Alignment: do your processes really line up?

When a Toronto-based manufacturer wanted to implement a new ERP system, it turned out that to get true value from it, they’d need to retool their processes.  Companies can gain a significant strategic advantage by reexamining their processes and taking integration deep into their organization. This is one example of how to do it right

By Dan Snider, CMA

The implementation of an enterprise resource planning (ERP) system creates an opportunity to re-engineer an organization’s key business processes. The concept of implementing ERP systems to create value-oriented supply chain processes isn’t new. Many organizations have introduced these systems to enable a high level of integration, improve communication in internal and external business networks, enhance the decision-making process, and improve supply chain productivity. Many have reported dramatic improvements from ERP implementations; yet, many others have had difficulty creating an alignment of business components and systems.

This is a case study of a major manufacturer that implemented an ERP system and re-engineered its core business processes to gain strategic leverage. The manufacturer was an “engineer to order” business, serving leading department stores, specialty shops, vendor shops and mass merchant retailers across North America. Products included all visual merchandising displays within a retail store. The services offered included manufacturing, design, prototyping (virtual & physical) project management, logistics support, installation, and information services. Manufacturing capabilities featured some of the most advanced equipment and production processes available for both metal and wood fabrication and finishing. The company was based near Toronto and employed more than 2,000 employees. Using a process based management approach, it was able to differentiate itself in a challenging market space.

Limited status quo

Retail market players define themselves by their visual merchandising displays, making every customer merchandising display unique. They also define their value and distinction in the marketplace through their merchandising, so every store in their chain requires an identical look and feel. The life cycle for store merchandising displays average between six and eight years. The changeover of a retail store chain merchandising display is a significant event that can take anywhere between 6 months and 2 years, depending on the size of the chain, the level of change and the capital resources available. Communication and collaboration during this project among all parties in the supply chain is critical.

At the time that an ERP system was proposed to the manufacturer, the organization operated in many multi-functional silos. Communication and information sharing across each silo was hampered not only because of poor process alignment but also because each silo had its own unique information system. These issues aren’t unique to this organization in its ERP system implementation — most companies experience the same challenges. If this organization was unique in any way, perhaps it was in that in addition to gaining the advantages that come with sharing information across all functions, the organization wanted to leverage the ERP system and re-engineer its business processes to gain a strategic advantage.

By identifying the key strategic drivers that define this industry, the manufacturer created a framework for the effective implementation of the ERP system. The following key strategic drivers were at the heart of the business process design:

1. Speed — monitor carefully the time necessary to design, manufacture, distribute, install and receive final payment for the displays.

2. Change — managing change throughout the project life cycle was a differentiator; changes in the project were inevitable, at any stage in the project life cycle. The key was not to resist these changes but develop a process for managing them.

3. Market differentiation — ensure that processes created or ensured sustainable differentiation.

Interestingly, during the ERP implementation and the corresponding formulation of new processes, the organization looked at traditional ERP modeling and found that typical ERP vendors didn’t provide a clear process for developing a strategic vision. Traditional ERP models view and sell their products as modules, not as end-to-end processes.

Sequential missteps

When designing the business processes, it was equally challenging to find best business practice models that matched the organization’s strategic vision.

The business process model illustrated here (Figure 1) typifies best business process thinking. This model represents processes as sequential and doesn’t take into account that an organization needs to work on business processes in parallel. The traditional business model also fails to integrate customer requirements directly into the model. Customers are typically viewed as outside the process, with communication with them taking various forms.

The business process chart above (Figure 2) demonstrates how the manufacturer managed its business, in distinct silos. This process model is what you would expect from a traditional manufacturer in a custom business — functions are managed independently in different systems and databases:

1. Sales assumes responsibility:

• for the initial contact, where the concept for the project is conceived; and
• for coordinating an estimated cost & giving a quote.

2. Design and prototyping follows.

3. Once a sales order is received, a function called “detailing” (defining the product to a level of detail required for manufacturing and materials requirements) begins. Being independent, any product definition performed in prior steps is lost.

4. Material requirements are defined and sourced, and a manufacturing schedule determined.

5. Upon receipt of materials, manufacturing is completed.

6. Product is shipped and, if necessary, installation, invoicing and collections is taken care of.

Other functions are considered business support processes.

Redesigning the flow

During the design of the implementation, the manufacturer had to reorganize business processes around definitive lines of responsibility and logical business transactional flows. This meant, for instance, that one could look at sales, estimating and quoting as logical business functions. The difference in the new approach would be that that data, in terms of customer information, would now reside in a single customer address file. Data used for estimating product cost would be defined in the product data management (PDM) file and quotes would be represented in the sales order process as a preliminary sales order status.

Meanwhile, design through PDM functions would now be coordinated within a single function, product engineering. The real challenge would be to coordinate data in the ERP system PDM file with PDM data stored in drawings files. The manufacturing process would include planning, execution and cost control; the procurement process would include sourcing, vendor management, all the way through to payment.

In the business process design, key processes were visualized linearly and parallel, as they would appear in a project timeline:

1. Projects are initiated with the process of “concept to commitment,” which includes estimating and quoting.

2. Subsequent business processes like “design to make” are started well in advance of the completion of final quotes.

3. The blanket order, representing the customer’s financial commitment to the project, initiates the “order to cash” processes.

4. The manufacturing planning process, represented as “demand to available,” appears to start prior to the customer order commitment, recognizing the need to determine some higher level planning based on the quantity and quality of the orders at a quoted status.

5. The “procure to pay” business process parallels the manufacturing process, to ensure material requirements against manufacturing demand.

The value of defining processes and, more importantly, changing the organization’s culture to understand the business processes in this manner, is immeasurable and one of the true benefits to implementing an ERP system in conjunction with a business process redefinition.

When key milestones are achieved in the project, they trigger business process events. This is what allows business processes to work sequentially and in parallel. It means that the resultant time from concept to cash is reduced (one of the primary drivers in meeting customer requirements), and the organization is in a better position to manage constantly changing customer requirements.       

The restructured business processes also create a number of efficiencies: concurrent design work, better communication across all business processes and functions, the ability to purchase earlier in the process, a greater visibility of order commitments and potential orders, and better customer service through total project visibility.

Revisiting the customer relationship

Formerly, communication with customers followed typical methods of voice, e-mail, EDI, and fax. In the organization’s redesigned business processes, steps were taken to create a business process model that collaborated with the customer’s business processes. This defined the customer’s processes, the collaborative information used, the accountability the organization and the customer had over certain data, and made it possible to deploy a portal for active information exchange. 

This resulted in the business process model displayed in Figure 4, which includes the customer’s processes.

With the completion of the ERP implementation and, more importantly, the organization’s cultural shift to the newly aligned business processes, significant strategic advantage was realized. The organization gained the ability to collaborate with the client to create critical supply chain efficiencies. The collaborative information shared included store surveys, time and action summaries, installation plans and responsibilities, store calendars, calendar changes, and a variety of other items that made clear the needs and priorities of supplier and customer. 

In addition to aligning processes and sharing collaborative information with customers, the organization was also able to shorten its internal business processes. Internal business processes were aligned to naturally trigger and initiate parallel business processes.

With business processes working in parallel, the organization was able to reduce total project times. Productivity gains were also realized as data was shared across the enterprise, eliminating non-value added time of data creation, as well as data integrity. Managing changes throughout the project life cycle was easier because processes were defined and there was clarity on where in the process the change created an impact. Clearly this created market differentiation.

While ERP systems are a valuable tool, they are only as good as the organization that adopts them. The creation of a business process model that takes into account all of the intricacies of an integrated business can only make an ERP system that much more effective.

Dan Snider, CMA, (dsnider@securit.com) is currently vice-president of business systems implementation at Securit. He has over 25 years of experience providing leadership in a variety of roles in finance, information systems and supply chain.

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