Friday, August 28, 2009

Why Does Manufacturing ERP Fail?

What are the challenges facing SMEs when they embark on IT-lization? What and how must they prepare for implementing an ERP/MRP System.

With hordes of terms and acronyms (JIT, ERP, MRP MPS, ATP, Kanban, etc) thrown about by software vendors and salesmen. It is no wonder that many SMEs are bewildered and floored by them.

Amidst the clamor, hype and one up-man-ship portrayed in the software vendors environment. Can the SMEs be sure of anything?

This article hope to bring a balance and try not to be too technical, although some technical terms may invariably be needed and used in the discussion on the successful implementation of a Manufacturing Systems.

Manufacturing Information System, which uses the computer process to integrate various modules such as Inventory Management, Bill of Material, Production Scheduling, Material Requirement planning, should also integrate with the Distribution and Accounting systems of the company.

Very often, the implementation of a Manufacturing System is led and dominated by members of the MIS department with users performing a "back seat" functions.

While the MIS department provides the technical support in the implementation, the project should be driven by the users. In this manner, the users assume ownership and therefore the commitment for the entire project.

Ingredient for Successful Manufacturing Accounting implementation

  • Top Management Commitment.

  • Lower Management Co-operation.

  • Involvement of the Account dept, Production dept and sales/distribution dept.

  • Co-operation of every dept to product accurate and reliable Inventory data.

  • Setting up accurate Bill of Material from the organized inventory data.

  • Realistic goals of the Software.
Experience has shown that the successful organizations are those who have addressed a much wider range of issues other than just hardware and software. These organizations have defined at the outset how the system would be applied to gain maximum advantage.

They then systematically tackle all the technical and non-technical issues, involving people, organization, working practices, and physical layout, and establish an appropriate environment to support the system.

A successfully implementation invariably reflects the organization's ability to manage change and early recognition that it involve much more than installing computer systems and effective pre-planning.

So, why isn't everybody successfully employing Manufacturing Information System. What has differentiated those organizations that have achieved substantial benefit from ERP/MRP from those who have not? The answer is simply, "It's not easy!"

You may not get it 100% right the first time. There is nothing wrong or shameful about it. You can always try again. Here I will details some general phases that an organization should embark upon.

Phase 1 - Preparation

This first phase is aimed at developing understanding of how ERP/MRP should be applied, and identifying changes that are required to support the formal ERP/MRP environment.

It involves carrying out a diagnostic review of the functional areas of the organization to assess current strengths and weaknesses. Based upon the diagnostic findings, the next step is to prepare a systematic procedure of control. The next task is to define the improvement projects, which must be undertaken in order to correct the deficiencies, identified above. These may cover system development, procedural reorganization and data establishment work. Priorities are assigned to the various projects based on the assessment of business benefits and the seriousness of the problems identified in the diagnostic profiles.

In summary, a new way of working designed to correct current planning and control deficiencies and meeting the business objectives has to be kept in mind.

Phase 2 - Software and Hardware Selection

The choice of software and platform is important. The company's approach to the selection is software-led. There is now numerous approaches to control the manufacturing process.

The Manufacturing Accounting Approach.

- Manufacturing Inventory
- Manufacturing Purchase Order {sub - system}
- Bills Of Material / WIP {sub - system}
- Time Phrased Production Scheduling {sub - system}
- Material Require Planning {sub - system}
- Production Work Order {sub - system}
- Manufacturing Tools {sub - system}
- Work Center capacity {sub-system}
- BOM Routings {sub - system}
- General Ledger And Financial Reports
- Sales Inventory Control And Analysis
- Accounts Payable / Accounts Receivable
- Order Entry / Sales Analysis
- Fixed Assets Accounting & Maintenance
- Multi-user LAN Licenses
- Network operating system & Databases

A comparison of software packages would determine which package is more suited for each particular case or needs.

In selecting software, emphasis must be given to those features that support the essential operating practices. If the software does not incorporate these key features, the implementation will inevitably be complex and tedious.

There are a number of other factors which will influence the final selection, such as cost, track record, local support, database design, report writer facility, documentation, integration to the accounting system, Hardware requirements and installed base. All these factors will be weighted according to their level of importance in the final consideration of the most appropriate solution.

Depending on your particular requirement and budget, you will select the combination of equipment and software to achieve the specific result that you desire.

Ideally the Software should be modular in design so that the SMEs may buy what is needed at the moment. And will be able to add Modules as and when they are ready and required. This will help SMEs to plan and managed the finance and implementations readiness of its organization.

Phase 3 - Design, Training and Implementation

* Design
Once the software is selected, further skills are required to apply it correctly to the operating environment. The best software is one that offers power with ease of use.

Occasionally there may be a need for customization of reports to presents each company manufacturing accounts.

The principal issues addressed during the course of this design phase are as follows:

# Specific plan to integrate Manufacturing Information to Accounting System. It will integrate with the Financial Accounting System. A thorough discussion and consultation with the Financial Controller/Accountant to design charts of accounts, decision on accounting codes and feeds for implementation of a manufacturing accounting system.

# Specific application of the system in the company environment. This involves structuring the bill of material, defining the usage of the data fields and the software functions and features; establishing data recording and updating procedures/inquiry usage; and defining the use of the customizing parameters, etc.

# Definition of the control and security requirements;

# Specification of all necessary vertical add-on and enhancement to the software;

# Finalization of the system conversion and implementation plans.

* Training
An essential element of Manufacturing System implementation is education and training. People most understand the principles of MRP, how they influence the system and what they must do and when.

The training should be extended to the majority of people in the organization, involving the marketing and finance personnel in addition to those from manufacturing.

* Implementation
Experience had shown that Manufacturing systems frequently do not match initial expectations because of difficulties in the he user areas. Prior to applying ERP/MRP principles, most companies rely on informal recording, reporting and expediting procedures to coordinate manufacturing activities.

By contrast, ERP/MRP imposes disciplines and formal controls. Developing this change in the approach and attitude is often the most difficult implementation task.

Our approach to implementation covers two main aspects. Principally the user-related and data processing aspects. The user-related aspects includes the following areas:

Improvement projects - In the user-related areas, the implementation program starts with the improvement projects mapped out in the diagnostic phase. These are designed primarily to correct procedural weaknesses and establish accurate data.

Typical projects would include inventory accuracy improvements (physical storage arrangements, recording, cycle counting, etc), engineering change control improvements, and database accuracy Improvements, and simple shop floor work-in progress control, etc; Policies and procedural definition and documentation - In this area, We assists management to define and document the policies and other issues arising from the new way for working in the company.

We also work with users to establish and document simple, effective operating procedures to support the computer system;

Problem Solving - The Company works with users to solve implementation problems and design issues that inevitably arise during the course of the implementation.

Phase 4 - Post implementation

Getting the system up and running is not the final step. 'Closing the loop' is not easy and a program for continuous improvement musts be developed. A software maintenance contract should be signed for trouble-shooting and when necessary retraining of staff should be done. Continuous update on software enhancement should be provided by vendor.

As can be seen from the above, the successful implementation of the Manufacturing Information System requires much effort with proper planning, control procedure, charts of accounts, products code, accurate inventory data to built accurate BOM, and last but not lease the co-operation of every department involve.

Even if you were to achieve only 85-90% success you will still benefit from your investment. Never feel that this is a failure. You may try again to achieve greater success in the not to far distant future.
Contributed By Robert Tan.
Robert Tan is the founder and Managing Partner of Careware Systems Sdn Bhd.
Careware has been focusing on the Manufacturing Solutions for 20 years and is the Sage Manufacturing Solution Specialist.
Our Telephone: 03-7958 8232 (Hunting) Our Website:

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