Most manufacturers know when they need to upgrade or replace aging and outdated ERP software. Complete digital transformations with fully integrated Industrial Internet of Things (IIoT) technology can only be realized with the most current offerings from top ERP vendors. But how to organize such an endeavor is the question on the minds of many leaders.
We've got you covered. In this paper, you'll learn seven tried-and-true strategies for manufacturers to effectively manage an ERP selection project.
The initial steps range from analyzing expected ROI to setting and communicating the priority of the project. Additional steps pertain to selecting the team, educating the team in ERP best practices and system knowledge, as well as creating a project charter. Finally, a key step is to consider the timing of the ERP project.
Competitive Challenges In today's volatile economy, middle market manufacturing companies face competitive challenges that require them to operate as efficiently as possible. This often means that selecting and implementing a new ERP system can be a resource-intensive process, which can be further complicated by the demands of customers, a complex supply chain and a highly competitive market.
In light of these challenges, a crucial question for any manufacturing company is how to effectively organize itself to successfully undertake an ERP project. Drawing on our extensive experience in successfully selecting and implementing ERP systems across various manufacturing industries, Ultra recommends the following seven steps for effectively organizing an ERP project.
ONE
Understand The ROI
In most cases, the need for a new ERP system is felt within the entire organization.
As an ERP project gets underway, management must clearly understand the needs, the alternate solutions, the cost, the benefits of the solutions and the return on investment. Management needs to be educated so they understand the ROI of improved business processes throughout the organization.
In terms of ROI, it's wise for manufacturers to track both direct and indirect benefits that are anticipated from a new ERP system. The anticipated return must consider process improvements, including a more streamlined ordering process, reduction of physical inventory counts, improved production quality and better scheduling.
Other savings should come from access to real-time information for more accurate materials planning, integrated databases, streamlined information reporting, dashboard reporting and other uses of real-time data. We also suggest manufacturers assess the economic impact of a return achieved from customer satisfaction, enhanced supply chain communication, improved decision-making quality and delivery.
Understanding the ROI will help identify and prioritize the most critical requirements for the ERP system. It also ensures that the ERP implementation aligns with the expected outcomes, increasing the probability of project success. Developing a comprehensive business case that outlines the expected ROI will also help secure budget approval and management buy-in.
TWO
Set The ERP Project Priority
Management must understand that an ERP project is a major undertaking which impacts the entire organization. It is management's job to prioritize the demands placed on the organization. An effective rule of thumb for the CEO is, "if a new ERP system is not one of your top three priorities, delay it until it is". When management clearly understands the return on investment, they will make it the top priority, because the ROI is at the top of the list. To facilitate the project's ranking process, organizations should create a project roadmap detailing timelines and dependencies—essential components that help guide decision-making.
When the priority is clear and supported by executive management, there's a better chance for obtaining real-time business intelligence via a new ERP system. Without setting a clear priority, the project is doomed to failure. If users and department heads perceive the project as something that is fuzzy in terms of organizational priority, they will not buy in and therefore will not feel the need to invest the time necessary to implement a large ERP system successfully.
THREE
Executive Commitment, Communication
The ERP project requires the commitment of the entire organization, including all top executives of the company. Without the support and commitment of the senior management team, an ERP implementation may face various challenges such as budget issues, resistance from employees and lack of resources.
The executive team needs to set the tone by communicating the importance of this project. The project cannot be viewed as an expense to make computers go faster. It must be viewed as a productivity improvement investment to make the company more competitive, profitable and successful. The investment is as important as a new production plant or a new product line.
The executive team needs to give this project the same attention that any other top priority project would receive. Here's where thorough communication comes into play. Set up a detailed communications plan to bring the news of the project to each department—from shipping, warehouse and production to the front office.
FOUR
Establish The Team
This step involves identifying the key individuals who will be part of the project team and assigning their roles and responsibilities. The team should consist of members who have the necessary skills, experience and knowledge in the relevant areas and who are committed to the project. The team should also have a clear understanding of the project's objectives, scope and deliverables. It is important to ensure that all team members understand their roles and responsibilities and are committed to achieving the project's goals.
The project needs a steering committee, an executive sponsor, a project manager and a team of the best business users. In mid-size organizations, the steering committee should be made up of the CEO and the top executive from each function of the business that will be affected by the new system.
Don't use employees to manage the project just because they have time. Availability is not a skill set.
Project Team Members
Project Sponsor 1. Give careful consideration to the ERP project sponsor. The executive sponsor should be the executive who is going to drive the project. In many successful projects, the sponsor is an executive who has been through an ERP project before.
Project Manager 2. The project manager should thoroughly understand all the parts of the business that will be impacted by the new system. If a full-time experienced person cannot be found within your company, supplement with specialists who provide outside project management experience. The project manager should report to the executive sponsor. Previous ERP project experience is strongly recommended.
ERP Team 3. The project team must consist of the most effective members from each of the functional areas of the company impacted by the new system. They should be empowered to recommend the right system for the company, since it is the team that guides the rest of the organization on how to use the new system for business process improvement.
The team is usually made up of 5 to 10 members representing:
Sales & Marketing Production Customer Service/Technical Quality Service Plant Maintenance R&D/Engineering Finance Manufacturing IT Supply Chain
The structure of the team is more complex when multiple locations are involved. Bring into the project the key users and managers at different points of the project to add subject matter expertise as needed.
FIVE
Educate The Team
As noted earlier, an ERP project is a "business process improvement" project. The overall purpose is to implement improved business processes that are enabled with new technology. It is the team's responsibility to determine which of the "best practice" processes will be implemented.
This step involves educating the entire project team about the ERP system, its functionalities and how it will be implemented in the organization. To effectively chart a course toward a Future State vision of improved processes, the team needs education in current capabilities of today's modern systems. We've found that the typical ERP project team does not have a good understanding of current best practices. Team members know their current system or what they knew in their past, which is at least two years outdated.
This is why we suggest that this phase of an ERP project include a thorough education curriculum using vendors, internet, subject experts, webcasts, seminars, consultants and other resources.
ERP project management is critical. If not staffed correctly, the project will fail.
SIX
Establish A Project Charter
The ERP project needs a well-defined charter that clearly states its mission and objectives. The project charter should be endorsed by the entire project organization.
The charter should include the following topics:
Project Mission Objectives ROI Organization Resources Benefits of New System Organization Responsibilities Costs (over 5 years) Scope Expected Returns (over 5 Problems years) Needs Budget Alternative Solutions Schedule
This document serves as a roadmap and ensures everyone involved in the project is on the same page. The project charter is typically developed by the project sponsor and the project manager and is presented to the project team, stakeholders and executives for approval. The charter should include a list of deliverables, key performance indicators, risks and assumptions and should be reviewed and updated regularly.
Establishing a project charter helps to clarify roles and responsibilities, minimizes miscommunication and confusion and provides a foundation for decision making
SEVEN
Consider Project Timing
In any ERP project, sooner or later the question arises, "how fast can we select and implement this ERP project?" That's an understandable question. However, today's digital transformations—updating manual processes and legacy systems to the latest software solutions—is not a quick project. As noted in the previous step, setting a schedule is a key part of the charter.
We include the timing issue as a separate step, because at Ultra, we place a great deal of emphasis on ERP education in a selection project. The faster your team can learn, the faster the velocity of the entire project. Taking into consideration the previous steps outlined above, the question should not be how fast can we select a new ERP system, but how fast can we get the team educated and ready to get through the project on the most direct path?
Do not focus on ERP selection speed; focus on ERP education and understanding how new business processes in new ERP software will improve the business.
Closing Thoughts
Why take the time to work through these seven steps when organizing your ERP project? Simply put, an ERP project is a major endeavor for any company. Its first-year costs will exceed 1% to 3% of annual revenues. If done properly, the project return on investment can be three to five times the cost. If done poorly, the company spends precious resources to implement a new system that does not meet expectations.
That's why we encourage manufacturers to build a foundation for success by following these steps, putting in place the most effectively organized project.
We transform your business.
Digital transformation is more than an IT project. When done right, it can drive value throughout your entire organization—creating efficiency, improving processes, and bringing systems and data together across departments. But it starts with evaluating your existing processes to unleash areas for improvement before technology selection and implementation happens. Ultra can help set the plan in motion. Schedule your discovery call with an Ultra consultant to get started.