6 Common Causes for ERP Failure

Dave Kravitt, CPIM

Implementing and maintaining a sophisticated ERP system is a complex task that involves a significant investment in both time and money. But it doesn’t stop there. Just because an organization makes the decision to invest in ERP doesn’t guarantee success. What else is needed is the discipline, planning, and commitment to make it work.

When an ERP implementation fails, company management often concludes that the software didn’t work or the system was just too complicated to adequately handle the company’s unique environment. But experience tells us the real reason for ERP failure is typically one or more of the following issues:

1. Lack of shop floor buy-in: Failure of a company’s management team to recognize the importance of shop floor personnel involvement with the ERP system can doom an ERP implementation. Shop floor ERP users typically operate expensive, complicated equipment and technologies to manufacture, assemble, and test products. Data from all of these manual or automated processes feeds the ERP system and drives other business processes from inventory control to lot traceability, to production scheduling, to customer order date promises, to quality measures and more. So it should come as no surprise that management needs to ensure the shop floor has the tools to easily enter all of this data, such as convenient terminals or bar code systems or wearables or similar time saving technologies.

Equally important is not to slow data entry with slow approval processes for extraordinary steps such as requesting additional material due to breakage or quality issues. The more difficult it is for shop floor personnel to accurately and easily enter critical information into the ERP system, the less likely the information will be entered and less likely the desired return on the investment of the ERP system will ever be realized.

2. Inadequate data configuration: There are three basic categories of data used by manufacturing ERP systems – properly managing them will significantly reduce the risk of system failure:

Configuration data or tailoring relates to ERP settings which control the way the software operates to match the desired business processes the company employs. For example:

  • Inventory settings may define lot control such as lot number format, picking rules (FIFO, FEFO, etc.).
  • Planning settings may define how to employ sales history and forecast to develop the Master Production Plan.
  • Customer order entry rules may define the workflow from order entry through invoicing. Some rules are difficult to change after implementation so thorough testing and piloting is necessary before the system is put into production.
As business requirements change, necessitating changes in business processes, configuration data may need to be revisited. It is critical that the ERP system fully supports the required business processes or users will tend to work outside the system. Business process optimization entails aligning the processes with the software behavior defined by the configuration data and may need to be performed every few years.
Master data defines every object in the ERP system including but not limited to ingredients, formulas or BOMs, routings or production models, vendors, customers, equipment, etc. Frequently master data is programmatically migrated from legacy to a new ERP system in which case it is critical the routines are checked and re-checked for accuracy with test data. After migration, the data must be thoroughly “put through its paces” employed in all transactions in a test environment before using it in the production environment.
Transactional data is created with every use of the system from inventory receipt to product shipment including:
  • sales order creation and shipment
  • purchase order creation and receipt
  • inventory movement
  • production process steps
Legacy systems can house volumes of data that may or may not all be needed to be migrated to the new ERP. Reviewing this data prior to migration and only migrating what is necessary can simplify the implementation and also improve system performance.
It’s important to ensure the information being collected aligns with the desired reporting requirements. Excessive data collection that’s not required puts an undue burden on users. Inadequate data prevents adequate measurements that ensure the business is operating as planned and meeting industry requirements. Thoroughly mapping data reporting requirements along with key performance indicators help ensure the optimal balance of transaction data collection.
Related: Lack of real-time, end-to-end data can also cause major disconnects throughout your supply chain. Here’s what every manufacturer should know about how to fill in the missing pieces. 

3. Incomplete testing: Whether it’s an off-the-shelf ERP system or a heavily customized one to meet your company’s unique requirements, testing is the cornerstone of any successful ERP implementation. All departments that will touch the ERP should be involved in testing using scripts built with business processes that they help define.

Testing ensures the validity of all data: configuration, master, and transactional. It also ensures the business processes are properly and optimally defined. Document all issues. Correct important issues before placing ERP into production and be aware of less important issues that require eventual resolution.

4. Failure to integrate with suppliers: Different companies have different goals for the procurement side of their ERP systems: one might want to improve supply chain visibility, another reduce lead time for parts procurement, still another improve the quality of purchased materials.

Whatever your goal, achieving it is dependent on sharing information with your suppliers in both directions. You may want better access to their product specific lead times and transportation times for better planning on your side. You may want access to their available-to-promise (ATP) information when you place POs. Your supplier might want access to your raw material quality specifications. Much of this information can be shared automatically with EDI transactions or through GS1 standard data stores. The more accurate the information shared with suppliers, the more accurate your planning and quality processes will be. A lack of integration and sharing can torpedo the accuracy of planning and scheduling tasks causing shortages or excesses and dooming the ERP success.

Want tips on how to optimize your supply chain? Check out these 10 hard and fast rules that will improve supply chain efficiency.

5. Uncoordinated Planning/Scheduling to Operations: The heart of the ERP implementation is the planning process and using it effectively to drive purchasing and manufacturing scheduling decisions. Simply put, planning looks at forecasts, customer orders, purchase orders, and inventory to recommend purchases and manufacturing orders. Configuration and master data can be fine-tuned to deliver actionable information but at many sites these processes are not tuned and employees are overwhelmed by the data.

As a result, buyers and schedulers too often work outside of the system on spreadsheets and notepads, resulting in a plethora of symptoms that impact the bottom-line: inventory shortages impacting production, excesses causing higher than optimal inventory values, purchase expediting driving higher logistics costs, excess line changes causing excess changeover costs, and more. Proper system tuning and training are management insisting that these planning tools are employed, leading to lock-step coordination and the anticipated return-on-investment of the ERP system.

6. Inventory inaccuracies It doesn’t matter what you manufacture — accurate inventories drive every process in ERP software. Everyone in planning, operations, sales and purchasing depends on it. Having appropriate business processes and systems in place is vital for success.

There are many techniques and systems to maintain the required levels of inventory accuracy for your organization. Nowadays the vast majority of companies require real-time inventory transaction processing and few can afford batch entry at the end of the day any more. The key is to implement these systems to match your requirements, train your employees in these systems, and then ensure the discipline is in place so these business processes are being employed. Inventory accuracy impacts operating costs in every department. Ultimately inventory accuracy affects customer satisfaction which, in turn, affects not just whether the ERP system succeeds, but whether the company itself succeeds.

How well does your ERP system meet your organizational needs? Find out with PSGI’s easy 4-step assessment. 

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