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Thursday
May192011

ERP (Enterprise Resource Planning) - a technical solution to a business challenge?

A lot of small and medium sized organisations evaluating ERP solutions do so because their existing set-up of systems does not support their current and future business well enough.

They shop around to assess the  existing ERP solutions available and applicable to their sector and according to their own understanding of the requirements for an ERP.

Taking this approach is understandable. However, this has serious shortcomings and risks the ERP not providing the full range of benefits that it should.

The still considerable lack of skills and expertise in SMEs  in respect to Business Process Modelling - be it in the private or public sector - leads to this situation.
That said, organisations have a limited understanding of their processes along the value chain (or in Lean speak: value stream).

As a result the 20 year old critique of Michael Hammer, a former professor of computer science at the Massachusetts Institute of Technology still stands the test of time, stating that the main challenge for managers is to obliterate non-value adding work, rather than using technology for automating it.

Avoiding the short-cuts


If you take the short-cut to set up technology, an ERP system, in order to automate existing processes (especially without a detailed enough understanding thereof), a valuable opportunity to improve customer satisfaction, increase revenue, reduce costs, etc. is being lost.

A first step to analyse your business processes is to generate a business process architecture.
This contains, on the highest level, enabling processes, core value processes and support processes.
Secondly the processes have to be documented as-is with this structure in place.

We suggest to use a defined notation like the Business Process Model and Notation (BPMN) to document the existing processes.
As a side note, for a lot of Business Analysts the times seems to have stopped with the use of drawing programs like Visio and others, which generate a document sink of dead, non-reusable documents.
The use of an open source business process modelling tool such as Bonitasoft (www.bonitasoft.com), assists in the use of the BPMN standard.

If you, as an organisation have got to this point and have a set of ‘paintings’ or diagrams which describe your existing physical business processes, then congratulations you might have accomplished more than your peers.

Usually an organisation stops here, uses these processes as requirements for an ERP system and the case is closed.

But should it be?

Business processes need to be improved


The title of Michael Hammers article mentioned above drums the point home: “Reengineering work: Don’t automate, obliterate”.
Once you have established your processes, disruptions in the process flow, problems in ownership of certain process steps become apparent.
The usual fix for these problems is the application of technology, i.e. a piece of software which claims to fix the exact problem.
Even more common, not a new piece of software is acquired, but the fallback tool of choice is used: the spreadsheet.

Broken processes and technological quick fix - the spreadsheet


The spreadsheet may have its remits within clear set boundaries, but uncritical usage should raise a warning flag in general.
The more complex your spreadsheet is becoming, from multiple formulas to macros, the more likely it contains errors.
To be more precise: it is extremely likely that it contains errors which could have devastating consequences for your business.

Errors in spreadsheets and its consequences is a well researched subject, and as a starting point a 2006 article of The Register (http://www.regdeveloper.co.uk/2006/05/03/buggy_spreadsheet/) is a good digest of the issues and consequences encountered in the use of spreadsheets.
Pryor and Panko, two researchers on the subject (detailed links to their research work can be found in the above mentioned article) come to the conclusion that within a 78 to 91 per cent probability a spreadsheet contains errors.

If you are lucky, these errors have no consequences, but if not,  you are losing revenue, report false tax information to the HRMC, etc.

Broken processes - IT system patchwork


Broken processes can very often initiate procurement activities for a technological solution to a limited business problem.

If a break in a process is perceived as a threat to the success of a business, very often procurement activities are initiated to obtain a technical solution to this specific problem.
The software vendors promise to fix the business problem at hand with their specific software.
Once the software is installed, issues such as the following arise: connectivity from one IT system to another,
processes the software is defining not really fitting the process of the organisation, etc.
The organisation is ending up with a patchwork of systems, which are mostly covering processes and requirements which end at departmental boundaries, because these procurement activities are mostly departmental driven.

Know your processes - redesign and improve your processes - implement a flexible, customisable ERP - OpenERP


Business Process Redesign is an exercise to revisit and redesign your business processes in accordance with your mission.
As valid as this approach is, it might be not suitable for your organisation, simply down to the fact that the exposure to process management has been up till now limited.
What we propose instead, is a business process improvement exercise when evaluating and implementing an ERP solution.
The starting point is to chart the processes as described above in your organisation, especially the processes along the value chain and the main supporting processes.
The result is a description of a physical as-is process model which ought to be transformed to a logical as-is process model.
The logical as-is process model is used to create an improved logical to-be model which is then transferred into a physical to-be process model.
This new physical to-be processes can be implemented with OpenERP, because compared to its ERP competitors, flexibility, changeability of workflows and processes lies at the heart of its feature set.

We can assist you in unlocking the full benefits of OpenERP beyond its technical features. We help you in designing new, improved business processes and implement these with OpenERP.
These new processes will make it clear why OpenERP is a value decision for your organisation: generating benefits you simply can’t realise without this approach and OpenERP.

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Reader Comments (4)

Open ERP solutions can be the answer to business challenge for SME. Products like OpenERP become popular and bring ERP to small companies who cannot afford SAP solutions.

9 June 2011 | Unregistered CommenterFrontware

I agree. However I think there is definite progress being made to make out of the box software more affordable for SMEs. I saw recently that SAP has just brought out a slimmed down SAP Business One package specifically for this.

24 September 2011 | Unregistered CommenterMelanie

SAP has certainly been forced to react to the competition like OpenERP and therefore revised its SAP Business One offering.

However, the main critique to proprietary ERP systems like SAP still stands:

- Far higher Total Cost of Ownership
- Less to none flexibility for changes to business processes within these offerings.

The last point is crucial; Your organisation might want to have different business processes in place which are different to the defined standard processes within the proprietary ERP systems like SAP.
You therefore only realise limited benefits for your organisation.

We are convinced that OpenERP has a far better value proposition compared to other proprietary ERP systems like SAP, Microsoft Dynamics, etc:

- Lower Total Cost of Ownership
- Shorter implementation times
- Higher business benefits realisation

30 September 2011 | Registered CommenterEckhard Schwarzat

You're bringing up many good points. Spreadsheets don't even come close to a customized ERP solution, but many small companies still rely mostly on spreadsheets. Using a good ERP system just saves so much time, makes business process much more efficient, and reduces potential errors – they're worth the investment. Of course, the best possible results are achieved using a custom solution developed by an experienced team of professionals. They would also integrate various systems with each other to avoid the 'patchwork' you described. In many cases, customizing a ready open source solution to the company’s needs will produce very good results (this would cost less and be developed much faster).
Simone from mobile erp

25 October 2011 | Unregistered CommenterSimone

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