the base not only because you identify the processes and needs but also because this way it is outlined exactly where the ROI will come from.
This step is an addition to the first step. Well firstly, for value specification you go around the entire business process to acknowledge what adds value to your business next it is very important to figure out what does not. This lean principles deals with finding out where activities are not delivering any good outcome. In words of Cathie Hall, “this principle is to separate the wheat from the chaff.” Since this is where you think how a process or activity is not adding any value, this is when you question ERP Implementation as well. This is where you think how the ERP is gonna help or how the ERP is not gonna help.
Think of the following activities:
- Those which add no value.
- Those which add value but are inefficient.
- Those which add value and are efficient.
Those which add no value
An example of that could of ERP- CRM integration by a company. The company continues to add data separately into CRM and ERP applications even after having the systems integrated into one. When the ERP and CRM is used independently, the data needs to be added twice but after integration it could simply be fetched instead of manually adding it into two applications. This task of adding values twice unnecessarily adds no value to the company and could be discarded, instead data should be added only once and fetched automatically by the other system.
Activities that add value but are inefficient
So such values dont help the fact that these could be activities that offer something to the customer improving their quality of experience with the company.
Activities that add value and are efficient
There are some activities that bring in the revenues for a company. Most of these activities are easy to identify and are thus added first, Nevertheless, there are some such activities that may be adding value directly but are associated with other activities and thus are missed or instead I should misjudged at times. We should be careful enough to analyze every activity properly enough and accordingly categorize them.
Flow as the name suggests in about performing activities in the right manner and devouring the processes and activities that would ruin the low otherwise. In real terms this involves ensuring both physical flows and logical flows are in line. Physical flows include materials, finished goods, paperwork and the like, and logical flows mean how information is passed around and how system transactions are carried out etc.
The flow of important is the deciding factor for success of any organization. However despite it being such a critical concern it is most of the the time ignored and is very much underrated. Unlike the first two principles, In terms of ERP, your flow is created during the implementation phase of your new system and not in the requirement gathering phase. At the implementation stage companies are often keen to get the thing live and afterwards iron out any issues that they may find. However many of CIOs and CTOs say that this is something that should be avoided as far as Lean ERP Implementation is concerned. This makes it clear, Why the changes that needs to be done are mapped out prior to the implementation. This way your ERP delivers a better flow. The software is implemented so as it offers the efficiency required to improve the flow.
An example of why flow in business should be considered could be the scenario where a business organization that had 3 branches purchasing stocks individually from the same supplier. That the purchase been made centralized rather than handing over it to individual branches, the prices could have been lowered as centralized purchasing would have increased the bargaining power of the company. ERP could be implemented with functionality of centralized purchasing to improve the purchase. This also means that since only one branch has to do purchasing the two two branches cant demur this activity and save time and money.
Pull is very much like flow only that it relates to how various departments make demands on each other and thereby “pull” them into doing certain actions, whereas flow often references processes within the same department. Pull is a part of the second phase of implementation. It comes into pictures in the later stage when the basics have been implemented and when the more complex things are being implemented. Pull is used between to different departments and workflow is used for the purpose. If the principles and discipline of the company is supportive of lean, workflow could be leveraged to improve the efficiency and performance of the company otherwise it would add up extra mess and complicate the processes even further.
While implementing ERP one always targets for perfections. Reviewing the ERP is an absolute necessity for Lean Implementation. This might be a tedious process and most of organisations will want to turn away from doing this after going through the toll of ERP implementation. Yet, its worth doing. The idea of total quality management is to continuously & systematically fix the issues that proves to be a hurdle in achieving perfection is what forms basis of this phase. Organisations that dont continue to improve the system for the processes will never get full payback. This relentless pursuit of the best ROI is key attitude of an organization that is going for lean.
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