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IT DEPENDS
On 11 March 2009 a larger than life character by the name of Charles Lewis Jr. of Huntington Beach, California, was declared dead at the scene of an accident that tore Lewis' Ferrrari in half. Jeffrey David Kirby was reportedly the driver of a Porsche seen speeding alongside the Ferrari. After striking the Ferrari the Porsche was moderately damaged and its driver and passenger absconded from the scene. Was the Ferrari a life enhancer? Or a life taker? It depended on what Lewis did with it. Was the Porsche a millstone or a life raft? It depended on what Kirby did with it.
DON'T KID YOURSELF
Benefit follows change. Your manufacturing or distribution company won't benefit from 20 ERP systems if you can't benefit from a sound enterprise resource planning (ERP) planning system, like Epicor 9, purchased from COGITA. If you can't or won't change your manufacturing scheduling practices, or you can't or won't change your distribution company's DRP policies, or quality practices, or if you can't and won't change your performance measures then every ERP system on the planet will be a millstone for your corporate neck. But if you are willing to change some of your manufacturing or distribution practices and some of your performance measurement practices then the Epicor 9 ERP system purchased from COGITA will be your life raft in the current global financial crisis (GFC). The Epicor 9 ERP system is the software system equivalent of the latest expensive, carbon fibre construction, European sports car. Like a sports car, the Epicor 9 ERP system can be badly driven into the thick mud of trashy data and spotty implementation to become the butt of misconceived complaints. Or an Epicor 9 ERP system from COGITA can be well driven on suitable roads to provide a lifetime of profitable use protected by scheduled servicing and disaster recovery plans.
IF YOU REALLY WANT TO KID YOURSELF
There is another option if you just can't help it .. if you can't stop yourself .. from kidding yourself. You can buy an ERP system, you can even implement it, and keep everything else unchanged. This will initially affect your balance sheet by moving assets around and increasingly affect your profit and loss statement as it begins to report the ERP system running costs and allowed depreciation.
Alternatively you could borrow some, or all, of the money to make the purchase, in which case the finance and interest costs will immediately find their way onto your profit & loss statement and an appropriate part of the ERP system's capital cost will land on your balance sheet. It is an amazing but real experience to see a prospective customer go through the, usually, arduous selection process for an ERP system, make the purchase of an Epicor ERP system from COGITA and then find that the new customer does little if anything with the pricey new asset. What is the point? You may well ask. For example, before the GFC many corporates were the offspring of leveraged transactions and private equity arrangements. Behind the scenes the parties to these transactions were required to tick due diligence boxes. One such box might be "ERP System." In effect an ERP system, from COGITA, for example, was a tranquiliser that put to rest the concerns of the corporate offspring's parents. Fortunately COGITA customers in this position have gone on to make effective use of their Epicor ERP system. This is a good result from an otherwise form-over-substance-ethic which is at the root of delusional, kidding yourself, behaviour. In this situation an ERP system is more of a millstone than a life raft.
BIG IS AS BIG DOES
In the GFC or any of its little brothers and sisters (recession in USA, Japan, New Zealansd etc) you are more likely to benefit quickly, for a short time, by cutting costs indiscriminately and abandoning customer service than if you implement a good ERP system. That's because, for example, a 50% cut in your payroll will shed a significant cost burden immediately if you manage redundancy and outplacement expenditures tightly to spread the negative impact on cash flow. Few organisations can cut their staff numbers in half without hurting customer service. If your organisation is one of the lucky ones, then you should hope for your good fortune to continue; otherwise the immediate relief from costs is an omen for a following storm. A big purchase like an ERP system from COGITA or a big operating expenses cut does nothing worthwhile for the the survival capacity of a manufacturing or distribution business in the GFC - unless the manufacturing / distribution business uses the ERP system to make intelligent inventory cuts and labour deployments sufficient for the real demand levels of the market. Under a blazing sun, an aimlessly drifting life raft is as bad as a millstone.
IT'S HUMAN NATURE
In boom times manufacturing and distribution companies get fat and lazy. OK, so it's not just in boom times; it also happens in normal times. Inventory grows unnecessarily and accumulates in the wrong places. Raw materials, issues to production, work in progress, re-work, final assembly, quality volume sampling, post production finished goods, bond storage, contract excess storage, stale sales and wrong sales returns, replenishment stocks, interstate or international distribution channel stock, consignment stock .. and that's still not all of the inventory! It grows and grows because it is easier to fund it with, relatively, cheap working capital than to make fundamental personal and professional changes leading to the creation of a lean, mean, money making, manufacturing machine. Cheap debt and working capital combined with bad performance measurement results in excessive expenditure on manufacturing and distribution overtime and capital equipment. Frugality is an extinct species. Imagine if the excess inventory and capital equipment were converted into cash. Cash is number one in a global financial crisis.
In a manufacturing company, any excess is "evil." Inventory included. If you are buffered up the neck with inventory then your cost accounting efficiencies can be high. But this cost accounting efficiency is deceptive and narcissistic. In fact your balance sheet is clogged with cholesterol as accumulated inventories suck cash out of your current assets and transform it into fatty deposits of low velocity, low turnover assets. Question: in a recession or a global financial crisis, which is better? Cash? Or excess inventory and high efficiencies? If your answer was not cash then you deserve a permanent spot in one of your long term inventory locations. You are the millstone and you do not deserve a place in the life raft.
PEOPLE CHANGE
Everyone knows that people don't change. True, by and large, because people, by and large, are creatures of habit. Not so prominent is another fact: people will change; if there is a compelling reason. The more compelling the reason the more immediate and significant the change. But one man's reason is another man's nonsense. Therefore reasons are individual and personal. This means that the the owners' and operators' personal and professional changes required to transform their manufacturing company into a lean, mean, buffed up money machine, must be made by each individual for each individual. That's a long way of explaining the cause and effect of successful manufacturing businesses which use ERP manufacturing systems. Or nothing changes until someone really changes. Like we said above: it all depends. Upon what the ERP system purchaser does with the ERP system. The ERP system is not a living, breathing, independent entity. It is a passive recipient of data and this attribute never changes.
LEAN MEAN MONEY MAKING MANUFACTURING & DISTRIBUTION MACHINE
What does one of these machines look like? It is difficult to visualise without using a suitable, end to end, manufacturing ERP system. Or a Theory of Constraints drum buffer rope (DBR) implementation. It tends to be a calm place with no wasted effort or inventory. It has a nearly perfect record of deliveries to customers in full and on time. Manufacturing techniques are designed and redesigned (poka yoke) to make some errors impossible and minimise variation thereby reducing the number and need for inspection points. Faults are fixed in real time. The manufacturing constraint is easy to pick out: it is the rate limiting step; therefore it receives a great deal of attention to ensure that input material and production output are perfect. Processes are refined and re-refined to reduce complexity and increase simplicity. Record keeping is simple and relevant. Records contain negligible error. Data quality is 100% reliable. Expediting is zero. Production is for real market demand therefore there is little excess inventory.
Lean mean money making manufacturing machines are much more than life rafts; they are the golden geese of smart production. ERP systems, like Epicor 9, from COGITA ideally satisfy requirements for record keeping and decision making tools in lean mean money making manufacturing enterprises. Record keeping tracks the performance measures which really matter: overall throughput, inventory turns at the constraint, operating expenses and customer satisfaction. Contrary to normal thinking a lean mean money making manufacturing machine is not a balanced factory. They inevitably go broke because their performance measures compel them to over-produce until standard cost accounting manufacturing efficiencies have been achieved. Instead the lean mean machine is a factory, or facility, in which all inventory and manufacturing effort correctly ebbs, and flows, around the constraint because the constraint is the hearbeat, regulator, of the enterprise. The owners and operators of a lean, mean, money making, manufacturing machine belong to an exclusive club: most likely to survive the adversities of, wild fluctuations, or a total turn-down, in local, regional and global demand.
Away from a lean, mean, money making, manufacturing & distribution machine, few understand the need to raise throughput (T) while simultaneously driving down inventory (I) and operating expenses (E). In COGITA the name for this three variable equation is the TIE rule. Assuming just in time production to meet market demand the TIE rule is the principal, self funding means to sustainably convert manufacturing effort and inventory investment into hard cash. That's what makes an ERP system like Epicor 9, from COGITA, into the farthest thing from a millstone or a life raft: a super yacht.
WILL A MANUFACTURING SOFTWARE ERP SYSTEM MAKE ME MORE ATTRACTIVE
Normally we advise people who hear this pitch about ERP systems and attraction to run. But let's suppose that your manufacturing company is under extreme financial pressure. And a worthwhile option is to sell your manufacturing business. If your business is one of three very similar companies then which company would be most attractive to a prospective buyer? The company with the systematised and effectively used manufacturing ERP system? Or the company without an ERP system? Or the company with a badly used ERP system? Definitely the one with the life raft; the effectively used ERP system.
What if you were selling a good manufacturing business as a going concern. Are you more likely to get a good price if your business is effectively using an ERP system? Or less likely?
Finally, imagine that you were forced to urgently seek additional short term financing for your manufacturing company's working capital needs. Would your bank be more likely to approve your working capital proposal if your bank could see that your manufacturing operations were being controlled by an effectively implemented ERP system? Or less likely?
A life raft has its benefits. These examples illustrate some of those benefits.
ABOUT COGITA | MANUFACTURING SOFTWARE AND ERP
This millstone or liferaft article was prompted by the global financial crisis and its effects on our manufacturing company clients. Established 1983, COGITA is the oldest ERP manufacturing software sales and support company in Australia and New Zealand. COGITA sells and supports the Epicor Vantage ERP software. COGITA supports customers using Qad MFG/PRO ERP software.
Return to COGITA manufacturing software home page for more information about ERP software, Epicor and Epicor Vantage
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