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Months later and the Millennium celebrations are just a memory - the
party hats and noisemakers have been put away, the fireworks have long
since faded from the sky. There
were no major system, transportation, telecommunications, or financial
failures anywhere on earth. The
world survived the Y2K bug with nary a scratch – a few problems here
and there, but no major supply chain or economic disruptions.
Good planning, lots
of hard work, and countless amount of money went into making Y2K a
non-event. In fact some
estimates of Y2K costs range upwards to a billion dollars.
Yet for all that, we
think more Y2K effort is needed now - because we think the real cost
of Y2K for many companies will not be measured in dollars spent before
1/1/2000. The cost of Y2K
for many companies will be measured in the missed benefits from
installing enterprise systems without changing the way the business is
managed.
Yes, the
party’s over - and it’s time to get down to the hard work of
generating improved operating results from the new systems installed
in 1998 and 1999.
ROLLING BACK THE CLOCK
Do you remember all
those new systems installed in anticipation of Y2K?
You know the ones: the new ERP system, the customer
relationship management (CRM) and sales force automation software, the
“advanced planning system”, all guaranteed to get you past Y2K,
and give you competitive advantage in the decades to come.
If your company is like most, you probably spent several
hundred thousand to several million dollars on new system
implementations. The
business press is full of stories about companies who spend $100
million to implement new software.
We know of at least one company who spent $60 million on a
single pilot site. And
some of these companies are spending almost as much in
re-implementation costs when their basic business processes change!
THE SOUND OF SILENCE
So far there are
precious few stories in the business press about companies generating
the big benefits that will pay off the huge upfront and ongoing costs
of the new systems. And
it’s not just the lack of press coverage - we aren’t yet seeing
companies touting big financial results from their Y2K investments
either. We’re beginning
to wonder whether we ever will.
Sadly, we think
it’s an old song, sung to a new Y2K tune.
“We spent the money on systems, but we run the business the
same way”.
What’s the problem?
We think it’s simple - in a lot of cases, companies only
replaced their formal systems – the ones that are on the computer,
in the ISO documentation, and in books of procedures.
They didn’t eliminate the informal systems that people really
use to do their jobs. In
many companies, the formal system doesn’t work - an informal system
keeps shipments going out the door, and material moving through the
supply chain.
So when the new Y2K
software was installed, it changed only the façade of the formal
system. No one addressed
the reasons why an informal system existed to begin with, or why the
old formal system didn’t work properly.
So the formal system ended up different, but it was really
“business as usual” with respect to shipments and deliveries,
material flows, and profitability.
Having a formal
system that doesn’t generate the results that were promised is a
liability - especially for those on the firing line for keeping
customers happy and profits in line with expectations.
From the perspective of shareholders and company management,
it’s a double whammy – spend big bucks for a new system without
ever getting improved operating results.
We can’t do much
about the money you’ve already spent.
But we can tell you how to invest intelligently so you can
start getting the benefits you paid for.
Here are six specific suggestions for generating immediate and
on-going results:
1. Sales And Operations Planning
The most exciting
development in resource planning in the last two decades is Sales and
Operations Planning. Sales
and Operations Planning consists of vital communications and
decision-making processes supported by some very simple software tools
and displays. Today,
Sales and Operations Planning is a well-defined process that ensures
maximum inter- and intra- departmental communication and focused
decision-making.
When we talk to
clients who have implemented S&OP, they all have a consistent
message – “it’s a major contributor to our Supply Chain
success”. One client claims that “fully 60% of the benefits (from
a major system implementation) came from S&OP” – this from a
company that has improved inventory turnover fourfold and increased
productivity nearly 75%.
Take a survey of your
supply chain and resource planning systems.
Have you implemented, and are you operating, an effective Sales
and Operations Planning process?
Does your process model the proven “Five Step S&OP
Process”? Have you
linked Senior and Operating Management communication and
decision-making processes, or are you still in the mode of
“informal” communication processes and silos of decision-making
good for a single department but bad for the company? Do you have an integrated Business and Resource Planning
process or are you still operating with disconnected planning
processes and conflicting data? Have
you at least the minimum set of computer tools for Sales and
Operations Planning?
Call us for audit
materials you can use for self-assessment. If you come up short in your self-assessment, call us back.
We can help.
2. Simple Is Best
We’ve always
believed in the theory that the things that work best in practice are
usually the simplest. We’ve
spent our careers helping people understand Wight’s Law:
When you change five things at once and things get better,
credit will be given to the most complex thing you changed, when the
improvements usually resulted from the simplest thing.
In our experience,
real results from new systems often come less from the complicated
aspects of the system and more from:
a. Doing the fundamentals extremely
well – cleaning up the inventory records and bills of material,
ensuring sensible safety stocking and ordering policies, documenting
assumptions to help make the forecast more accurate,
simplifying the manufacturing and logistics processes, promising
customer deliveries based on availability not policies or “standard
lead times”, implementing formal communication and decision-making
processes connected to Sales and Operations Planning, etc.
b. Getting the users of the new system
to accept ownership and accountability for results.
For example, in the
last few years we’ve seen many companies implement new “advanced
planning systems”. In
many cases, prior to the switchover these same companies either had no
planning system or one that was dysfunctional because of bad data,
poor communication processes, or poorly trained users.
After the switch, companies who didn’t address the
fundamentals and the people issues were typically no better off.
Companies who fixed the inventory records, cleaned up the bills
of material, updated their planning polices, put in place formal
communication processes, and focused implementation efforts on the
people who would eventually use the system ended up being
significantly more successful.
Take an extensive
inventory of your systems and business processes.
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Have
you simplified your business processes prior to automating them?
Have you eliminated processes and steps in processes that
add cost and no value?
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Are
the key processes fully supported, in the simplest possible way,
by your systems? Or
are your people drowning in a sea of switches, options, codes, and
display screens that force them to do twice the work for half the
results?
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Is
the data that drives your systems accurate?
Or are there multiple sets of inventory, bill of material
and routing data – one set in finance, one set in planning, one
set in manufacturing, another in purchasing and logistics?
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Do
your systems support formal, institutionalized communications
processes, or do you still depend on a network of “one-off”
communications? In
“one-off” communications, people have to remember to
communicate key decisions and issues rather than having a formal
process that ensures that any and all affected parties will be
updated.
In other words,
verify that basic and fundamental business processes have been
simplified, are in place, and are supported by your new systems.
Verify that your data is ‘beyond reproach” – accurate
enough for planning, scheduling, promising.
Verify that your people are using the simplest options to
accomplish the basic requirements of your business.
The least expensive
way to improve your systems is simple – simplify the underlying
processes, fix the basic data, and simplify the portions of the system
that you actually use!
3. Make The Real
Investment
People are the key to
everything. At some
point, the computer system’s job ends, and people’s jobs begin.
If those people don’t understand the new system, if they
don’t trust it, or they can’t figure out where the numbers come
from, they probably won’t use it.
And just because you sent them to some software training
classes, don’t expect that they’ll understand anything more than
the screens and transactions in the software.
Knowing how the
system works is very different from knowing when and how to use
transactions and screens. A
leading consultant in the UK, Graham Barton, once described it as
“the difference between knowing how to drive a car and knowing how
to fix the engine.” Technicians can “maintain the engine”: your people need
driving lessons!
Make the investment
in education for your real assets, all the people throughout your
organization that are involved with your new systems.
This education should include some on-site workshops conducted
by outside experts, and some inside sessions conducted by key people
in your organization.
Verify that every
executive, manager, and key person in your organization has had at
least 16 hours of education on Resource and Supply Chain Management
– more for people in key planning and execution functions.
For the purposes of measuring education hours, don’t count
any sessions conducted by people whose primary focus is software and
systems. If you have
sessions done on-site by outside experts, judge their qualifications
by the only thing that really matters – a record of proven Class A
success.
4. Validate Your
On-Going System Strategy
If you haven’t
already implemented that new system in every location, maybe you
shouldn’t. Take a hard
look at the real costs of implementation and consider trying to
upgrade your existing resource planning and supply chain systems
rather than throwing them out and starting over.
Upgrading may be considerably less expensive – and faster to
the results you want.
5. Eliminate Don’t
Automate
We see too many
companies using computer tools simply because they exist. For example, just because you can forecast by
item and customer, by week, 24 months in advance doesn’t make it
a good idea. Similarly,
backflushing, which is a very good technique in some manufacturing
processes, is little short of a disaster in others where there are
poor basic process and data controls.
Again and again we see companies overcomplicating their
forecasting, demand management, order promising, scheduling, and
inventorying processes because of the software they installed.
In too many cases, people create non-value adding activities to
use system features that don’t improve their business.
Take a hard look at
the features you use in the systems you have.
Benchmark yourself against other companies to see how you can
be better with more careful selection of features and simplified
processes. Be ruthless
– shut off functionality and work on underlying processes.
Eliminate unnecessary processes.
Eliminate non-value-adding steps.
Eliminate unnecessary system features.
6. Set High Standards
People respond to
measurement systems. If
you want improved performance –we call it Class A behavior – we
have a simple suggestion. Institute
a formal program to achieve formal Class A certification in your
company.
To achieve Class A
certification, you must demonstrate that your business processes are
simple, comprehensive, and “in control”.
You must also demonstrate institutionalized communications and
decision-making processes, and quantifiable results in key areas like
lowered cost of sales, improved productivity, reduced inventory, etc.
If you are unfamiliar
with the idea of Class A certification, or unclear about how to go
about organizing a performance measurement system around Class A
certification, check our website.
We can point you in the right direction, and be there when you
need help during your journey.
THE REAL COST OF Y2K
If you’re not
getting world class results from the systems you implemented in 1997,
’98, and ’99, then the real cost of Y2K is missed benefits.
Don’t you think it’s time to get all those benefits you
paid for, and that you deserve? We
think it is. In fact we
think it’s past time.
The Party’s Over.
-
Chris Gray
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