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ERP Systems History and Background of Enterprise Resource Planning
"From the Core..."
October Edition of “From the Core…”
By Paul Nielsen 10/2/01
Vice President, TORNIEL Technologies International, Inc.
This month I felt the overwhelming need to focus on change. The events of last month make it that much more important. You might think, because I spend so much of my time addressing computer related technology issues, that one of those issues would be the subject on which I would write. However, you would be wrong.
I have spent a good deal of time with the transportation departments of various manufacturing organizations. More specifically I spent this time with the people who manage and operate the rail segment of that cost center. Most of my peers think that there is something very strange about me (and they are probably correct.) I like working with the rail folks on improving their effectiveness in managing their fleets, through such mundane efforts as increasing the number of turns a car does, decreasing customer hold times, or using their rail personnel more effectively in their yards. Of course, we through some computers and software at those problems as well, just so that I can keep up my reputation as a “systems consultant.”
The manufacturing process has moved ever closer to being totally dependent on JIT delivery. Inventories are so lean that event the smallest unplanned or unaccounted for hiccup in the delivery process would bring those companies to their knees and halt their production lines. September 11, 2001 provided just such a hiccup.
I see one of the great changes in our business philosophy to be 180 degrees from this point. I believe that our country and our industries need to focus on making the delivery path of goods and services more robust in order to avoid such an occurrence in the future. Equally, I believe that they will rely less on the just-in-time delivery philosophy that has dominated our manufacturing efforts and look at a modified local stocking approach that insures the needed resources and components are available for a given period. I see them needing to rely on modes of transportation that already have their infrastructures built and which are capable of delivering repeatable, reliable, on-time service to their customers.
Rail was the great equalizer in the 19th and early 20th centuries. Those who developed it, standardized it, and used it, brought prosperity to themselves and to most other Americans. But for years we have let the greatest weapon in our arsenal of economic development of this country sit ideal while we developed less reliable, but possible more flexible methods of delivering goods.
It seems inevitable that we must once again turn our attention, as a nation, to expanding and utilizing our rail infrastructure for the betterment of our people and our nation. We can move more goods, more reliably, and at a cheaper cost than any other mechanism or method. We desperately need to overcome the lethargy of our government and regulatory agencies, and once again make rail the arteries and veins of our national transportation system.
About the Author
"From the Core..." is written by Paul Nielsen as an "Op Ed" column for TORNIEL Technologies International, Inc. This column attempts to provide insight to senior IT and business executives regarding issues, trends, and practices that currently affect the business and technology communities.
Paul Nielsen has been in the Information Technology field for more than 30 years. He provides consulting and technical services to a wide variety of organization, from Petrochemical and Computer manufactures to Rail and Truck transportation companies. He is a published Methodologist (The INSIGHT Development FrameWork) and a longtime project manager. He has started and managed three companies and is an effective business executive. Paul grew up in the Data Processing/IT arena as a programmer/analyst and has never lost the interest in programming or its relationship to successful projects. He currently functions as a high-level project manager and external CIO to many of TORNIEL's clients. He graduated from NCAS were he earned a Masters Degree in Computer Science.
Why deal with small consulting firms?
Big vs. small: The real difference among consulting firms
Mar 2, 2001
"My son, who's a lawyer, says I shouldn't put 'consultant' on my business card because people don't know what they do."
The passenger in front of me sheepishly admitted this as we swapped stories and cards on the morning train into Chicago. He was paunchy to the point of portly, a bit on the balding side, and carrying a bulging leather briefcase that caused a slight list when he walked.
In other words, he really was a consultant.
The popular belief is that 99 percent of all management consultants are freshly scrubbed 20-somethings with crisp MBAs and staggering IQs. For the 20 or so major worldwide consulting firms, such is the case. In fact, McKinsey & Company
, the world's best-known firm, likes to offer up an additional array of Ph.D.s, nuclear engineers, and world-class economists.
As measured in sheer numbers, it's true that a sizable portion of the consulting world is populated by those stereotypes. Each year, roughly 30 percent of all graduating M.B.A.s at U.S. business schools are sucked into the 50 or so largest consulting firms. The math is simple: These 50 largest firms-which collectively have more than 200,000 consultants-average about 15 percent annual turnover. That amounts to about 30,000 new bodies a year needed to feed the big consulting machines.
In reality, you're more likely to run into a "single shingle" than a big firm rep. Is there a difference? Beyond the size issue, solos do provide a distinct outlook. A solo consultant's "product" is his or her expertise. There is no hiding behind the brand name of a larger firm. And unlike the perceived arrogance associated with upper-echelon consulting firms, good solos rarely confuse confidence with ego.
Let's face it: Most consultants who flee big firms to start their own practice possess an obsessive desire to serve their clients. The pressure to sell services at larger firms turns 180 degrees when these folks strike out on their own, usually to the point where solos view their involvement as partnerships rather than engagements.
The knock against solo consultants and smaller consulting firms is they lack the sophistication of big, global operations. True, they're not the first call you make when talking about a major systems implementation project. But don't automatically dismiss the little guy or lady. You might be surprised at the results.
Heard on the street
Inforte, the Chicago-based e-firm that Michael Porter has taken under his wing, was the only company amongst all the pure-plays to hit all four quarterly estimates last year. That's quite a feat, considering the poor showing from the rest of that segment.
About the author
is written by Tom Rodenhauser as a free weekly supplement to The Rodenhauser Report
. The report informs senior advisors and business executives of consulting trends and best practices. Subscription cost is $295 per year for 10 issues. Copyright 2001, Consulting Information Services, LLC. Reproduction is prohibited. Quotation with attribution is encouraged.
Tom Rodenhauser is a leading commentator on management consulting and e-consulting services. He publishes The Rodenhauser Report, a monthly electronic briefing service that analyzes trends in e-consulting and management consulting. He also conducts custom research on topics affecting buyers and sellers of consulting services. Tom is a frequent guest speaker and presenter to professional service firms and other groups on best consulting practices. He also participates in a variety of consulting and recruiting panel discussions. His analysis and commentary on management advisory services is quoted in such major business media as The Wall Street Journal, Business Week, The New York Times, Fortune, Fast Company, Industry Week, Knight-Ridder News Services, and CNBC-TV. Tom is a graduate of Ohio State University, where he earned a B.A. in journalism.
Plug the Inventory Drain
Too much inventory. Not enough inventory. Either one can rob your business of profits because inventory is a silent, hidden drain on your bottom line.
By Rick Lavely
Inventory is money on the shelf. The typical auto repair shop carries $10,000 to $20,000 worth of inventory, and 30% of that inventory is dead. Businesses in other industries range even higher. Yet rarely do they monitor or control inventory properly.
Without proper controls, overstocking creeps up gradually. So at some point, many small businesses end up with a large inventory investment on which they pay taxes.
Two calculations are often overlooked when determining inventory profitability. The first is cost-to-order; the second is cost-to-keep. The factors involved in cost-to-order are time and money: time to calculate order quantities, to do paperwork, to receive orders, stock them, correct errors and then track them, and money to pay someone to do it all.
If you aim for a 45% profit margin and base the selling price solely on what you paid for the product, an item costing you $100 would sell for $182. The formula is selling price equals cost of goods (in this case, $100) divided by the result of 1.00 minus the margin (.45 in this example). But when figuring your selling price, you should also consider the cost-to-order. If your cost-to-order is $10, but your selling price remains the same, you would lose $18, because on a 45% margin, a $110 product should gross $200.
Cost-to-keep covers what it costs to keep inventory as well as how much return on investment you could get on that amount if it weren't on the shelf. Also factor in cost-of-obsolescence. For example, if it costs you 10% to keep something on the shelf, taking a 5% quantity discount will actually mean a loss of 5%.
Five Steps to Improve Inventory Control
Just-in-time inventory allows you to gain control over those assets on the shelf. Order on a regular basis and purchase only when you need to replenish what has been sold since the last order. You must have short inventory order cycles and accurate tracking to determine what and how much inventory to stock.
The following five steps can help you improve your inventory control and your bottom line.
Determine what represents "dead" inventory in your business by evaluating inventory turns. Turns equal cost of goods sold (COGS) divided by inventory value. Calculate COGS on your inventory as a whole, then recalculate for specific categories. Your computer system or your bookkeeper should be able to provide accurate purchase data by line.
Turn dust into dollars. Get rid of what's not moving. Do a physical inventory at least once a year, and return everything that hasn't been sold. Multiply your gross profit percent by what you can recover on returns, say 50 cents on the dollar, to determine the amount of reinvestment capital available to you. Don't get trapped by thinking about what you paid for it versus what you can get for it now.
Analyze your business profile to determine what and how much to stock. Do you consider seasonal items? Do you utilize replenishment ordering, or do you order to stock levels? If you use the latter, who determines the stock levels? Determining what to stock and how much is similar to determining your dead inventory. Your computer program should be able to tell you what is selling and which items produce the greatest gross profits.
Monitor sales for profitability. High sales volume doesn't necessarily equate to high profitability. If the gross profit percent is low on a given item, sales have to be high. But, if gross profit percent is high, you can get away with selling fewer of those items. Unload everything that isn't profitable. Gross profit per line item is one measure. How much it costs to wait for more products is another. Most of this information is available from your computer program or your bookkeeper.
Buy smart. In addition to prices and quality of the actual products, it's also important to evaluate what services you can get from your supplier. What are their return policies? What percent can be sent back "no questions asked"? Will they clean up your inventory? How often? Many of these important issues are overlooked when choosing a supplier.
View your inventory as you would a capital investment. If the return is not there, don't make the investment.
Formerly a small business owner, Rick Lavely has traveled the United States as a corporate trainer. He has presented business management workshops and seminars to small business owners for organizations such as the Automotive Service Association.
Bar Coding Technology
What's out there for our use?
Wands - These are pen-shaped devices which the user moves across the barcode, at all times maintaining direct contact with the media, and therefore are used in low volume applications. They are exceptionally rugged and consume minimal power, which also makes them a good choice for input to portable terminals and laptops. Wands can read most every barcode, even high density ones, and are generally the lowest cost scanner.
CCD- These are gun-shaped scanners, all solid state with no moving parts, originally used for near contact reading. However, technological advances have given us CCDs that can read out to 6 inches, making them a superior choice for many retail and industrial applications, due to their ruggedness and modest cost. CCDs readily handle hi-volume-scanning applications. Generally designed as a handheld unit, they can also be used hands-free in a self-triggered mode by addition of a stand.
Lasers - These have been the mainstay of the hi-volume scanning industry. They are ideal choices for scanning very high-density barcodes, long barcodes, and those applications requiring reading at a distance. Laser scanners can read codes down to 3 mil barwidth. Versions to read out to 30 feet are available. They are the most versatile of scanners. Some are omnidirectional, eliminating the need for the user to orient the barcode perpendicular to the scanning beam.
What's right for you? Let us look at your needs and requirements.
History and Background…
In the past decade the business environment has changed dramatically. The world has become a small and very dynamic marketplace. Organizations today confront new markets, new competition and increasing customer expectations. This has put a tremendous demand on manufacturers to;
1) Lower total costs in the complete supply chain
2) Shorten throughput times
3) Reduce stock to a minimum
4) Enlarge product assortment
5) Improve Product quality
6) Provide more reliable delivery dates and higher service to the customer
7) Efficiently coordinate global demand, supply and production.
Thus today's organization have to constantly re-engineer their business practices and procedures to be more and more responsive to customers and competition. In the 1990's Information technology and Business Process re-engineering, used in conjunction with each other, have emerged as important tools which give organizations the leading edge.
ERP Systems - Evolution
The focus of manufacturing systems in the 1960's was on Inventory control. Most of the software packages then (usually customized) were designed to handle inventory based on traditional inventory concepts. In the 1970's the focus shifted to MRP (Material Requirement Planning) systems which translated the Master Schedule built for the end items into time-phased net requirements for the sub-assemblies, components and raw materials planning and procurement.
In the 1980's the concept of MRP-II (Manufacturing Resources Planning) evolved which was an extension of MRP to shop floor and Distribution management activities. In the early 1990's, MRP-II was further extended to cover areas like Engineering, Finance, Human Resources, Projects Management etc. i.e. the complete gamut of activities within any business enterprise. Hence, the term ERP (Enterprise Resource Planning) was coined.
In addition to system requirements, ERP addresses technology aspects like client/server distributed architecture, RDBMS, object oriented programming etc. ERP Systems - Bandwidth ERP solutions address broad areas within any business like Manufacturing, Distribution, Finance, Project Management. Service and Maintenance, Transportation etc. A seamless integration is essential to provide visibility and consistency across the enterprise.
An ERP system should be sufficiently versatile to support different manufacturing environments like make-to-stock, assemble-to-order and engineer-to-order. The customer order decoupling point (CODP) should be flexible enough to allow the coexistence of these manufacturing environments within the same system. A typical example here could be Godrej & Boyce Mfg.Co., which has businesses spread over all these manufacturing environments. It is also very likely that the same product may migrate from one manufacturing environment to another during its produce life cycle.
The system should be complete enough to support both Discrete as well as Process manufacturing scenario's. The efficiency of an enterprise depends on the quick flow of information across the complete supply chain i.e. from the customer to manufacturers to supplier. This places demands on the ERP system to have rich functionality across all areas like sales, accounts receivable, engineering, planning, Inventory Management, Production, Purchase, accounts payable, quality management, production, distribution planning and external transportation. EDI (Electronic Data Interchange) is an important tool in speeding up communications with trading partners.
More and more companies are becoming global and focusing on downsizing and decentralizing their business. ABB and Northern Telecom are examples of companies which have business spread around the globe. For these companies to manage their business efficiently, ERP systems need to have extensive multi-site management capabilities. The complete financial accounting and management accounting requirements of the organization should be addressed. It is necessary to have centralized or decentralized accounting functions with complete flexibility to consolidate corporate information.
For companies undertaking large scale and complex EPC projects, tools should be available for cost-effective project management, project planning and project control. After-sales service should be streamlined and managed efficiently. A strong EIS (Enterprise Information System) with extensive drill down capabilities should be available for the top management to get a birds eye view of the health of their organization and help them to analyze performance in key areas.
ERP Systems -- Implementation
The success of an ERP solution depends on how quick the benefits can be reaped from it. This necessitates rapid implementations which lead to shortened Return on Investment (ROI) periods. Traditional approach to implementation has been to carry out a Business Process Re-engineering exercise and define a ``TO BE'' model before the ERP system implementation. This led to mismatches between the proposed model and the ERP functionality, the consequence of which is customizations, extended implementation time frames, higher costs and loss of user confidence.
Let us help you with your ERP, Supply Chain Management, Transportation Management, and Rail Management system needs!