What History Can Teach Us About ERP-Driven Productivity

It’s long overdue, but the relationship among enterprise integration, ERP, and productivity enhancements is finally attracting mainstream attention.

For example, up here in Canada, the Federal Government is launching a three-year Digital Technology Adoption Pilot Program through National Research Council Canada’s Industrial Research Assistance Program (NRC-IRAP). The program is intended to increase the productivity of small and medium-sized enterprises.

This pilot program is offering $80 million of funding to qualifying companies and projects. ERP projects are eligible. I know this because, on March 9, I’ll be providing the keynote session at a half-day seminar dedicated to this very topic at ventureLab, the York Region’s Network of Excellence partner (learn more or sign up here – there’s no cost). A director from NRC will be joining me to provide an overview of the Government program.

The crux of my two-hour presentation will be dedicated to breaking down the factors that are critical to successfully delivering a productivity-enhancing ERP project. Yes, I’ll probably give some form of the usual spiel about the ERP marketplace and failure risks. But, I intend to keep that stuff brief – my focus won’t be on how to avoid doing the wrong things. Instead, I’ll be focusing on how to do ERP right. I’m hoping the attendees will takeaway meaningful and actionable advice.

For companies to successfully leverage ERP, they first need to understand the purpose of ERP and the business pains it’s designed to solve. Without delving too deeply into business and technology history, ERP evolved from MRP (material requirements planning) software. MRP was designed to help businesses better manage supply chain complexities that arose from a globalizing economy.

A Brief History – Globalization, The Integrated Enterprise, and MRP

The MRP evolution started in the 1970s, when businesses could no longer effectively compete (in many cases, survive) with functional silos spread across the globe. The internal tug-of-war between customer service and operations became unsustainable. One side – customer service – continually pressured operations to maintain higher inventory volumes to facilitate responsiveness to customer demand. The other side – operations – fought to keep expensive obsolescing inventories out of increasingly complex and dispersed distribution pipelines.

So, how did businesses resolve this internal conflict? Well, they discovered a need for equilibrium between customer service and costs. That meant finding a way to harmonize previously competing internal functions. An organizational design revolution ensued – one that led to the development of various forms of the “integrated enterprise”. With the achievement of enterprise alignment, businesses put themselves in a position to better manage the flow of information and goods throughout the enterprise. Instead of operating a collection of independent functional departments, businesses learned how to link functions and operate a coherent enterprise.

At this point of the chronology, MRP entered the picture. Businesses relied on the software to perform complex analysis to help them sustain the demand-supply equilibrium throughout the entire enterprise. MRP linked customer order forecasts, actual demand, inventory levels, and supply chain requirements (among other things). Then, based on complex calculations, it made replenishment-related recommendation based on optimal product levels at any given supply chain node. The key takeaway is that the software enabled an integrated enterprise to automate and streamline certain tasks – it provided an opportunity to make better inventory decision more quickly. In other words, MRP provided an integrated enterprise opportunities to become more productive and efficient.

Today – Complexity Continues to Drive Productivity-Related Innovations

The same principles continues apply today. The main difference is that ERP extends much further than MRP. It can touch on almost any business need imaginable: asset management, product lifecycle management, warehouse management, transportation management, marketing management, HR management, customer relationship management, and the list goes on.

So, what’s different today? Well, the economy is far more global and complex. This means that businesses need to take their enterprise integration efforts that much further. Here are three examples of current challenges and needs:

Mobile Workforce. By 2013, IDC (a research firm) projects that 75.5% of the U.S. workforce – or 119.7 million workers – will be working remotely to some extent or other. By 2013, Asia Pacific will have 734.5 million mobile workers. To act and react effectively, businesses need to know what these workers are doing when they’re doing it. Businesses also need to give these workers access to information and opportunities to transact with the mother ship. This means finding ways to extend the enterprise to the mobile worker. If they haven’t yet started doing so, businesses should to turn their minds to how to integrate the worker into the enterprise, from both organizational and informational perspectives.

Ageing Workforce. According to a 2011 Harvard Program of Global Demography of Aging Working Paper, most business’ work forces will look very differently in the not-too-distant future. The following numbers might help put things into context. In 1950, the global population aged 60 and older was 200 million. Today, it’s 760 million. By 2050, it’s projected to be 2 billion. For some businesses, these demographic shifts represent opportunities. For many others, however, they represent major succession planning, training, and recruitment challenges. Businesses should to think about how they can apply the planning and forecasting methods they use in other business functions to help them manage their human capital needs.

Business Decision-Making. As we move towards the partial systematization of almost every business function, we accumulate exponentially increasing volumes of data. The challenge becomes one of avoiding paralysis-by-analysis. Businesses will need to be able to quickly synthesize metaphorical mountains of data into digestible forms that make sense to them. Here, the challenges and opportunities relate to the effective use of business analytics and intelligence tools.

In each of these examples, the challenges are first-and-foremost business issues that require business-based diagnostics and analysis.

So, what does all of this mean for those who are hoping to become more productive with ERP? In a nutshell, they should first figure out how to make their businesses fit into this complex and changing world. When they do – and only when they do – will they put themselves in a position to maximize ERP-related value. Really, when it comes down to it, the fundamental challenges, opportunities, and solutions aren’t much different from those experienced by our forebearers in the ’70s and ’80s.

At Pemeco Consulting, we’re in the business of helping organizations fit into this global and changing world with enterprise software technologies. Contact us today to learn how we can help your business succeed.