Lean ERP: What It is and Why You Should Care
ERP implementations more often than not run counter-intuitive to lean concepts. While lean and Six Sigma cultures focus on reducing waste and non-value-add activities, most ERP implementations are bloated with inefficiencies and cost overruns. For example, the average lean six sigma initiatives strive for zero waste and defects, while the average ERP implementation costs $10.5 million, takes months longer than expected, and fails to deliver tangible business improvements – or reductions in waste, to speak in lean terms. Further, the complexity of SAP, Oracle, Microsoft Dynamics and other leading ERP systems contribute to the watered-down lean results experienced by most organizations.
The irony is that a good number of organizations replacing ERP systems are manufacturing companies that have mastered lean concepts, embrace a Six Sigma culture and have Six Sigma black belts on staff. Many of them have successfully squeezed inefficiencies and costs out of their operations, but even these types of organizations have difficulties implementing lean ERP software with the types of results one would expect. Our experience and research shows that misguided decisions and poorly managed ERP implementations can easily derail a culture of continuous improvement and lean behaviors.
So how can CIOs and COOs incorporate lean concepts into their ERP initiatives? We have found in our ERP implementation and expert witness experience that most lean organizations do the right things when it comes to lean, but they unknowingly make mistakes in their software implementations that undermine those initiatives. Here are a few pitfalls to watch for:
Beware of the “best practices” trap
While most modern ERP systems will make spreadsheet-driven or antiquated IT operations more efficient, they hardly enable lean results. The “best practices” urban myth is one of the disruptors of lean cultures in that a) there is no such thing as “best” practices, even though it’s a great selling point for ERP vendors, and b) software vendors define best practices as what’s best for their software — not necessarily what’s best for your lean operations. Come to think of it, I don’t recall the last time I met a software developer or technical consultant with a lean or Six Sigma background but they are the ones who define these alleged best practices. Regardless, best practices become less relevant as you move up the value chain to focus on core competencies and differentiators that give your organization competitive advantages.
Don’t let the software drive your business
Letting your chosen enterprise solution dictate to you how you’re going to run your business is another selling point that sounds great in theory but simply doesn’t work well in reality. If you truly are a lean organization and have spent years perfecting and fine-tuning efficiencies and quality, it is very likely that your operations are more efficient than most off-the-shelf ERP systems. If pre-configured ERP solutions (another urban myth, by the way) really enabled lean processes, then wouldn’t most companies with ERP systems be enjoying world-class operational utopia? The fact that most experience the opposite after their go-live is a testament to the fact that software should not be driving your business. Instead, your business processes and requirements should be clearly defined so that you can find the software that best fits your operations, and in many cases, so that you can customize the software the way you need to in order to preserve the efficiencies you’ve worked so hard to develop.
Right-sizing your ERP implementation budget may lead to higher long-term costs
Lean practitioners typically focus on reducing waste and cost wherever appropriate, including when it comes to their ERP implementation. While ERP projects are often fraught with waste and inefficiencies, those challenges typically have more to do with focusing on the wrong activities and dedicating too little time to the more important critical success factors. Cutting activities such as organizational change management or business process management – both proven prerequisites for ERP success – may look like a good financial decision on paper but, in reality, omissions in these areas will actually increase total time and costs and decrease business benefit realization.
When it comes to incorporating lean concepts into your enterprise software projects, what you don’t do on your ERP implementation is just as important as what you do. These three tips will help ensure that the decisions you make and the way you manage the ERP project don’t undermine the results of years of effort to make your organization as lean as possible.
Learn more about lean ERP and other ERP sub-segments as well as how they can help your business by visiting our ERP resource center page. You can also compare leading ERP systems by downloading one of our free top ERP software solutions comparison reports.
[This post originally appeared on Panorama Consulting’s 360 ERP blog and is republished with permission.]