Hi, I'm Jack Shannon. Are you getting the most out of your ERP? More importantly, how do you know if you're getting the most out of your ERP?
Start by ignoring ERP
To figure out if you're getting the most out of your ERP, understand this: Companies know how to take orders. They know how to invoice. They know how to ship product. They know how to make product. They know how to buy raw materials. They know how to do financials.
We deal with companies looking for new ERP that do that now. So, don't look in those areas to see if you're getting the most out of your ERP. Let's face it. Companies have to invoice, right? So, if you invoice…good! You're a company. You're running. You're getting money. Same with orders, same with ordering raw materials, and that sort of thing. What you want to do is set the bar higher.
Let's for a second forget about ERP. Think about what you need as a company. For example, if you're going to build a house, you don't just buy a bunch of wood and then, based on what wood you have, decide what kind of house you're going to buy [build]. That's backwards.
What you do is design a house, figure out what you want, what you need, and then get the wood that allows you to build the house you designed. ERP is the same: Design what you want out of it. Not just out of ERP, but what you want out of the company. Again, forget about ERP. Look at your company, figure out what you want—what you need—to run the company well, and have the ERP do that.
Follow the money
I'm a true believer in following the money. When you try to figure out what you need, follow the money. At the top of the list, the company needs to be profitable. (I think we can agree that the company needs to be profitable.) In order to be profitable, each work order and each product the company makes needs to be profitable. You should be able to look at any cost on any work order, and you should be able to believe it. It should tell you a story about whether you're making money or not.
In my experience, I find that many companies fall down in the ability to look at a single work order. Look at the cost on those work orders, believe the costs, and then make decisions on the information that you’re looking at. If you can't do this, you're not getting everything out of the ERP that you can get out of the ERP. Remember, follow the money.
Examine the work orders
So, the first question is, are your work orders accurate? And by accurate, I mean are the bills and materials correct? Are the routings correct? Are your run times at those routings correct? Not perfect, but are they accurate? Are they reasonable?
If all of those things are correct, then your estimated cost for that work order is going to be correct. So, even before you start building product, as an organization you'll have an understanding of how much money it's going to take to build what you want to build. You'll have an understanding of how much time it’s going to take to build what you want to build. You'll have an understanding of how many materials or what type of material or the quantity of material you'll need to build what you want to build.
That's the first half [of getting the most out of your ERP]: Set it up properly. Make sure the ERP understands how you make what you make.
The second half is now you execute. Report your labor, issue the raw materials, issue the right quantities—have all your transactions be correct. And when that happens, you have an accurate estimated cost. You have accurate actual costs. And you can compare the two.
No shame in getting help
Let’s say that your work orders aren’t accurate. You don’t trust the information. You don’t think your estimated costs are correct. You’re not reporting labor properly. That’s fine. Just admit it. Look at the information, understand what you’re not comfortable with, and then figure out how to get it to the point that you are comfortable with it.
Now, that brings up a point. I run. I've been doing it for years. The other day, I hurt my knee. I couldn't run. I didn't know what was wrong with my knee. I knew it hurt. I knew I couldn't run on it. So I went to somebody—a doctor—who does know [what’s wrong with it]. There's no shame in me not being a medical professional, not understanding what was wrong with my knee. As it turns out, it's all fixable.
There's nothing wrong if you don't understand how to start using your ERP the way you feel you need to. In other words, if you don't trust your estimated costs on your work order, but don't know how to fix it, get help. You've made an investment in the ERP. You've made an investment, or the company has made an investment, in the company itself. You're probably always looking to cut costs, get more efficient. There's a tool you have at your disposal that can guide you through all that. But you have to be able to trust the information.
If you don't know how to get to where you need to be, get some help. Where do you get the help? Us! We help. That's what we do.
Culture of success
Let's talk about the culture of companies that use the ERP properly. The first thing they do is they have procedures. They have known ways of how to enter an order, cut a PO, receive goods, report labor, all of those areas. And they have those procedures because procedures are important. They have those procedures because they get new employees that need to be trained and they don't want to rely on one employee transferring 50-75% of the knowledge to the next employee. Then, [that employee does] the same thing to their replacement. And so on and so forth. We call that brain drain. What happens is all of a sudden, you've got an employee not understanding what they're supposed to do in their job.
Companies who get everything they need out of their ERP have figured it out. They wrote it down. They have procedures. [Plus,] companies evolve, companies change. The other thing they have is a team of subject matter experts that meet on a regular basis. They talk about any issues they have with the ERP, any issues they have with information flow, any ideas they have of how to make a process better (continuous process of improvement).
It takes a village
I go to many companies and they have a person who's their expert. That's good. It's better than having no one, but that person probably isn't in charge of sales, finance, purchasing, and so on and so forth. Have a team of subject matter experts. If you find in an area there isn't a subject matter expert, you found a problem. And you can address that problem.
Again, there's no shame in things not being perfect. I think the only shame is not knowing. So, ask the tough questions, raise the bar, follow the money, have a culture that supports processes, documents processes, trains new employees, has a team that works on how to improve their processes, so they can become a better company.
Related: Common Structures of an ERP Team
Work with what you have
Something else successful companies do is this: They don't try to reengineer the software. Sometimes people have the impression that, “I have ERP software. I can do anything I want.”
I guess that's kind of true. Maybe you can. But, like anything else in life, there's time, there's money, there's some constraints. Whatever you want to do, it should be supported by functionality within the ERP.
So, think of [ERP] as a big bucket of tools; a big bucket of functionality that's broad and deep, but it's finite. It won't do anything you want it to do. Understanding the ERP—understanding the constraints of the ERP—is something that just needs to be accepted. None of us have unlimited money. None of us have unlimited power. We all have guidelines we have to work within. The same with ERP.
Companies who get the most out of ERP figure out how to use the toolset the best. And if they can't, they get help so that they can come to a conclusion and move forward.