Hidden Profits Blog

Finding the Gold in Your Business

Hidden Profits Author:

Lynda J. Roth

As the president and founding partner of Woodland Hills-based LJR Consulting Services, Lynda advises clients on ways to improve profitability and productivity through both technology and business processes. She also works with companies and private equity firms on the role of information technology in mergers and acquisitions.



Register for


LJR Consulting Services

Email Me

Thanksgiving Wish

Filed under: Uncategorized — Lynda Roth at 7:00 pm on Sunday, November 28, 2010

On this special Thanksgiving holiday weekend, I want to thank all my readers.  Thanks for sharing your thoughts contributing to the conversation.  I look forward to continued interaction with you.  Thank you for forwarding the posts that you feel are helpful to others.  If you have not yet joined the conversation feel free to comment and provide your insight.  I look forward to hearing from you!

Sincerely

Lynda Roth

AN ERP Success Story

Filed under: ERP Selection, ERP systems, Information Technology, business process — Lynda Roth at 7:45 pm on Monday, November 15, 2010

 

  I have posted before about some of the issues involved when selecting an ERP system and the importance of implementing the correct ERP system.  Friday, I was having coffee with my friend, Steve Ragow, who was the CFO of an automotive parts company during a period of significant growth. He related to me their experiences with ERP systems. It is such an excellent example that I thought I would share it as an example of the cost in not selecting the correct ERP system and the benefits when you do get the correct system and the process to select the appropriate system.
Before Steve arrived the company had grown from $5 million in revenue to almost $40 million and had gone through 3 ERP systems and the owner was preparing to purchase the 4th ERP system. On each of the previous purchases and on the purchase the owner was preparing to make, he was only looking at where the company was currently positioned and at what he had been emotionally convinced was the best system for the company. As we discussed here before, that is a very short sighted process to use for making such a large investment. As we all know changing ERP systems is not easy, it is very disruptive to a company.  And when done without much forethought  results in minimal increased value at best and utter failure at worst. 
Steve worked with the owner to identify the key problems the company was facing and define how the new ERP system was going to correct those specific problems. As Steve expected, the system they were planning to purchase did not address the problems they were experiencing which were:
  •  Excessive warranty returns
  • Shipping problems and late customer deliveries
  • Less than 100% customer order fulfillment
  • Over 50% of receivables that was over 120 days.
These issues resulted in an annual loss of between $4 and $4.5 million.
Based on this, Steve guided the owner of the company through an evaluation methodology which focused on business process, policy, procedures and organization first and the ERP system as a tool second. The company spent several months performing a complete review and redesign of business processes, procedures and policy to address the key problems that were eating into profit and stunting the company’s growth.
Next, Steve focused on the ERP system. Based on the requirements defined, he drafted an RFP to ERP vendors that focused solely on the key requirements. All responding vendors were mandated to follow a scripted demo that showed how their product would address the key business requirements of the company. After addressing the requirements, the vendors could also highlight functionality that their product possessed that might be relevant to the company and represent a competitive advantage for the vendor.  After each vendor demo, the selection team completed a detailed evaluation of the presentation and the ERP system they had just seen. This evaluation methodology eliminates much of the emotion and personal reaction from the product review, thus enabling the company to purchase the system that fit their needs the best.
The company implemented a new system with add-on functionality such as integration with shipping systems and warehouse scanning devices that was not even considered in the original plan. The implementation was completed in 7 months and was flawless. Since the implementation of the new business processes, procedure, policies and system the company has grown to more than $90 million in revenue.
This is a success story that many CEO and CFOs wish they had. Every CEO and CFO can have this kind of success and ROI when they follow this type of methodology. 
By resisting the urge to purchase the first system that comes along and following a methodology that addresses the business first and the technology as a tool - you too can experience this type of success! 
If you are thinking about a new ERP or any other system and like to have the success this company had, contact Lynda Roth at 818-709-6583 or info@ljrconsultingservices.com

 

To Outsource or Not To Outsource

Filed under: Information Technology, Lean Business, Offshoring, Outsourcing, Uncategorized, business process, lean accounting — Lynda Roth at 10:51 pm on Monday, November 8, 2010

Outsourcing is seen as one of the best and quickest ways to reduce cost.  The popular thought is that you outsource non-core business functions to companies and locations that can do it cheaper than your team can if it is kept in-house.  While I agree that outsourcing is an option to be evaluated, it is not necessarily the panacea that has been suggested.

First, what is meant by outsourcing?

Many think it means using a company that is not in the US to perform a back office or non-core corporate function.  While a lot of outsourcing is done offshore, that is not the only definition of outsourcing.  You can outsource the function to a company in the US. The broad definition of outsourcing is to hire another company to perform internal corporate functions. The term for outsourcing to a company outside of the US is termed Offshoring.

 Next, how much of the function is to be outsourced? 

Outsourcing is generally when an entire department/function like Accounts Payable, Accounts Receivable or Information Technology is transferred to another company,  However, outsourcing can be done on selected functions within a larger functional department.  Some examples of partial outsourcing are:

  • Instead of completely outsourcing all IT functions, you can outsource selected development to development firms, or outsource infrastructure maintainence to an infrastructure firm, or outsource data base administration. 
  • In Accounts Payable you can outsource just the payment process to a bank 
  • In Accounts Receivable you can outsource payment receipt to a bank and customer collections to a collection firm.

I have worked with numerous clients in which outsourcing looked like a possible alternative, however, upon assessing the company several key items came to light.

  1. In the majority of cases a large part of the reason the cost of back office business functions was high was due to extremely inefficient and ineffective business processes. This was the result of numerous manual functions sometimes in spite of adequate computer business systems and sometimes because of inadequate computer business systems.
  2. Another major  reason was multiple business systems resulting from corporate acquisitions that were not consolidated onto one system and standard business process
  3. Organization and people are also one of the reasons why companies struggle with many operations that they consider outsourcing,

By addressing these issues, many companies can be competitive with outsourcing options.  By not outsourcing you also don’t have to worry about the disadvantages and loss of control that comes with outsourcing. Finally, if there is still a decision to outsource, it can be done in a more effective manner and thus better ensure success.

If you are interested in having an assessment of your systems and processes contact me at 818-709-6583 or info@ljrconsultingservices.com