“We just need a little guidance in a few areas.” I understand the need for cost controls, but with ERP, we could be talking about the difference of millions of dollars a year in return – so tell me again why you want to cut corners? And did I mention we’ve negotiated discounts in every one of our engagements save one, that paid for our services completely?
When it comes to Software Selection and Implementation (SSI), we have a pretty standard process defined to maximize value for our clients. We could claim it would work 100% of the time, if only our customers were standard.
Customers are not standard.
Some are large, some small. Complexity ranges from simple, straightforward business models to Rube Goldberg-esque complexity – and nothing adds a few dozen layers of ‘complex’ like FDA regulations in pharma or food manufacturing.
So we need to maintain a certain amount of flexibility on how we approach customer engagements.
But customers hire consultants because they’ve never been through this process (or did it a few years ago and it was a nightmare.) Customers sometimes don’t want to go through the entire SSI process for budget or other reasons – but the problem is – and this is a problem – it’s all interrelated – Step A determines Step B, and without Step C you can’t know what Step D might be, or the focus of Step F changes completely depending on what happened in Step E.
So let’s examine that interplay.
We start by diagnosing the client – Why are they looking at software? How will the software help the business? How much should they spend on software?
And whether it’s a formal 6-month process for a multinational firm or a 6 hour walkthrough of a local distributor – it all revolves around the ROI study.
ROI studies range from informal walkthroughs of the affected departments to detailed business process mapping and transactional studies – that is, looking at each transaction the system will affect and measuring systemic improvement. (Warehouse Management System guys are particularly good at understanding minute costs of every particular transaction.)
We’re primarily maximizing labor effectiveness. Making sure automation does automated tasks, freeing up people to do ‘decision’ tasks. Sometimes you save in how many people you need to run the business – but we generally cut how many people you’ll need tomorrow, not how many you have today.
We see far more hiring avoidance than actual cuts in headcount – that is, we’re looking at a 20% growth rate and assuming since the staff is at or near capacity currently, we’ll need an additional 20% staff hire – it’s a rough measurement but across enough situations, it does prove fairly accurate. And one of the easiest ERP achievements is growing the business with the same support staff – no additional hiring, avoiding additional salaries, benefits, office space, extra donuts in the staff kitchen, etc.
Other measurements are ‘softer’. For example if we’re putting our quoting and price matrix into ERP and a salesperson can produce a quote in 2 hours rather than 4, will he then shift that extra two hours into productive activities causing a 4% uptick in sales? Or will he take off early to work on his golf game? The key here is to get managerial buy in. If the Sales Manager thinks he can motivate his crew to sell more with less systemic drag, he probably will. If he looks at you with crossed eyes and furrowed brow, probably not.
It’s also far easier to quantify operational improvements, manufacturing scheduling, fewer inventory stockouts, improved customer service, than some of the backoffice improvements – but they are there.
As you work through the organization, you can create millions in projected savings. We like to do two things, One, factor in the learning curve – the users won’t come out of the box on day one with operational efficiencies – so we build a 4-6 month learning curve into the front end. Two – assume the unknown – factor in a 70% miss rate – then, if you say you’ll build 30 more widgets with new ERP (knowing you think you’ll build 100 more) your numbers become more believable and more achievable.
Also – remember buy-in. If the department manager isn’t ready to put his name on the 30 more widgets forecast, keep working on finding ways the new system will improve his efficiencies until he agrees. Sometimes you won’t find it – but if you look deeper and let him vet the answers – you can deliver.
There are dozens of studies that show companies who begin with these goals in mind are 80-90% more likely to achieve them.
As part of the comprehensive process, we take this into the reference site visit area. For example, if we know we can save $10m with supply chain improvements – prior to purchase, we’re asking the vendor ‘who’s your best reference site in regards to supply chain?’ And that’s who we’re going to visit to learn how they’ve done it – who was their implementation consultant – what problems did they encounter and how did they ultimately solve the supply chain conundrum.
ROI costing of transactional improvements drives selection. If you do 40k invoices a week you’re looking for a different system than if you do a dozen a month. And even though Ed in supply chain is very vocal about his needs, if he’s already running a tight ship and a new system will only result in 0.002% greater supply chain efficiency, we better be looking at ERP packages with automated invoicing to tackle those 40k invoices.
But here’s the real secret. Once you’ve set these goals, you’re going to have to manage the implementation to deliver the expected functionalities. The implementation consultant has no idea you’ve promised 30 more widgets and he’s hell-bent on setting up the system just like he set up the last 10 systems he worked on regardless of your goals – which may or may not work for your end user who’s counting on a certain feature to produce those extra widgets.
Yes, it all ties together.
But if you don’t do the ROI study – it always, always comes back to bite you. Did I say always? You may not realize it, but it does. Sometimes in subtle ways that just means you never reach goal. Sometimes killing the project all together.
Had a client last year trying to take a $400m Pharma company from contract manufacturing to building a new plant and bringing production in house. Day one, everyone in the room agreed we’d save $14m in outside costs – so there was no need for a formal ROI study. So we spent $1.5m on software and services, were halfway through the project when there was upheaval in the Ops side, CEO cleans house, calls in his oldest, most trusted OPS guy out of retirement – unretired him, and we saw the entire project killed when the 70+ year old VP said basically, “Software? I don’t need no stinking Software.” It might have been a different decision if we had the backing to respond “you do need the software if you want $14m in savings’.
More ERP projects will die when project excitement wanes, and budget gets shifted to other priorities – we know that automated bread slicer will give us 60,000 more loaves an hour – which looks like real money, especially to someone who understands bread baking at a professional level – and that ERP project is…”nice to have”? (Easy decision for management, one that ERP rarely wins.)
You want to spend how much on staff training? A three day class in Chicago? What for? If the answer is, “To achieve the goals we uncovered in the ROI Study of $17m in savings with the ERP package.” Now, whether to spend $5k on staff training to generate $17m in savings – that’s a different decision.
It all ties together – look at the interdependencies:
ROI Study uncovers potential for $10m in inventory savings
Software Selection focuses on inventory managing ERP systems
Vendor Selection looks for top inventory experience in the implementation consultants
Demo Scripts focus on showing inventory management improvements
Reference Checks become site visits to the top inventory managing group in the country using this software
Implementation Strategy revolves around inventory
Reporting and Dashboards are built to measure inventory
Success is defined by inventory cost cutting
In summary – client managers are trying to control project costs – as they should, but in skipping over or slimming down parts of the SSI process, it’s vital to know how it all works together.
Here’s a big one – Reference Site Visits.
Prior to our final software/vendor selection, we ask to visit a reference site that’s using the software in question and has worked with the vendor delivering the implementation. Obstensibly, we’re there to vet what the implementation consultants are telling us, what the demo consultants have shown us. However, what we’re really doing is showing our internal user team what’s possible. If they see a high-performing company using the software – they now know that’s achievable – and they’re not as likely to ‘quit’ on the project short of the ultimate goal.
Clients often say – “we trust these vendors, we don’t really need to visit another reference site – everyone’s schedule is tight, we’ve spent a lot of time on this project.” The excuses are many.
And then, as SSI Consultants, we circle around 6 or 8 months post project to find the customer never fully achieved the goal – oh, sure, the software is up and working – but the guy in charge of demand planning isn’t really using it – he didn’t go on the site visit, and that advanced 3 day training in Chicago came right at the end of the month, his busiest time, but he has a spreadsheet that’s just as good.
Now, if we’ve done a good job up front on the ROI study, remediation starts with a project management team meeting on the $10m in inventory savings we were expecting from better demand projections – and we can get the project back on track.
If it sounds like a lot of work, it’s because it is…but if saving $10m is really important, and most companies realize it is, doing the project right in the first place and not skipping steps is the highest percentage play of reaching the goal.
You can reach Gene via GH@genehammons.com