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Theory of Constraints ensures a successful ERP selection and Implementation

Posted on 19 February 2014 by Odete Passingham

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ERP selection and Implementatio

In the book Thinking About ERP, the authors suggest ERP is no longer a competitive advantage. It is now a competitive disadvantage not to have an ERP, or to select one that doesn’t operate efficiently and effectively.

To ensure the selection of an appropriate ERP, business decision-makers should answer the following questions:

  • What strategic business objective will be served with ERP?
  • What, how much and when will ERP contribute to this particular objective?
  • How do the answers to the last two questions influence what ERP system to select?
  • How to go about an ERP implementation, and how to operate the ERP system once it is live?

One of the best ways to answer these questions is through the application of Eli Goldratt's Theory of Constraints (TOC), a change-management philosophy and methodology that companies can use to consistently achieve their goals. TOC helps to clarify the linkage from a business's constraints to its performance – as measured on the bottom line. This can also ensure the ERP selection process is a business decision based on targeted objectives, and that the benefits will be verifiable.

According to the TOC approach, an organization can be evaluated and controlled by three measures:

  1. throughput (the rate at which it generates money through sales),
  2. inventory,
  3. operational expenses.

A business benefit is only real if it results in increased throughput, reduced inventory, or reduced operating expenses.

A good example of successfully applying TOC can be found in Basic Grain Products Inc, a private-label snack food manufacturer based in Burnaby, British Columbia. Prior to July 2012, Basic Grain Products ran its business on a mixture of legacy products.

Having identified the company's constraints, Basic Grain Products went in search of an ERP that would provide an integrated, real-time view of its business processes. The company chose SYSPRO as the solution that best addressed their business objectives at a price they could afford.

“By connecting the inventory system with order entry,” says CFO Norman Shung, “and by continuously updating information on inventory quantity and availability as a function of doing business, our book inventory now gives us an exact image of our real inventory. That gives us a very high degree of control over our inventory, and over its associated costs. It also helps us keep track of our expired product, and makes it much easier to adhere to the FIFO (first in – first out) method, which wasn't being properly managed before. We still have to gather more data, but at least, now, the visibility is there.”

TOC shouldn’t be abandoned once the selection process is over. Every ERP implementation potentially affects the enterprise on three basic levels:

  1. business processes,
  2. business systems,
  3. employees.

The ‘Thinking About ERP’ book calls these the 'three degrees of freedom', and their relative importance changes for every project.

Some businesses think they only need to change their business system. In reality, ERP always has a degree of process review, and usually involves realigning roles and responsibilities. An understanding of the constraints along each degree of freedom, and of the change management solutions required to mitigate those constraints, is an important aspect of ERP selection.

Basic Grain Products' next big challenge, says Shung, came after the ERP implementation, and lay along the degree of freedom that symbolizes employee organization. “As is often the case, people are fearful of change, and with our new ERP came many changes to both our technology and our business processes.”

Change management is always an important factor in a successful ERP deployment, adoption and return on investment. Organizations that don’t realize the need for change management may not see their ERP project meet its business objectives.

 

Topics: Business Strategy, Change management, Business software, ERP, Project management, Theory of Constraints


Odete Passingham

Odete is Marketing Director at SYSPRO Canada, where she joined the company in 1998. In her current role, Odete is responsible for building & strengthening the relationship between SYSPRO, their customers and prospective customers. Her efforts to promote the adoption of SYSPRO encourage growth of supportive relationships and community – something which she holds near and dear to her heart. Odete believes that in these days of ubiquitous communication, SYSPRO users themselves, their stories and successes, are some of the company’s most effective and important marketing assets. (NOT commodities)

Over the years Odete has worked extensively on the “softer” side of the ERP equation. She was employed by a SYSPRO VAR, and by an SAP and Microsoft VAR. Contrasting the two experiences made her appreciate the value that customers receive from a company committed to a single solution – where SYSPRO boasts one of the highest levels of customer retention in the industry. Odete strongly believes that such longevity is a factor in fostering a sense of community – which ultimately fosters retention.

Odete holds a Bachelors degree in History and an APICS Certified Supply Chain Professional certificate. Having immigrated to Canada as a child from Pico, a tiny island in the Portuguese Azores, Odete feels compelled to create connections and seek clarity in communications. Above all, she has a strong conviction that self-sufficiency and community are compatible ideals, each stronger for the presence of the other.

In her free time Odete enjoys her dog Barley and kayaking...but never together.

 

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