LNS Research Principal Analyst Dan Miklovic continues his posts on the Digital Transformation with this follow up on Operational Excellence.
When the concept of enterprise resource planning (ERP) was introduced in the 1990’s, it was the beginning of a shift in the enterprise applications landscape from point solutions to an integrated suite model of functionality delivery. Now, the ERP market is changing once again with the Industrial Internet of Things (IIoT), Cloud, and Big Data.
Prior to ERP applications the most prevalent model for business software was discrete applications, even to the point that many firms had distinct applications for accounts payable versus accounts receivable and general ledger. Not only did ERP embrace a consolidated financial accounting approach, it integrated the functionality associated with manufacturing resource planning (MRP II) into the fold.
In the 25+ years since the introduction of ERP additional functionality associated with supply chain management (SCM), product lifecycle management (PLM), and various sales and marketing functions have been incorporated into almost all ERP solutions. The promise was that a single integrated suite would facilitate seamless information flow and help businesses optimize their manufacturing and production processes. Yet, historically, the success of ERP has not been all that most envisioned. Functionality specific to some manufacturing or production processes has not been adequate; implementation time has often been lengthy and costs higher than anticipated while returns have been lower than expected. Once primarily a mainframe solution, client-server technology caused a major shift in the market and now the advent of the IIoT, Cloud, and Big Data is changing the ERP market once again. Will the new technologies finally allow ERP to deliver on the promise of optimized business performance?
ERP’s Legacy Is Its Greatest Obstacle
Since ERP systems originated with the combination of financial accounting and resource-planning, most often, the sponsor of an ERP project was the CFO, which often supervised the CIO as well. Hence ERP was thought of as an accounting application run by IT in many businesses. This lack of, or begrudging support by operations was characterized by a “what’s in it for me” attitude. Since ERP applications do not abrogate the GIGO (Garbage In=Garbage Out) principle, the other problem with many ERP implementations is that they did not actually improve operations since the information they were operating on was either inaccurate or untimely or in the worst case, both. The axiom is that if you automate a bad process you just “do bad faster” has plagued some ERP implementations. This is not to fault the ERP providers, rather it is a criticism of those that deployed ERP without re-engineering their business processes to drive Operational Excellence.
Operational Excellence Defined By People, Process & Technology
LNS Research’s Digital Transformation Framework is based upon the principle that a company needs to pursue operational excellence on three fronts. Processes must be engineered to drive optimal performance using appropriate and the best, economically realistic technology available. Only then can people deliver optimal results if properly motivated and equipped. Part of the challenge with earlier generations of ERP solutions is bringing these three elements into balance while driving real process change on the plant floor. Previously, manufacturing execution systems (MES) were the principle tool used by operations to control the production processes. MES solutions fit the hierarchical model that required separation of the real-time process control environment and the transactional business systems environment of ERP. When ERP systems were too difficult or expensive to deploy to the plant level and the chosen MES solution did not have adequate reporting capabilities, a two tier ERP architecture was often utilized.
On The Horizon, Cloud Technology Enables Frictionless ERP
Between the IIoT making plant data more plentiful and easier and faster to access and with smarter IIoT devices controlling the process, forward thinking companies will be able to construct a technology infrastructure; one that does away with hierarchical roadblocks that slow information movement and reduce reaction time. It will be possible to adjust production plans on the shop floor based on real time information about the current state of assets in the production stream. The idea of having to do periodic re-planning runs to account for maintenance outages or production variations due to energy management or environmental restrictions can become a thing of the past. Using the predictive analytics power of a Cloud based Big Data platform enterprises should be able to truly optimize performance.
Both suppliers and users of ERP are having to rethink how they might deploy their Operational Technology as the IT – OT lines are now truly blurred. The distinction between the two environments is rapidly dissolving and real time business computing can deliver the promise of optimized performance.