In most companies, Enterprise Resource Planning (ERP) provides the informational backbone needed to manage day-to-day tasks and processes. The system connects programs from business functions (Finance, Marketing etc.) into one program that runs off one centralized database. In short, it connects different areas of a business, allowing for sharing of information, faster processes and crucially, centralized decision making. The result? Cost savings, improved forecasting in supply chain and superior strategic decision making.

ERP allows for integrated planning across the functional areas in an organization, allowing us to better meet demand with supply

ERP Is Designed To Support Modern Business Management

To understand what ERP is and does requires an understanding of how business management has evolved. Managing a large company can be done in one of two ways. One approach is to essentially decentralize the company around autonomous units. This way, each entity operates as a satellite, working independently from a sales and manufacturing standpoint and sharing products developed by the research centers. These units are not coordinated operationally or strategically. This is largely the way the companies operated prior to the standardizing initiatives that began the 1990s. The other approach to managing a large company is based on integration and coordination so that different parts of the business act as one whole, regardless of geographic location. The benefits of this are significant, but achieving it relies on successful implementation of ERP and effective change management.

Enterprise Resource Planning Software

ERP systems vary according to the vendor but typically they are intended to support functions in Finance, Manufacturing, Logistics, Sales and Marketing, and Human Resources. As demand planners, forecasters and S&OP professionals, we are interested in ERP because it allows for integrated planning across the functional areas in an organization, allowing us to better meet demand with supply. By working to the same information and having a system that allows for effective collaboration on a global scale, we can serve customer needs faster and more cost effectively. If implemented properly, ERP can:

• Reduce inventory
• Standardize manufacturing processes
• Improve visibility in order flow
• Integrate financial information and customer information
• Speed up the whole order fulfillment process

I see the evolution of ERP systems in much the same way as car models evolve. Automobile manufacturers introduce new models every year or two, making minor changes and refinements. Major changes are much less frequent, perhaps every 5 to 8 years and the same is true of ERP software. ERP vendors are constantly looking for ways to improve the functionality of their new software, so new features are often added. Many of these minor changes are designed to improve the usability of the software through a better user interface, or added features that correspond to the ‘hot’ idea of the time. Major software revisions that involve changes to the structure of the database, changes to the network, or computer hardware technologies, are made only every 3 to 5 years

Process reengineering is more difficult to achieve than the implementation of ERP computer hardware and software

Implementing ERP On A Global Scale

I was part of a multinational company with 35,000 staff and several manufacturing plants across different countries. An ERP system was implemented to manage the coordination of the manufacturing, sales and research facilities around the globe as new products were developed and introduced. Developing and deploying a new product is a complex process, requiring marketing plans and manufacturing coordination, and an ERP system facilitates this, coordinating different areas of the business to make the process as smooth as possible.

ERP Software Is Only The Start

The decision to move to an ERP system is only one part of true enterprise integration. Reengineering processes to fully utilize the integrated information support is essential. In practice, process reengineering is more difficult to achieve than the implementation of ERP computer hardware and software. Moreover, if processes are not changed to support the software, the ERP system will create additional work for people rather than less.

Global Policies For Implementing ERP Systems Are Crucial For Success

I highly recommend adopting a set of global polices that are documented and included in users’ handbooks. Create a common set of measures to guide change management across each function and location. This should contain a comprehensive set of policy activities, measures, and goals that define how manufacturing, planning and control system activities are evaluated.

Deployment of this common set of policies to all manufacturing units provides a shared vision of manufacturing excellence around the world and allows you to see which areas are doing what is required, and which need improvement. Further, processes as well as measurements and goals are also commonly based on the those defined in the policies.

Implementing new technology is straightforward compared to getting people to adapt to new roles

Golden Rules For ERP Implementation

• Ensure top management visibly supports the project at Kickoff, status meetings etc.
• Hold firm on project scope and management expectations.
• Assign ownership of deliverables to business leaders.
• Effective change management and user training is imperative.
• Have a solid, integrated project plan down to the people/task level so everyone understands their responsibilities.
• Work to critical path delivery dates and make timely decisions.
• Develop management performance objectives that are tied to savings and deliverables from the start.
• Avoid interfaces wherever possible.
• Always challenge consultants to do better than the timeline and set high expectations for the entire project team.
• Ensure knowledge transfer from consultants to internal employees.
• Document procedures and ensure they are part of end-user employee tasks.
• Whenever possible, change process before technology.
• Do not underestimate the “people change” side of the equation. Implementing new technology is straightforward compared to getting people to adapt to new roles, responsibilities and measurement systems.

How Much Can You Improve Demand Planning, Forecasting and S&OP Through ERP?

The value of ERP to a company depends to a great extent on the potential savings that can be derived from the ability to centralize information and decision making, and the synergies obtained from quick access to information from multiple functions in the company. Everything thing you do throughout this process must contribute to these fundamental ideas.

When it comes to improvements in operational performance, results vary greatly since much depends on how well the company handles the implementation process. But benefits should be gained from the elimination of redundant process, increased accuracy in information, superior processes and improved speed in responding to customers’ requirements.

For the past 30 years, the definition for Sales & Operations Planning (S&OP) has evolved within many organizations. It has manifested itself to include inventory (SIOP) and has morphed into Integrated Business Planning (IBP). However, only within the last five years, has it been heralded and crossed the chasm to mainstream business practice. We think it may only be the tip of the iceberg.

We believe that collaboration is the key to becoming a leading company. It is the key to unlocking the hidden wealth in supply chain operations. Without visibility to the causes of demand variability, demand can drive planners crazy. For that reason, S&OP is among the most important collaborative best practices and processes a company can implement. It can also be a top down planning process if not defined and implemented properly. But, what’s wrong with that?

Without the capability to realize the benefits of accurate planning on the day to day operating level, much of the benefit of the S&OP process can be unrealized. The S&OP process generates plans. The daily planners and schedulers drive operations execution. They make $million working capital decisions every day. They reconcile daily demand and supply variability and generate the results. If the results are not reconciled to the plans on a daily basis; if the S&OP process is not based upon daily reconciliation, it will be wrong. Even worse, it will not be in synch. It will not deliver on the potential. It will be better than not; but, often not a step change better.

And, the major constraint to using daily operating results to update the S&OP process (enterprise application) is that most of decisions made by the day to day planners and schedulers are custom spreadsheets based on tribal knowledge. And, for many companies, there is a gray tsunami of talent about to retire and with them much of the tribal knowledge.

Over past decade or so, we’ve seen new financial applications to support budgeting, tracking and control of daily transactions and financial plans. We’ve seen new customer relationship management applications implemented to automate, track, and support sales plans. What we think is needed for S&OP to go to the next level are day to day operations planning and scheduling tools that can be integrated with the enterprise planning application and close the loop on S&OP. Companies like Lead Time Technology, Ultriva, ToolsGroup, Steelwedge, Terra Technology, DCRA, and others have been developing tools to address the unique operating characteristics that differentiate one plant/operation/machine from another.

These unique configuration requirements inhibit the use of traditional enterprise applications or the development of “standard” applications like finance and CRM, especially when you consider that the characteristics and variables considered by the tools vary daily. But, as many executives are learning, the only way for the potential of S&OP to be truly realized, it must be top to bottom and back up again. The supply chain is becoming a smart supply network. It is a system of supply and demand nodes that operate separately and together to determine its behavior. In the absence of “systems thinking” the supply network behaves erratically often bullwhipping the participants. The Leaders are collaborating, analyzing, and outperforming their median competitors with a 2-1 or more cost advantage!

Rich Sherman
Principal Essentialist
Trissential LLC

Here Richard Sherman speak on S&OP on how to develop better collaboration up and down the chain at IBF’s Supply Chain Forecasting & Planning Conference in Scottsdale Arizona USA February 23-25, 2014

Lora Cecere: Supply Chain Shaman

Go to any supply chain conference, and you will hear it.  Yes, the term collaboration is bandied about. It is over-used and often over-hyped in discussions largely without meaning.  So, what does it mean?  And, what happened to the supply chain collaboration initiatives of the 1990s?

Let’s start with the definition.  The greatest success in supply chain relationships is when true collaboration happens.  What does it look like? It is a when a sustainable win/win value proposition.   Six elements are required:  resources, skills, joint vision, leadership, a plan and aligned incentives.

The problem is that the so-called “collaborative programs” of the 1990s focused solely on process missing the mark on these six elements.  The tenants of VMI and CPFR were well-intended, but they fell short in building true collaborative relationships.  Let’s take a closer look.

Why did CPFR not gain wider adoption?

Many tout success, and many conference presentations expound on benefits; but back home at the office, the teams are confounded.  In the late 1990’s it was all the rage.  Yes, CPFR (Collaborative Planning Forecasting and Replenishment), over-hyped by many, has fallen short in delivering the promise

The results are clear.  After ten years of active projects, collaborative planning forecasting and replenishment failed to reach its promise for three reasons:

• Laborious. Just too much work for the benefit.  The added costs did not measure up to the benefit and the programs were not grounded in the six essential elements of collaboration.  Instead, it was a process implemented in the absence of the core elements of what drives collaborative relationships.
• Retail forecasts not up to the task. For CPFR to work, retail forecast accuracy needs to be high and with sufficient granularity to ensure analysis.  The dirty little secret with CPFR is that only three retailer forecasts—Best Buy, Food Lion and Wal-Mart—were up to the task.  In addition, the gap in retailer data for perpetual inventories and accurate on-hand data could not give the teams a good starting point.
• Lack of integration into Enterprise Systems. For most Advanced Planning System (APS)/Enterprise Resource Planning (ERP) deployments, there was no logical connection for the data.  As a result, it failed to make a systemic impact on supply chain excellence.

So, as a result, most CPFR initiatives became 20-year old pilot projects.  They were isolated—lacking integration into corporate demand planning architectures—and only as effective as the strength of the relationship and the quality of available data.

When does it make sense?

However, let’s not throw the baby out with the bathwater.  It would be incorrect to say that CPFR never makes sense. It was over-hyped and over-promised, and applied to situations where there was not a good fit.  So, you might be saying, where does it fit?   When a company has these five stars to align, CPFR can be used to reap great benefit:

• Significant channel presence. The account needs to be significant—at least 10% of the channel-for the investment to warrant the expense.  The greater the channel presence, the greater potential benefit. It must matter and make a difference.
• High Demand Volatility: CPFR makes more sense for products with short life cycles, seasonal patterns, strong dependence on weather, and in competitive categories.  It makes less of an impact for products that have stable demand.  Companies benefit from advance warning signals.
• Strong Retail Partnership. The data is clean, available and meaningful to both parties’ business objectives.  Both companies have strong planning skills and a passion for forecast accuracy.  It is tied and closely coupled to the business.
• The Tie to Replenishment can make a Difference: Many companies forget the “R” in CPFR.  If he advanced notification from forecast sensing can make a difference in improving replenishment and the other conditions can be satisfied, go for it!  However, not all replenishment cycles can be shifted in concert with the CPFR signals
• Right Stuff: It makes sense when there is demand architecture to support close coupling of the demand signal.  The architecture must allow integration at the account, ship-to level. 

What now?

The key is to be judicious.  CPFR has a place in driving supply chain excellence; just not the over-hyped promise of ten years ago.  Be more judicious.  Be more realistic.  Make smarter decisions.

See Lora Speak at IBF’s
First Ever:

Supply Chain Forecasting & Planning Conference: Asia

Alan Milliken

Folks, we must constantly remind ourselves that “process” takes precedence over “technology” and technology should be designed to enable best practices. During the e-revolution many of the process best practices were first identified by those designing demand planning software. For example, the ability to identify exceptions to pre-defined rules in real-time and instantly issue alerts to planners. This best practice was in place before technology. However, technology is advancing and being embraced so rapidly that it often dominates our processes by default. That is, our people are not keeping pace with the knowledge, education, skills and abilities via objective training required to leverage the software. In many cases this has led to sub-optimal processes for planning and forecasting, where systems are wrongfully blamed for failure.

As the Business Process Education Manager at BASF I often ask my students which of the three components of operational excellence (People-Process-Technology) controls overall success? Unfortunately, some answer our ERP system. Many of us are asking; do we really run our ERP system or is it running us? The latest advancements in ERP software provide high power heuristics that can automatically calculate order quantities, safety stocks, maximum inventory levels, etc., based in part on demand forecasts. Priorities and trade-offs can be managed by the system. However, the objectives and associated rules are determined by people. Therefore, how effectively we deploy new processes and systems relates directly to the knowledge and skill of our people.

We must act now to avoid the “Terminator Syndrome” (Systems and machines taking over). Our people can make the difference in whether technology or process receives priority.  But, to do so they must be educated and trained in planning processes and then how the latest software enables planning. For example, if a Demand Planner does not understand how the software creates the forecast or the recommended safety stock related to forecast error, they cannot contribute to improving process performance.

We all agree that more emphasis is needed on what is best overall for the firm. For example, we want to leverage our S&OP processes to maximize the value added to the bottom-line. Software firms have responded by providing advanced tools that can simulate and optimize demand & supply plans across the business. However, we must ask if our employee skills are keeping pace, particularly in process best practices and quantitative methods such as time series forecasting, causal modeling, statistics, and more. Furthermore, internal collaboration and teamwork is now recognized as most important to business success since technology has enabled a much more integrated approach to planning. What is your firm doing to prepare employees to contribute in this new environment of the system and machine?

The Institute of Business Forecasting & Planning, IBF is the leader in providing S&OP, Demand Planning and Forecasting education & training. The breadth of the IBF program includes understanding these processes from a strategic, tactical and operational perspective. For example, their conference presentations include how firms are using demand planning to improve business performance as well as tutorials on how to better perform specific tasks. Participants learn both technical and personal competencies needed to succeed in today’s fast-paced, ever-changing environment. For the Demand Planner, the Certified Professional Forecaster (CPF) program provides the knowledge and skill needed to contribute to process design and system configuration.

— Want to discuss the latest technology trends with software providers on the leading edge?
— Want to hear how successful firms leverage people-process-technology to improve performance?
— Want to learn how to design planning processes and configure software to enable best practices?
— Want to prepare yourself to better contribute to your firm’s success?

Attend the IBF’s Best Practices Conference in Orlando, October 24-26, 2010

Alan L. Milliken, CFPIM, CSCP, CPF
Business Process Education Manager
BASF Corporation

About Alan Milliken:

Alan Milliken is Business Process Education Manager for BASF Corporation. He has extensive experience as a practitioner, consultant and educator in supply chain & operations management. Alan spent over 20 years at major manufacturing sites serving in production, logistics, process control, operator training, and scheduling. He has spent the past 15 years as a business process consultant and educator. Alan served as a subject matter expert on the teams that created the Certified Supply Chain Professional (CSCP) program for APICS and the Certified Professional Forecaster (CPF) for the Institute of Business Forecasting & Planning, IBF. He holds an engineering degree from Auburn University and an MBA in Management from Clemson University.

See ALAN MILLIKEN Speak in Orlando at IBF’s:

$795 USD for 3-Days including Advanced S&OP Forum!

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