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Months later and the Millennium celebrations are just a memory - the party hats and noisemakers have been put away, the fireworks have long since faded from the sky.   There were no major system, transportation, telecommunications, or financial failures anywhere on earth.  The world survived the Y2K bug with nary a scratch – a few problems here and there, but no major supply chain or economic disruptions.    

Good planning, lots of hard work, and countless amount of money went into making Y2K a non-event.  In fact some estimates of Y2K costs range upwards to a billion dollars.   

Yet for all that, we think more Y2K effort is needed now - because we think the real cost of Y2K for many companies will not be measured in dollars spent before 1/1/2000.  The cost of Y2K for many companies will be measured in the missed benefits from installing enterprise systems without changing the way the business is managed.    

Yes, the party’s over - and it’s time to get down to the hard work of generating improved operating results from the new systems installed in 1998 and 1999.

ROLLING BACK THE CLOCK

Do you remember all those new systems installed in anticipation of Y2K?  You know the ones: the new ERP system, the customer relationship management (CRM) and sales force automation software, the “advanced planning system”, all guaranteed to get you past Y2K, and give you competitive advantage in the decades to come.  If your company is like most, you probably spent several hundred thousand to several million dollars on new system implementations.  The business press is full of stories about companies who spend $100 million to implement new software.  We know of at least one company who spent $60 million on a single pilot site.  And some of these companies are spending almost as much in re-implementation costs when their basic business processes change!   

THE SOUND OF SILENCE

So far there are precious few stories in the business press about companies generating the big benefits that will pay off the huge upfront and ongoing costs of the new systems.  And it’s not just the lack of press coverage - we aren’t yet seeing companies touting big financial results from their Y2K investments either.  We’re beginning to wonder whether we ever will.   

Sadly, we think it’s an old song, sung to a new Y2K tune.  “We spent the money on systems, but we run the business the same way”.

What’s the problem?  We think it’s simple - in a lot of cases, companies only replaced their formal systems – the ones that are on the computer, in the ISO documentation, and in books of procedures.  They didn’t eliminate the informal systems that people really use to do their jobs.  In many companies, the formal system doesn’t work - an informal system keeps shipments going out the door, and material moving through the supply chain.   

So when the new Y2K software was installed, it changed only the façade of the formal system.  No one addressed the reasons why an informal system existed to begin with, or why the old formal system didn’t work properly.  So the formal system ended up different, but it was really “business as usual” with respect to shipments and deliveries, material flows, and profitability.   

Having a formal system that doesn’t generate the results that were promised is a liability - especially for those on the firing line for keeping customers happy and profits in line with expectations.  From the perspective of shareholders and company management, it’s a double whammy – spend big bucks for a new system without ever getting improved operating results.   

We can’t do much about the money you’ve already spent.  But we can tell you how to invest intelligently so you can start getting the benefits you paid for.  Here are six specific suggestions for generating immediate and on-going results:   

1. Sales And Operations Planning

The most exciting development in resource planning in the last two decades is Sales and Operations Planning.  Sales and Operations Planning consists of vital communications and decision-making processes supported by some very simple software tools and displays.  Today, Sales and Operations Planning is a well-defined process that ensures maximum inter- and intra- departmental communication and focused decision-making.   

When we talk to clients who have implemented S&OP, they all have a consistent message – “it’s a major contributor to our Supply Chain success”. One client claims that “fully 60% of the benefits (from a major system implementation) came from S&OP” – this from a company that has improved inventory turnover fourfold and increased productivity nearly 75%.   

Take a survey of your supply chain and resource planning systems.  Have you implemented, and are you operating, an effective Sales and Operations Planning process?  Does your process model the proven “Five Step S&OP Process”?  Have you linked Senior and Operating Management communication and decision-making processes, or are you still in the mode of “informal” communication processes and silos of decision-making good for a single department but bad for the company?  Do you have an integrated Business and Resource Planning process or are you still operating with disconnected planning processes and conflicting data?  Have you at least the minimum set of computer tools for Sales and Operations Planning?    

Call us for audit materials you can use for self-assessment.  If you come up short in your self-assessment, call us back.  We can help.   

2. Simple Is Best 

We’ve always believed in the theory that the things that work best in practice are usually the simplest.  We’ve spent our careers helping people understand Wight’s Law:  When you change five things at once and things get better, credit will be given to the most complex thing you changed, when the improvements usually resulted from the simplest thing.   

In our experience, real results from new systems often come less from the complicated aspects of the system and more from:   

a.  Doing the fundamentals extremely well – cleaning up the inventory records and bills of material, ensuring sensible safety stocking and ordering policies, documenting assumptions to help make the forecast more accurate, simplifying the manufacturing and logistics processes, promising customer deliveries based on availability not policies or “standard lead times”, implementing formal communication and decision-making processes connected to Sales and Operations Planning, etc.   

b.  Getting the users of the new system to accept ownership and accountability for results.   

For example, in the last few years we’ve seen many companies implement new “advanced planning systems”.  In many cases, prior to the switchover these same companies either had no planning system or one that was dysfunctional because of bad data, poor communication processes, or poorly trained users.  After the switch, companies who didn’t address the fundamentals and the people issues were typically no better off.  Companies who fixed the inventory records, cleaned up the bills of material, updated their planning polices, put in place formal communication processes, and focused implementation efforts on the people who would eventually use the system ended up being significantly more successful.    

Take an extensive inventory of your systems and business processes.    

•Have you simplified your business processes prior to automating them?  Have you eliminated processes and steps in processes that add cost and no value?   

•Are the key processes fully supported, in the simplest possible way, by your systems?  Or are your people drowning in a sea of switches, options, codes, and display screens that force them to do twice the work for half the results?   

•Is the data that drives your systems accurate?  Or are there multiple sets of inventory, bill of material and routing data – one set in finance, one set in planning, one set in manufacturing, another in purchasing and logistics?   

•Do your systems support formal, institutionalized communications processes, or do you still depend on a network of “one-off” communications?  In “one-off” communications, people have to remember to communicate key decisions and issues rather than having a formal process that ensures that any and all affected parties will be updated. 

In other words, verify that basic and fundamental business processes have been simplified, are in place, and are supported by your new systems.  Verify that your data is ‘beyond reproach” – accurate enough for planning, scheduling, promising.  Verify that your people are using the simplest options to accomplish the basic requirements of your business.    

The least expensive way to improve your systems is simple – simplify the underlying processes, fix the basic data, and simplify the portions of the system that you actually use!     

3. Make The Real Investment 

People are the key to everything.  At some point, the computer system’s job ends, and people’s jobs begin.  If those people don’t understand the new system, if they don’t trust it, or they can’t figure out where the numbers come from, they probably won’t use it.  And just because you sent them to some software training classes, don’t expect that they’ll understand anything more than the screens and transactions in the software.    

Knowing how the system works is very different from knowing when and how to use transactions and screens.  A leading consultant in the UK, Graham Barton, once described it as “the difference between knowing how to drive a car and knowing how to fix the engine.”  Technicians can “maintain the engine”: your people need driving lessons!    

Make the investment in education for your real assets, all the people throughout your organization that are involved with your new systems.  This education should include some on-site workshops conducted by outside experts, and some inside sessions conducted by key people in your organization.     

Verify that every executive, manager, and key person in your organization has had at least 16 hours of education on Resource and Supply Chain Management – more for people in key planning and execution functions.  For the purposes of measuring education hours, don’t count any sessions conducted by people whose primary focus is software and systems.  If you have sessions done on-site by outside experts, judge their qualifications by the only thing that really matters – a record of proven Class A success.     

4. Validate Your On-Going System Strategy 

If you haven’t already implemented that new system in every location, maybe you shouldn’t.  Take a hard look at the real costs of implementation and consider trying to upgrade your existing resource planning and supply chain systems rather than throwing them out and starting over.  Upgrading may be considerably less expensive – and faster to the results you want.   

5. Eliminate Don’t Automate 

We see too many companies using computer tools simply because they exist.  For example, just because you can forecast by item and customer, by week, 24 months in advance doesn’t make it a good idea.  Similarly, backflushing, which is a very good technique in some manufacturing processes, is little short of a disaster in others where there are poor basic process and data controls.   Again and again we see companies overcomplicating their forecasting, demand management, order promising, scheduling, and inventorying processes because of the software they installed.  In too many cases, people create non-value adding activities to use system features that don’t improve their business.    

Take a hard look at the features you use in the systems you have.  Benchmark yourself against other companies to see how you can be better with more careful selection of features and simplified processes.  Be ruthless – shut off functionality and work on underlying processes.  Eliminate unnecessary processes.  Eliminate non-value-adding steps.  Eliminate unnecessary system features.    

6. Set High Standards

People respond to measurement systems.  If you want improved performance –we call it Class A behavior – we have a simple suggestion.  Institute a formal program to achieve formal Class A certification in your company.      

To achieve Class A certification, you must demonstrate that your business processes are simple, comprehensive, and “in control”.  You must also demonstrate institutionalized communications and decision-making processes, and quantifiable results in key areas like lowered cost of sales, improved productivity, reduced inventory, etc.    

If you are unfamiliar with the idea of Class A certification, or unclear about how to go about organizing a performance measurement system around Class A certification, check our website.  We can point you in the right direction, and be there when you need help during your journey.    

THE REAL COST OF Y2K

If you’re not getting world class results from the systems you implemented in 1997, ’98, and ’99, then the real cost of Y2K is missed benefits.  Don’t you think it’s time to get all those benefits you paid for, and that you deserve?  We think it is.  In fact we think it’s past time.    

The Party’s Over.