As a result of many engagements at Ultra, we have learned that Business Process Improvement (BPI) leads to Business Performance Improvement. We have confirmed that BPI is the key to gaining business performance supported by ERP technology, thus the need for BPI and ERP to work together.
A few years ago, I heard the late Dr. Eliyahu Goldratt, originator of the Theory of Constraints (TOC), make the statement, “technology can bring benefits, if and only if, it diminishes a limitation.” When you examine this statement closely, you notice the use of the word “can” does not guarantee benefits if a limitation is diminished. It implies that, first, you have identified the limitation being diminished or eliminated. Secondly, it infers you must change whatever process or rule that was developed in order to accommodate the limitation. This is the process of BPI and ERP.
Sometimes, the limitation has been in existence for a long time and is an accepted yet hidden rule. After all, we were alive and functioning before the availability of the new technology — we just created rules to work around the limitation(s). So why do we need BPI and ERP when considering new software technology?
One must ask, what benefits will BPI and ERP bring if we neglect to change these rules? If we continue to obey old rules just to bypass the limitation and not consider BPI and ERP, we are actually ignoring the limitation(s) and therefore not receiving the benefits of new technology.
Many times we have ignored the limitation(s) and have not considered BPI and ERP and, as a result, not gotten the benefits of them together.
The biggest investment in a new ERP is the disruption to our organization during the implementation. So, how do we improve the bottom-line to justify the disruption investment? What process do we need to follow to insure ERP will bring bottom-line benefits?
In order to find the correct answer to these questions, we must seriously answer the following four (4) questions:
- What is the real power of BPI and ERP? Don’t be overly impressed with the responses you get from the software providers.
- What limitation(s) does ERP diminish? Great technology that does not solve a problem is a problem.
- What processes or rules help accommodate limitation(s)? We must clearly identify this to achieve the benefits. The best approach is to ask, “What are the costs of bypassing the limitation?”
- What rules should we use now? This is not always the opposite of the old rules.
Let’s look back and consider an older technology as an example—Material Requirements Planning (MRP).
MRP drove the digitization of data in most organizations. It was a major leap forward. MRP answered the four questions this way:
- The true power of MRP was the ability to complete dependent calculations at high speed.
- The limitation MRP diminished was the time to do net requirement calculations—a huge reduction in time.
- The rule that accommodated the limitation was that net requirements were calculated only once a month. Many companies continued with this rule resulting in continued customer service problems, extended lead times, and large inventories. They didn’t consider BPI when selecting and implementing the new technology.
- A few companies identified the costs of continuing with the old rule and didn’t obey it any longer with the new MRP technology. They ran MRP overnight and updated the net requirements more frequently—they realized the benefits and achieved a substantial return on their disruption investment. They followed BPI and ERP to improve their processes.
ERP has taken the MRP gains on the shop floor and extended them to the enterprise. It continues to expand and potentially bring benefits to the entire organization. So, what are the answers to the four questions for ERP? Here you go:
- The true power of BPI and ERP is its holistic approach—all functions have the ability to handle data (store data, transfer data across silos, retrieve data, etc.) from a common database structure.
- The limitation that is diminished is the availability of the relevant data for making decisions. The availability of data across silos is critical for decision-making in real-time.
- Several rules accommodated the limitation—since data was not available across silos, local efficiencies were emphasized. These local optima rules took the form of min/max by local SKU, local production efficiencies, product costing (allocations), etc. Decisions were made with only local data—these local optima rules were the best we could do with the limitation in place.
- The required new rules look for the inherent simplicity in integrated (holistic) process flows. A system-wide Game Plan is required to break down the silos and take advantage of the true power of BPI and ERP technology. BPI is the approach to accomplish these results.
Without fully understanding the impact of the limitation and changing the rules through BPI, the new ERP technology will not bring the promised benefits. It seems as though Dr. Goldratt was correct in his description of the relationship between BPI and ERP. To learn more about how to drive business performance through BPI, contact Ultra today.