When we meet many entrepreneurs or founders running small to medium sized business, some of the comments we hear are
1. I do not have systems but I am implementing ERP to develop them
2. I do not get any management information systems report as of now, once we have ERP, I will get all the reports immediately.
3. My men are very undisciplined, but ERP will make them disciplined.
ERP does not build systems: it is the first step in developing systems
For most of the small and medium sized enterprises, business systems are not always documented or codified. The decisions are generally taken based on unwritten policies or depending on the situation.
ERPs serve multiple industries and diverse set of companies. They have options that can be configured to suit needs of most of their customers. Options that cannot be configured require development of customized features. Founders get a chance to revisit their systems and revise them at the time of implementation of ERPs. ERP Consultants document undocumented changes at the time of design of systems before selection of ERP. This helps the companies build systems. For example, in one of the companies where we were implementing SAP B1, we realized while taking stock of inventory, items with shelf life were not being monitored by their expiry date. Two lot of identical paints were stacked by incoming date, despite having different useful life, instead of expiry date.
In another company we discovered that the company had no system of coding its material, machines, spares etc. While the company had Bill of Material (BoM), the company did not have route planning and capacity planning. We, as ERP Consultants, worked with the team to develop codes, completed the BoMs, developed route plans and capacity planning. However, after the implementation, the company realized that it had different rejection rates for different items it manufactured and hence it needs a policy on excess production besides needing a policy on inventory management. Now that the company had data, it could analyses material based on pace of its movement unlike in the past.
Database is start of a journey
Small and medium enterprises typically have data stored in multiple formats and in different departments. ERP provides an opportunity to bring the data together and provide relevant information.
Just centralizing the data, allows companies to draw reports and dashboards on performance of the company and its different functional areas. Companies are also able to capture more granular data and hence improve quality of their decision making. For example, in one of the companies, the company was able to devise a better cost apportionment system over different products based on production cycle in different production units. A garment manufacturing company with four manufacturing units, was able to make sure that employees blacklisted in one production unit are not employed by another production unit in the same town.
ERPs provide for use of different accounting dimensions/ analysis codes/ cost centers to be tagged with an account code. This allows the company to record additional data and draw MIS reports based on its needs, from the system itself. A well-designed Management Information System allows companies to automate most of their reports and there by help them get information on time. It is essential that companies are aware of their information needs and metrics that they would like to track.
Controls need discipline and perseverance to flourish
Merely implementing ERP will not bring in controls. Instituting controls requires perseverance and discipline. Despite suggestion by ERP consultants, we have seen instances where companies do not take adequate number of licenses leading to employees sharing user ids with colleagues. These dilute the controls and also provide opportunities for data theft. The initial days can be very testing for any small business owner.
1. While some systems get developed during the implementation, the company realizes need for many others once the ERP is installed.
2. As the database starts getting built up, the company realizes the power of data and starts demanding more information leading to collection of more granular data.
3. ERP is start of journey of improvement of systems and controls. The more demanding the owners and founders are, the more perseverance they have, better are the control systems.