• Complete, covering all the tasks through the end of phase II (supply chain integration). • In sufficient detail to manage the project effectively, but not so weighty it overwhelms the people using it. For an average-sized company or business unit, a project schedule with between 300 and 600 tasks could serve as an effective project management tool. • Specific in assigning accountability. It should name names, not merely job titles and/or departments. Creating the project schedule. There needs to be widespread buy-in to the project schedule, or it’ll be just another piece of paper. It fol- lows, then, that the people who develop the project schedule need to be the same people who’ll be held accountable for sticking to it. They’re primarily the department managers, and they’re on the proj- ect team. The project leader can help the department heads and other proj- ect team members develop the project schedule. He or she cannot, however, do it for them or dictate to them what will be done and when. Here’s one good way to approach it: 1. The project leader creates a first-cut schedule, containing some of those 300 to 600 tasks we just mentioned, plus major milestones. More on this in a moment. 2. This first-cut schedule is given to the project team members for their review and adjustment, as needed. During this pro- cess, they may wish to consult with their bosses, most of whom are on the executive steering committee. 3. The project team finalizes the project schedule. 4. The project leader presents the schedule to the executive steer- ing committee for approval. A process such as this helps to generate consensus, commitment, and willingness to work hard to hit the schedule. For a brief example of how a detailed project might look, please see Appendix C. Process Definition 183 M AINTAINING THE P ROJECT S CHEDULE Chris Gray has what we feel is an excellent approach to this task: “The potential problem is that with a 12–18 month project, you can’t anticipate all the things that have to be done to hit the major mile- stones. What I tell my clients is that they should lay out the initial project schedule at the beginning of the project focusing on major milestones and the ‘typical’ 300 to 600 activities to support them. In the near term—90 days—they need to have lots of detail, while be- yond that it may be more sketchy. As part of project management, it’s essential that the ‘near term’ project plan be continually reviewed as time moves forward. The project team shouldn’t see the project plan as cast in concrete (except the major milestones)—tasks should be added and changed as more information is available and as designs are fleshed out in other processes (initial education, task teamwork, etc.). The 90-day detailed schedule should be regenerated every 60 days or so.” M ANAGING THE S CHEDULE —A S CENARIO Consider the following case. This is a typical example of what could occur in practically any company implementing ERP using the Proven Path. The project leader (PL) is talking to the manufacturing engineering manager (ME), possibly in a project team meeting. PL: “Mort, we’ve got a problem. Your department is three weeks late on the ERP project schedule, specifically routing accuracy.” ME: “I know we are, Pat, and I really don’t know what to do about it. We’ve got all that new equipment back in department 15, and all of my people are tied up on that project.” [Authors’ comment: This is possibly a case of conflict between pri- ority number two—implement ERP, and priority number one—run the business.] PL: “Can I help?” ME: “Thanks, Pat, but I don’t think so. I’ll have to talk to my boss. What’s the impact of us being behind?” PL: “With this one, we’re on the critical path for plant scheduling. 184 ERP: M I H Each week late means a one-week delay in the overall implementa- tion of ERP.” ME: “Ouch, that smarts. When’s the next steering committee meet- ing?” [Author’s comment: Mort knows that Pat and the other members of the executive steering committee will be meeting shortly to review performance to the project schedule.] PL: “Next Tuesday.” ME: “Okay. I’ll get back to you.” PL: “Fine. Remember, if I can help in any way ” At this point, from the project leader’s point of view, the matter is well on the way to resolution. Here’s why: Mort, the manufacturing engineering manager, knows his depart- ment’s schedule slippage will be reported at the executive steering committee meeting. (Pat, the project leader, has no choice but to report it; that’s part of her job.) Mort knows that his boss, the VP of manufacturing, will be in that meeting along with his boss’s boss, the general manager. Mort knows his boss doesn’t like surprises of this type (who does?). Unless Mort likes to play Russian roulette with his career, he’ll get together with his boss prior to the steering committee meeting. When they meet, they’ll discuss how to get back on schedule, iden- tifying alternatives, costs, and so on. They may be able to solve the problem themselves. On the other hand, the only possible solution may be expensive and thus, may require higher-level approval. In that case, the executive steering committee would be the appropriate forum. Or, worst case, there may be no feasible solution at all. That’s when it becomes bullet-biting time for the steering committee. That group, and only that group, can authorize a rescheduling of the ERP proj- ect. One last point before leaving Pat and Mort. Note the project Process Definition 185 leader’s approach: “We have a problem,” “Can I help?”, “We’re on the critical path.” One of Robert Townsend’s comments on managers in general certainly applies to ERP project leaders—a large part of their job is to facilitate, to carry the water bucket i for the folks doing the work. P OLICIES A few key policy statements are required for the successful operation of Enterprise Resource Planning. Five bedrock policies are the ones that address Sales & Operations Planning (discussed in Chapter 8), demand management, master scheduling, material planning, and engineering change. The demand management policy focuses on the role of the de- mand manager and other key sales and marketing department people, their communications requirements to and from the master scheduler, ground rules for forecasting and promising customer or- ders, and performance measurements. The master scheduling policy needs to define the roles of the mas- ter scheduler, time fences, who’s authorized to change the schedule in time zones, allowable safety stock and/or hedges, feedback re- quirements, performance measurements, the fact that the master schedule must match the production plan and must fit within capac- ity constraints, and others as appropriate. The material planning policy focuses on guidelines for allowable order quantities, use of safety stock and safety time, where to use scrap and shrinkage factors, ground rules for lead time compression, feedback required from purchasing and plant, feedback to master scheduler, performance measurements, and so on. The engineering change policy should define the various cate- gories of engineering change. Further, for each category, it needs to spell out who’s responsible for initiating changes, for establishing ef- fectivity dates, and for implementing and monitoring the changes. Also included here should be guidelines on new product introduc- tion, communications between engineering and planning, perform- ance measurements, and the like. These four, along with the Sales & Operations Planning policy, are the basic policies that most companies need to operate ERP effec- tively, but others may be required for specific situations. Developing 186 ERP: M I H these policies is essential in the implementation process. The Oliver Wight ABCD Checklist is an excellent source for points to be in- cluded in these policies. This is another case where both the project team and executive steering committee need to be involved. The proj- ect team should: 1. Identify the required policies. 2. Create spin-off task forces to develop them. 3. Revise/approve the draft policies. 4. Forward the approved drafts to the executive steering com- mittee. The steering committee revises/approves the draft policy and the general manager signs it, to go into effect on a given date. A warning! Make certain the policy does go into effect and is used to run the business. Don’t make the mistake of generating pieces of paper with signatures on them (policy statements), claim they’re in effect, but continue to run the business the same old way. 1 Also, as you create these policies and use them, don’t feel they’re carved in granite. Be prepared to fine-tune the policies as you gain experience. You’ll be getting better and better, and your policies will need to reflect this. D EFINING AND I MPLEMENTING F INANCE AND A CCOUNTING P ROCESSES Mike Landrigan is the CFO at Innotek Inc. in Ft. Wayne, Indiana. Mike has Class A experience in with a prior employer, so he knows what this ERP stuff is all about. Here’s Mike: “Accounting and Fi- Process Definition 187 1 Sometimes it’s not possible to put all elements of the new policy into effect be- fore the related new planning tool has been implemented. (Example: Perhaps mas- ter scheduling has not been implemented yet on all the products. Therefore the demand management and master scheduling policies can’t be applied 100 percent to those products until they’re added into master scheduling.) In these cases, the poli- cies should spell out which pieces of it are effective at what times. As the new plan- ning tools are implemented, the policy can be modified to remove these interim timing references. nance personnel should be some of the biggest supporters of the ERP/ES implementation. This process makes their jobs easier. Us- ing the S&OP process, you can tie financial implications to the fore- casts and determine where the organization should be headed financially for the period, year, or even longer This information can be used to insure that you meet bank forecasts, growth forecasts, and increase the value of the organization. For most firms, if you can hit the estimate for sales, the departmental budgets generally fall in line so that profit goals are met. Use this process to plan for profits, growth, or to manage through difficult periods.” In the heading at the start of this section, please note the words and Implementing. For many companies, it’s easier to implement the ac- counting applications than those for resource planning. This is be- cause less time is typically required for process definition and also because the implementation path is more straightforward. (Note: the section that follows applies primarily to companies doing a com- bined ERP/ES implementation. Most companies that have already installed an ES have already upgraded their finance and accounting processes.) The reasons for this are based on the relative immaturity of effec- tive formal resource planning and scheduling processes versus the high degree of maturity on the finance and accounting side. Now we’re not saying that accounting people act like grown-ups and oper- ational folks act like kids (although some finance people we’ve known over the years seemed to feel that way). What we’re talking about here is the body of knowledge in these two different areas of activity. The accounting body of knowledge is defined, mature, and insti- tutionalized. It all started some hundreds of years ago when some very bright Italian guy developed double-entry bookkeeping. Over the centuries, this fundamental set of techniques evolved into a de- fined body of knowledge, which in the U.S. we call “Generally Ac- cepted Accounting Principles” (GAAP). It’s institutionalized to the extent that it carries with it the force of law; CFOs who don’t do their jobs accordance with GAAP not only might get fired, they could wind up in the slammer. On the other hand, truly effective tools for resource planning, scheduling, and control didn’t start to evolve until the 1960s with the advent of Material Requirements Planning. MRP is to ERP as 188 ERP: M I H TEAMFLY Team-Fly ® double-entry bookkeeping is to GAAP; they’re both basic sets of techniques that work. Double-entry booking, used properly, enables people to accurately answer questions such as: “What do we own and what do we owe?” (what’s left over is called net worth), and “What have we been selling and what was that cost?” (what’s left over is called net profit, hopefully). These are fundamental questions that must be an- swered validly. Resource planning, used properly, enables people to properly answer questions such as: “What materials will we need and when will we need them?”, “When can we ship these customer orders?”, and “When will we need to add plant capacity?” These are fundamen- tal questions that must also be answered validly. So why is accounting mature and resource planning immature? Two reasons: Accounting has been around a lot longer—about four centuries ver- sus four decades for resource planning. GAAP has had much longer to get “settled in”: defined, codified, and institutionalized. Accounting deals with facts, with what has happened. It’s primarily historical. When things happen, we record them. On the other hand, resource planning deals with the future—“when will we need this and that, when can we ship, when should we expand?” The future, unlike the past, is subject to change. Therefore, the plans within resource planning need to be updated, recalculated, and refreshed routinely to cope with changing conditions. This latter point helps to explain why MRP didn’t arise until the 1960s—it had to wait on the digital computer. Accounting can be done manually; it has been for years. Resource planning that works can’t be done manually except in the simplest of businesses; it re- quires a computer. Specifically, the reasons why most companies will have an easier time implementing the accounting tools are: 1. The magnitude of the changes is often much less. As we said, current accounting processes work. Often, much of what’s involved is moving the accounting applications from their legacy software to the new Enterprise System. Are changes involved in this? Certainly. Process Definition 189 This implementation provides an ideal time to do a number of accounting-oriented activities better, faster, and cheaper. Almost al- ways, the legacy accounting system has cumbersome pieces that people are very eager to eliminate. The ability to handle consoli- dations far more easily is, for many companies, a significant benefit, and so is closing the books more quickly, with less heavy lifting. But these are not core changes to the fundamental logic of the processes. 2. Finance and accounting processes tend to be more stable and straightforward, as we just said, because they deal with facts. Since current accounting processes work, then new accounting processes can be implemented in parallel. The essence of a parallel implemen- tation is to compare the output from the new system to the old and, when the new system is giving consistently correct results, drop the old. As we’ll see in Chapters 11 and 12, the parallel approach is not practical for planning and scheduling because, for most companies, their current processes here simply don’t work. Parallel implementa- tions generally are easier than the alternatives. All of this adds up to good news for you folks on the financial side of the business. You’ll have a good deal of work to do on this imple- mentation, no doubt about it, but it won’t be quite as challenging for you as for the people on the operational side. Finance and accounting people have an important role to play whether you’re implementation is ERP/ES or ERP only. In addition to implementing their own new processes, they have roles to play on the ERP steering committee, the project team, and spin-off task forces. They will need to devote some time to getting educated on ERP, via the series of business meetings we referenced in Chapter 7. It’s necessary for them to understand the logical structure of ERP, the benefits to be achieved from running the business with only one set of numbers, and the competitive advantage that highly effective ERP can provide. T IMING The question arises: in a combined ERP/ES implementation, when should the new finance and accounting systems be implemented? Well, the answer here is “it depends.” Let’s first look at the broad choices: 190 ERP: M I H • Implement all or most of the new financial and accounting sys- tems prior to beginning implementation of the new planning and scheduling processes. • Implement the new planning and scheduling processes first and have the accounting side follow. • Implement the new financial and accounting systems simulta- neously with those for planning and scheduling. There are some downsides to each of these options. The first choice, implementing accounting first, will delay the planning and schedul- ing implementation and hence the benefits. One more time: being able to close the books better, faster, and cheaper can be quite help- ful but it does not generate substantial competitive advantage. What can generate substantial competitive advantage is the ability to ship on time virtually all the time, using minimum inventories, and mak- ing possible maximum productivity at the company’s plants and those of its suppliers. Because most of the benefits from ERP come from these areas, and because the cost of a one-month delay can be quite large, this approach can be expensive. The second alternative—do planning and scheduling first— solves that problem. However it can be cumbersome, because it means that for a time the legacy accounting systems will be fed by the new ERP transactions. These legacy systems will need to be modi- fied, or temporary software bridges be built, to make this possible. (Of course, the reverse of this problem applies to the first choice: The legacy planning and scheduling systems will need to feed the new ERP accounting systems.) The third option, implementing all of these new tools simulta- neously, can be a very attractive way to go. It may, however, create a workload problem—perhaps too much of a load on the information systems resource and also possibly giving the project team more to manage than they’re able to cope with. This third option is the most attractive to us, if—and it’s a big “if”—the resources can handle it. It’s the fastest and the best way to go. On the other hand, if resources are a problem, then your question is which one to do first. A few years ago, around the turn of the mil- lennium, most companies implemented the accounting side first. Why? Y2K. That’s gone away, so we expect more companies to Process Definition 191 choose the second alternative—do planning and scheduling first. At the end of the day, however, the company must have bulletproof processes for finance and accounting. If that means implementing those applications first, so be it. Figure 9-3 summarizes the decision process. N OTE i Robert Townsend, Up the Organization (New York: Alfred A. Knopf, 1978), p. 11. Q & A WITH THE A UTHORS M IKE : Did you ever get a “push-back” from people about this process definition step, saying they don’t need to do this because they already know their processes? T OM : Yes, and my response is no one really knows what they don’t know. It’s essential to get your heads into process definition because this establishes the specifics of how you’re going to run the business in the future. At the risk of getting a bit “preachy” here, I’ll say that there is a responsibility and a trust placed in the people doing this: They owe their very best efforts to all the company’s stakeholders—fellow employees, stockholders, cus- tomers, suppliers, and the community. 192 ERP: M I H Figure 9-3 Decision: to implement the new finance/accounting systems before, after, or simultaneously with the new resource planning processes. Are resources available to do them simultaneously? If yes, do that. If no, is there a compelling reason to implement finance/accounting first? If yes, do that. If no, do resource planning first. [...]... the stockroom This isn’t because they think the stockroom’s a great place to be They’re in the stockroom trying to get components, to make the product, so they can ship it It’s called expediting, and they do it in self-defense If, one fine morning, these people come to work to find the warehouses and stockrooms fenced and locked, the results can be devastating They’ve lost the only means by which they’ve... putting them into the computer What happens to inventory accuracy? It drops What happens to accountability? There’s not much left What happens to the morale of the people in the stockroom? It s gone it just flew out the open gates Avoid taking annual physical inventories once the records are at least 95 percent accurate Most major accounting firms won’t insist on them They will want to do a spot audit of... all the on-hand balance numbers inside the computer should match what is physically on the shelf inside the stockroom, within the counting tolerance Don’t go to the pilot and cutover steps without it There are a few more things to consider about counting tolerances The method of handling and counting an item is only one criterion for using counting tolerances Others include: 1 The value of an item... stoppers; therefore, they may have lower tolerances The cost of control obviously should not exceed the cost of inaccuracies The bottom line is the validity of the material plan The range of tolerances employed should reflect their impact on the company’s ability to produce and ship on time Our experience shows Data Integrity 199 Class A users employ tolerances ranging from 0 percent to 5 percent, with. .. plus or minus 2 percent Item Data Item data refers to the planning factors necessary for the planning and scheduling tools of master scheduling and MRP Most of it is static and is stored in the computer’s item master file It includes things like lead times, order quantities, safety stock/time, shrinkage factors, scrap or yield factors (stored in the bill of material) Getting the item data collected and... orders, to make the product, to buy the material the less vulnerable a company is to forecast error Consequently, the company is better able to ship what the customers want, when they want it And isn’t that what it s all about? 3 The ability to forecast at a higher level A growing number of companies have found it really isn’t necessary to do lots of forecasting at the individual item or stockkeeping unit... service—service to the production floor, service to the shipping department, and ultimately service to the customers In a company implementing ERP, priority number one is to run the business; priority number two is implementation Therefore, in the stockrooms and warehouses, priority one is service and priority two is getting the inventory records accurate (Priority number two is necessary, of course, to do a... and MRP The test is: Is this item a shipment stopper? If the unit in question is truly a standard item (nuts, bolts, paint, rivets, solder) that you can get off the shelf from the supply house down the street, then it s not a shipment stopper Otherwise, it probably is Therefore, all the shipment stoppers must be in the bills before you go live However, don’t delay the implementation to get all the non-shipment-stoppers... system It s got to be easy to compare the cycle count to the book record, easy to reconcile discrepancies, and easy to make the adjustment after the error has been confirmed 204 ERP: M I H Most good cycle counting systems require a confirming recount If the first count is outside the tolerance, that merely indicates the probability of an error A recount is necessary to confirm the error With highly... it because they scrapped some or because they didn’t get them in the first place? If the latter is the case, there may be a bill error that caused the picking list to be generated incorrectly Data Integrity 209 If parts are returned to stock after the assembly of a product, perhaps they shouldn’t have gone out to the plant floor in the first place Again, the picking list may have been wrong because the . and institutionalized. Accounting deals with facts, with what has happened. It s primarily historical. When things happen, we record them. On the other hand, resource planning deals with the future—“when. giving the project team more to manage than they’re able to cope with. This third option is the most attractive to us, if—and it s a big “if” the resources can handle it. It s the fastest and the. of time in the stockroom. This isn’t because they think the stockroom’s a great place to be. They’re in the stockroom trying to get compo- nents, to make the product, so they can ship it. It s called