ERP : A Management Perspective

ERP : A Management Perspective

– By Sanjay Agarwala

For the past many years, there has been a fairly recurrent theme when we go out and meet companies that want to buy an ERP software. Many of them are manufacturing companies and almost all of them say that they want to automate their production planning function. And this comes right from the CEO, so there is good reason to believe that this is top priority. We go ahead and ask about automation of other functions, finance and accounts, materials management, Human Resources and so on. The CEO looks at us and repeats vehemently that all of that can wait, but what cant wait is the  Production and related function as that is the biggest challenge in future growth.

We agree with the CEO, we can see and understand the pain in his voice. Here is a situation where external factors like Market response to companies products, customer management, vendor management all are seemingly under control but internal management, what one would think to be under one’s own control seems to be the critical area.

However, as we get deeper into the CEOs problems, the magnitude of the problems starts unraveling. As an ERP software company, we have faced the situation earlier as well.

Here are some of the things that we discover

1. Production planning is in a disarray because the team does not get the right inputs from the sales team. The sales team does not inform what are the delivery plans they have committed to their clients.
2. The sales team does not share the time-wise, product-wise sales forecast, that plan remains the property of the sales team. On further analysis, this is done because nobody wants to “commit” to a plan which may get changed due to customer priorities or a situation where those targets are not met due to some reason. The sales team does not want these events to reflect badly upon them, they are considered the stars in the company.
3. The Head of Sales says that he has a problem that his team is spread across a wide geography, the team handles a large range of products and services, and the nature of the market is dynamic. His team makes targets and to a large extent achieves those targets but consolidation of such forecasts across territories and product lines is cumbersome and changing, and he does not have the team to do this paperwork, in any case he would have his team doing the selling instead of doing this bureaucracy.
4. Even if based on experience, the Production team makes a plan, they run into another problem. The Materials team tells them that meeting all the requirements of raw materials and intermediate goods and services is just not happening at the time that Production wants, because the supply cycle time is different, or the vendors want more time, or vendors are not shipping as their earlier bills have not been paid.
5. If Production team pushes hard, and the CEO comes into the picture, the entire BOM is somehow arranged. Due to urgency, all procurement norms are ignored, availability of existing inventory at other locations cannot be checked as there is no ready data, and the concerned person who has the records at other location is getting married, or having a baby, so… we just want to meet the Production requirement at the moment!
6. When The CEO looks at the Finance team and asks why vendor payments are not being made, the Finance guys have their own issues. Vendors have not been paid because the Material Function has not passed the bills.
7. The Materials people have not passed the bills because the Quality team and not given their inspection report for the raw materials, and the company process says that unless there is an in inspection report, bills cannot be processed. It is a separate matter that the item in question has been long consumed and shipped.
8. Further, Finance says that even if everything else is OK, they cannot pay the vendor simply because they don’t have the cash flow to make the payments. Why is that, the CEO asks?
9. That is because the customers have not paid. The CEO is by now red in the face and about to have an apoplectic fit, why have the customers not paid? The commercial department who is responsible for chasing the collections says that they have no idea at all, they don’t even have copies of the dispatch advices so they haven’t raised the invoices, how will the customer pay without the invoices? And in any case, sales have not communicated the commercial terms agreed with the customer, special discounts if any, penalties for delayed payments or cash payment discounts, and credit period given to the customer.
10. In addition, the Sales  team says that the customer is unhappy as the shipments are not made in time, the company needs to do better production planning
11. The CEOs cup of sorrows overflows!!

What comes out is that the Production Planning is only the tip of the iceberg. What is needed is better integration among functions, better information flow and data sharing, an adequate forecasting mechanism and so on. In other words, an ERP Software.

About the author

Author Sanjay Agarwala is the CEO of Eastern Software Systems. A Graduate from IIM-Ahmedabad, he brings in a rich experience of managing a company which has more than a decade of creating and implementing a world class ERP Product “ebizframe”