LGT's Profit Sense
How did it all start, and where is it now?
World War II was coming to an end, people in the US began to revolutionize the business world by attempting to use the calculating machines for business entities in the late 1940s.
But, it wasn’t until the 1960s and 1970s that the breakthrough occurred, and the first form of enterprise resource planning (ERP), called materials requirements planning (MRP), surprised all business industries by helping plan raw materials required for productions, purchasing of goods, and delivery of finished goods. MRP evolved into its second phase, MRP II, which focused more on the integration of various comprehensive aspects such as production process, finance, and human resources.
It was not until 1990s that the term enterprise resource planning or ERP was coined by The Gartner Group. It would then revolutionize the business world with its all integrated business functions into one suite of software application.
For many manufacturing companies in the late 1990s and early 2000s, the implementation of an ERP system promised greater efficiency and effectiveness for their operations under a single-solution business system. Many managers hoped to achieve what the highly-respected management consultant, author, and educator Peter Drucker characterized as the “one management” concept for production.
One management can be described as the process of achieving organizational optimum by integrating manufacturing processes, human resources, financial planning, and many other functions into one centralized application, with the goal being efficiency.
As ERP grew in popularity in the late 1990s and the turn of the century and it became evident that its benefits could only be achieved by those manufacturers that could afford the high cost of sophisticated software as well as implementing successful change management within their organizations.
When the implementation of several large-scale SAP (Systems, Applications & Products created in 1972) and Oracle systems began in the ERP space in 1987 and fell short of success, companies realized that their management teams often misunderstood the risks associated with large-scale business change.
Business continuity was believed to be the top risk to achieving a successful ERP implementation project. However, the failure to effectively manage organizational change was more often the case.
Today’s manufacturers now can choose from a wide assortment of modern business systems that offer a range of targeted software that caters to their industry-specific needs.
Properly implemented, modern business systems provide a consistent and reliable means of transacting business in the manner prescribed by the company’s management. These systems can significantly improve production efficiencies and decision-making capabilities, and they achieve the goal of the “one management” paradigm, which Drucker advocated.
Advantages of Integrated Business Systems
Modern business systems offer a modular approach to ERP and are built using common software frameworks that provide a high degree of interoperability among associated systems. Companies of all sizes have embraced highly modular, cloud-based platforms with variably priced software licensing models such as Acumatica, NetSuite, and Salesforce.
The proliferation of modern business systems and industry specialization has been spurred by web-based innovation forged by technology leaders such as Facebook, Google, and Microsoft. These companies made their toolsets freely available to the open-source community, and many business system software publishers rebuilt the front end of their platforms using these new, highly flexible software development frameworks and available software libraries.
With today’s integrated business systems, manufacturers can increase efficiency across the value chain, improve their organization’s ability to quickly pivot in response to changing business conditions, achieve better coordination between operations and sales functions, produce higher quality products, and most importantly, exceed customer expectations.
With the integrated business systems, businesses can be expanded to new locations, and the additional revenue streams are accomplished at a much quicker pace due to the unified order and the accounting management.
Based on this, companies can up-sell and cross-sell efficiently to existing customers because of improved visibility. IT time and expenses will also be mitigated through a centralized application.
These systems also can enable a company to implement synergistic incentive compensation plans tied to key performance indicators (KPIs) across company functions.
Winning Organizations Adapt to Gain Substantial Benefit
Some smaller and mid-size companies still struggle with effectively implementing integrated business systems. Most often, the cause is not the technology but due to management’s failure to learn from the past. Many of these manufacturers are still using outdated applications or unsupported customized systems to manage their businesses. Their reluctance to invest in new business systems severely limits their ability to improve operations and address future concerns.
Some management teams fail to adapt and gain the benefits of integrated business systems because they do not view technology as a core element in their strategic planning process.
They may operate in a “business as usual” model built on a loyal customer base with little consideration for margin compression over time and customer-centric product innovation.
Manufacturing companies must use the best technology and tools available to compete effectively in today’s global, integrated, and hyper-competitive business environment. By committing to a modern business system and the industry best practices it is designed to support, manufacturing companies can position themselves for success and market leadership.