ERP Implementation and Business Processes

There was a company where we were implementing an ERP solution. Streamlining of business processes across the organization was one of the primary objectives of the ERP implementation. During the initial business analysis, the typical sales versus production problem came up.

We were in the midst of deciding what the planning cycle should be for the company, based on which the Master Production Schedule (MPS) and Material Requirements Planning (MRP) engines were to be set up. The production department explained its operations for various product lines and and upon asking, mentioned that the ideal lead time for planning and scheduling production batches was about a week. The sales team, subsequently explained their processes and mentioned that there were many high volume customers who gave them orders with a lead time of only about a day or two. In case the orders were not fulfilled, they usually were lost. The imminent loss of sales prompted frequent changes in production schedules resulting in production inefficiency.

The management of the company asked us "How does your ERP solution take care of this unique business situation where both the departments stand justified?"

Though the question was targetted to us primarily as ERP consultants. It was evident that within the ERP system, it would be foolish to try and play with the parameters where both the departments' objectives would be fulfilled. Hence, we decided to take a holistic general management view to the problem.

We had detailed discussions with the Sales and Production teams to understand the dynamics of their operations and try identify room for business process improvement in line with the ERP solution implementation. We analyzed the production processes and concluded that a week's fixed time fence was indeed jsutified, considering the economics of the production processes. We next turned to the sales processes. Knowing the 80:20 rule, we asked the sales team to do a preliminary ABC analysis of their customers and the volume of business they gave as against the short order fulfillment lead times expected. This analysis gave interesting results.

There were essentially 3 categories of customers. The A class which constituted the bulk of regluar orders to the tune of 70-80 %; the B class which gave one off orders giving about 15 % volume and the C class which was made of opportunistic buyers giving 5 %. We decided to probe further. We asked the sales team to focus on the A class customers. We asked the team to approach the A class customers and explain to them the ERP implementation that was underway at the company and the need to have streamlined operations between sales and production. the customers were further requested "Will it be possible for your procurement team to place majority of the orders at least a week before expected delivery?" This approach worked wonders. Most of the A class customers agreed as a week's notice was fair to all concerned in return of good production efficiency and product quality. The company went ahead to report higher sales volumes and better production costs.

Thus, a simple change in the assumptions made in existing business processes resulted into highly streamlined operations between sales and production. ERP really had no role in it; apart from perhaps being a change catalyst, something which prompted that a change in the business process was warranted.

This incident taught me that a holistic approach always helps and many times the answer lies not in technology, but the way in which we communicate and execute things.