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.



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AN ERP Success Story

Filed under: business process,ERP Selection,ERP systems,Information Technology — 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

 

Common Mistakes When Selecting an ERP system

Filed under: ERP Selection,ERP systems,Information Technology,system requirements definition,Uncategorized — Lynda Roth at 6:11 pm on Thursday, July 8, 2010

I have spoken with several prospects in the last couple of weeks all of whom are wrestling with how to select an ERP system. 

I am encouraged that they are wrestling with it and contemplating getting professional support.  Selecting and implementing an ERP system is one of the most important and expensive decisions a company will make. Unfortunately, in many cases, over 70%, the projects will fail.  Why such a high rate of failure for such an important business undertaking?  In my over 30 years of experience implementing systems, the 2 biggest reasons for failure are:

  1. Selecting the wrong system
  2. Selecting the wrong VAR or implementation partner 

Of course, there are many other reasons for the failure rate but these are the most common. 

So the next question is – if a company does an evaluation how is that they so often pick wrong?

The primary reasons are the following:

  1. Select a system based on the prior experience of an executive with a system at another company.  That may or may not be a good test of what will work in the current company.  There are several factors that impact whether a system that works well in company A will do the same for Company B.  What works for one does not necessarily work for another.
  2. Buy into advertising, popular theory or executive pressure that the company must have the biggest name in the business to be a ‘real’ system.  When ERP systems first started to be developed, it was true that the larger company systems had better functionality.  That is not true today. 
  3. Delegate the selection only to the IT department
  4. Do not document requirements at all or document requirements based on how the company currently functions not how it will function in the future.  This is a very limiting view and results in selection of systems that will not support a growing company.
  5. Select the system with the best demo instead of based on how the system functionality best supports the company’s requirements.
  6. Do not use the services of a professional ERP consultant or use a systems integrator that benefits from the selection of a particular system.

The optimum methodology to use to select an ERP or any system is the following:

  1. Create a selection team comprised of employees from all key departments and information technology.
  2. Define and document system requirements based on the future processes of the company.  Use best business process practices as a guide. Also, use new technological features to redefine processes.  For example, systems today have executive dashboards and real time information access so traditional reports are not needed as much. Also evaluate how wireless and smartphone technology can be used to replace existing manual processes.
  3. Determine the technology platform you expect to support.  For example what data base and operating system can your company best support.  Will you use SaaS, outsource the application hosting or host the system in-house.
  4. Research systems that support your industry and compare them to your documented requirements and preferred technology platform.  Select the best 3 or 4 applications for demonstrations.
  5. Work with the selected vendors to script the demonstration so they will address your key requirements. 
  6. After each vendor demonstration, score the vendor based on how well the system performed and how comfortable the team was with the user interface.
  7. Obtain cost estimates for total cost of ownership – purchase price, implementation. and ongoing maintenance costs.
  8. Make the selection based on the best balanced system.

I also recommend that if your employees do not have experience in systems selection, you should use the services of an objective, vendor agnostic consultant to guide the organization through the evaluation and selection process.

If you would like to learn about our methodology and/or get support during your ERP selection and implementation contact Lynda Roth at 818-709-6583 or info@ljrconsultingservices.com

SaaS Is It For YOU?

Filed under: ERP Selection,Information Technology,SaaS,Software as a service,Uncategorized — Lynda Roth at 1:02 pm on Tuesday, June 15, 2010

This morning I received a white paper about evaluating SaaS – Software as a Service solutions.  This has been a question that many clients have been asking in the last couple of years and one that I addressed for my own business.  There has been so much written lately about SaaS and it has been touted as the perfect solution for everyone.  Is it really?  I am not saying that it does not have its place in the smorgashboard of software options and it certainly provides numerous benefits but as the white paper points out, you must evaluate it objectively against all options and weigh which criteria are most important to your company.

The white paper is entitled ‘Evaluating SaaS Solutions: A Checklist for Small and Mid-sized Enterprises’ you can download it here tinyurl.com/2ua6qtd

The key evaluation criteria listed in the white paper are:

  • Solution Functionality which includes
    • Core system functionality
    • Customization and personalization capabilities
    • Integration capabilities
    • Workflow capabilities
    • Access to data for ad-hoc analysis and reporting
  • Solution Pricing Terms & Condiditons
  • Uptime availability, quality of service and responsivenes of the SaaS provider – in short the Service Level Agreements (SLA)
  • SaaS solution’s security and privacy
  • SaaS solutions backup and recovery capability
  • Saas solutions customization and personalization capabilities
  • Saas solution’s integration capabilities
  • Saas solutions workflow capabilities
  • Saas Solution ability to provide access to data for ad-hoc analysis and reporting
  • Existence of a community of SaaS solution users for networking and collaboration

I would add 2 other criteria to their list. 

1.  The ability to convert data from the SaaS system to a different system.  As the business grows or needs change there may come a time when the company decides they want their applications in-house.  What are the options for converting data from the system and loading it to a new system.  Included in this would also be what happens if the SaaS provider is sold, terminates operations and/or no longer supports the system. 

2. The technology platform.  While it is somewhat true that by definition a SaaS system will be on supported data base, programming language and operating system, that cannot be taken for granted.  Some software firms have created their own data base and/or programming language that would require dependence on the software firm or may end up obsolete in the near future.  For example several years ago I hosted my website with a company who at the time had a very state of the art editor so I could change my web content easily.  However, with the advancements today in web editors, my hosting company has fallen behind and I am now looking to move.  While this cannot be completely avoided as technology changes very rapidly, it should be a consideration just as it would be for a purchased application.

Today the selection of core business applications such as ERP, CRM, MRP are very much like selecting a long term partner.  The process should not be taken lightly weather searching for a SaaS, purchased or hosted solution.  Detail requirements need to be defined, potential solution options identified and evaluated against the requirements.  Since this is a critical decision and not something companies address on a regular basis, I strongly suggest bringing in a consultant experienced in system requirements, evaluation and selection to support your team. 

 

How To Evaluate the Financial Supply Chain

Filed under: business process,ERP Selection,finance department,Information Technology,lean accounting,Uncategorized — Lynda Roth at 5:51 pm on Monday, May 31, 2010

We have discussed the Financial Supply Chain and the importance to cash flow and profitiabilty for optimizing it.  Optimizing the Financial Supply Chain is a function of optimized business process and effective information technology.  In my last post, I recommended that business process be addressed before selecting new information technology systems. You want to optimize in this order so you can define requirements for the systems needed and the functionality required in each system.  So how to go about evaluating the effectiveness of the current Financial Supply Chain, selecting and prioritizing the processes to be optimized and creating the new system requirements. I  recommend the first step is an assessment to determine where your problems are and cost to the company of the current Financial Supply Chain processes. 

What is involved in an assessment.  A good assessment will address 4 key areas:

  1. Information technology infrastructure
  2. Information systems – ERP, Operations, Reporting, Document Management etc.
  3. Business Processes
  4. Organization – Finance and IT

The first step is to evaluate the business processes in operations, finance, sales and other supporting departments.  Inefficient processes that you are looking to identify are:

  • Duplicate data entry
  • Extensive use of Excel spreadsheets
  • Duplication and multiple filing of paper such as invoices, purchase orders, employment applications etc.
  • Manual processes to support lack of system integration
  • Non-standardized processes due to multiple systems i.e. multiple ERP or accounting systems
  • Lack of integration with customers, vendors & bank
  • Processes that employees feel are inefficient
  • Departments that do not have access to ERP, CRM systems
  • Month- end close process that requires more than 3 days

The second step is to evaluate the information systems and technology infrastructure.

  • What ERP or CRM system is being used, is there more than one
  • When was the last time ERP system was upgraded & what is the technology platform
  • What processes are a result of issues with the ERP, CRM or other key operational systems
  • What custom in-house developed systems are being used, how old are they, how are they supported
  • What systems are used to create financial reports/information for finance, outside organizations, operational management
  • What are the issues the frustrate the IT organization
  • Is there a consolidated data center
  • Do all employees have access to the core systems and servers
  • How are applications integrated
  • Are applications outsourced

The third step is to evaluate the Finance and IT departments

  • How are the departments organized – are there multiple IT and/or finance departments
  • Who heads the IT department and do they address strategic business issues
  • What skill sets do each of the members of the IT department possess
  • What functions are outsourced and with what organizations

These are the key components of an assessment.  By evaluating these areas you can define functions within the organization that are inefficient.  After you have identified inefficient processes the next steps are to create continuous improvement teams to define solutions to improve efficiency.

Often a consultant trained in lean methodology may provide key insights in the business processes and be able to recommend technology solutions.  If you would like assistance with your assessment or process design please contact LJR Consulting Services at 818-227-5025 or email me at lynda.roth@ljrconsultingservices.com

What Is First The Chicken or The Egg?

Filed under: business process,ERP Selection,Information Technology,lean accounting,Uncategorized — Lynda Roth at 11:37 am on Sunday, April 18, 2010

This is an age old question and today the chicken and egg that I am going to discuss is redesign of business process versus selection of an ERP system and which should come first.  If you listen to most ERP vendors and system integrators they will definitely say – Select the ERP system first. They say this because they believe that the ERP system has bulit-in best business processes so then you can redesign your business processes based on how the ERP system is designed.  While I agree that ERP systems do have good process design in them, more goes into business process redesign than just how the ERP system functions.  Also, the company will have much better understanding of what they need from an ERP system if they have thoroughly reviewed their business functions and processes prior to an ERP evaluation.  So while you will not design processes down to the level what screens in the system are used to process a transaction, you will define the following

  •  what functionality will be used and the importance of each system function
  •  how data will flow in the organization
  •  what new policies and controls will be required as a result of the new processes and ERP system
  • what departments will perform what functions.

Some say it really doesn’t make any difference you can do this in either order.  Well let’s look at some examples and the situations that can arise from selecting an ERP system before you define business process.

Selecting the wrong ERP system.

I had a client a couple of years ago that is obtained because the owners were concerned about the rapid increase in the need for accounting personnel in their company, how long it took to complete the financial close process and the inadequacy of the financial information they had to manage the business.  I spoke with them and performed a detailed assessment.  The result of the assessment was that they had significant duplication of effort between operations and accounting, poor integration of systems and extremely manual processes.  They were using an old version of one of the Microsoft ERP systems and an upgrade with a complete revision of processes that would move origination of transactions to operations would greatly have increased their efficiency and information.  I also found out that they had purchased a new ERP system a year before I arrived and had done nothing with it.  It was not implemented at all.  This ERP system was a highly rated system that they had purchased because a very good sales rep from the company had convinced them it would solve all their problems.  We implemented the system which was adequate.  However, what solved the majority of their problems was modifying the processes and organizational responsibilities to originate transactions in operations, utilize additional functionality such as Purchase Orders and upgrading other key systems such as ADP payroll.  While the new ERP system was used, it was not necessary.  The company could have saved significant investment by simply upgrading the system they had and making the business process change.  Had they completed the assessment and business process analysis prior to the purchase of the ERP system they would not have made that mistake.

Implementing ERP and receiving little or no benefits.

A client last year requested that I help them with an ERP evaluation.  They desperately needed a new system for multiple reasons including new business process.  I suggested that they redesign the business processes prior to detail evaluation because I knew there would be much contention and resistance to change in this company.  They felt they needed to move forward quickly with the ERP evaluation and assured me they would perform a detailed business process design after the system was selected.  So we did fairly detailed requirements analysis to support the ERP evaluation.  This was critical because it did help them to select the right ERP system.  After a 3 month evaluation process they purchased a quality system that would provide them the platform to make the necessary changes to their business.  However, where the problems arose is that once the system was purchased, all the management just wanted the system implemented.  They were no longer interested in putting in the time and energy to redesign the business process and data flow to obtain the maximum benefit from the very hefty investment in the ERP system.  Instead they configured the system just the way they used the old system, they did not clean up any data and after 8 months of implementation they moved the new system to production.  To their great surprise they had worse problems than with the old system.  Why?  Because now they were using a system that had race car like functionality like it was an old clunker.   Except for solving technical problems they obtained absolutely no benefit.  Now they will spend more money to fix this problem.   

System Selection Done Right

A client I am currently working with has the problems that I see all the time.  The company has grown dramatically in the last 10 years and has completely outgrown their systems and processes.  I performed an assessment for them last year, and they already knew they were going to need a new ERP system.  However, they were unsure as to what was the most important functionality and how they would implement some of that functionality like purchase order in their organization.  So they agreed to embark on a business process design using lean business process techniques.  They continued to prepare their ERP requirements utilizing information from the lean business process project that we coordinated.  As a result they have now worked out policy issues, defined details on the impact to operations of certain new functionality, defined how they will integrate other custom systems with the ERP modules.  Now they are in the process of reviewing the ERP systems on their short list.  The business process project has given the executives a level of understanding of how ERP systems work and what their business will need that they would not have had otherwise.  They will make a much more informed ERP decision and be able to implement it much faster with significant benefit to the organization.

My experience with these and numerous other clients over the years indicates that a company that performs a fairly detailed business process review and design based on lean business practices and standard ERP functionality will make a much more informed ERP decision and experience a much higher ROI and level of satisfaction from their ERP implementation.

For help with your business processes or ERP systems contact LJR Consulting Services at 818-709-6583 for a free consultation.

 

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