The ABCs of ERP

By Christopher Koch
What is ERP?
How can ERP improve a company's business performance?
How long will an ERP proect ta!e?
Will ERP fi" my integration problems?
What will ERP fi" in my business?
Will ERP fit the ways # $o business?
What $oes ERP really cost?
When will # get paybac! from ERP%an$ how much will it be?
What are the hi$$en costs of ERP?
Why $o ERP proects fail so often?
How $o # configure ERP software?
How $o companies organi&e their ERP proects?
#s a 'single instance' of ERP better?
How $ifficult is it to upgra$e ERP software?
Will service(oriente$ architecture )*+,- replace ERP?
How $oes ERP fit with e(commerce?
Can # use ERP to manage a networ! of foreign suppliers?
What is ERP?
Enterprise resource planning software. or ERP. $oesn/t live up to its acronym0 1orget about
planning%it $oesn/t $o much of that%an$ forget about resource. a throwaway term0 But
remember the enterprise part0 2his is ERP/s true ambition0 2he software attempts to integrate all
$epartments an$ functions across a company onto a single computer system that can serve all
those $epartments/ particular nee$s0
Buil$ing a single software program that serves the nee$s of people in finance as well as it $oes
the people in human resources an$ in the warehouse is a tall or$er0 Each of those $epartments
typically has its own computer system optimi&e$ for the particular ways that the $epartment $oes
its wor!0 But ERP combines them all together into a single. integrate$ software program that runs
off a single $atabase so that the various $epartments can more easily share information an$
communicate with each other0
2hat integrate$ approach can have a tremen$ous paybac! if companies install the software
correctly0
2a!e a customer or$er. for e"ample0 2ypically. when a customer places an or$er. that or$er
begins a mostly paper(base$ ourney from inbo" to inbo" throughout the company. often being
!eye$ an$ re!eye$ into $ifferent $epartments/ computer systems along the way0 ,ll that lounging
aroun$ in inbo" causes $elays an$ lost or$ers. an$ all the !eying into $ifferent computer systems
invites errors0 3eanwhile. no one in the company truly !nows what the status of the or$er is at
any given point because there is no way for the finance $epartment. for e"ample. to get into the
warehouse/s computer system to see whether the item has been shippe$0 '4ou/ll have to call the
warehouse' is the familiar refrain h ear$ by frustrate$ customers0
ERP van5uishes the ol$ stan$alone computer systems in finance. HR. manufacturing an$ the
warehouse. an$ replaces them with a single unifie$ software program $ivi$e$ into software
mo$ules that roughly appro"imate the ol$ stan$alone systems0 1inance. manufacturing an$ the
warehouse all still get their own software. e"cept now the software is lin!e$ together so that
someone in finance can loo! into the warehouse software to see if an or$er has been shippe$0
Bac! in the 678s ERP was $evelope$ as a tightly integrate$ monolith. but most ven$ors/ software
has since become fle"ible enough that you can install some mo$ules without buying the whole
pac!age0 3any companies. for e"ample. will install only an ERP finance or HR mo$ule an$ leave
the rest of the functions for another $ay0
How can ERP improve a company's business performance?
ERP/s best hope for $emonstrating value is as a sort of battering ram for improving the way your
company ta!es a customer or$er an$ processes that into an invoice an$ revenue%otherwise
!nown as the or$er fulfillment process0 2hat is why ERP is often referre$ to as bac!(office
software0 #t $oesn/t han$le the up(front selling process )although most ERP ven$ors have
recently $evelope$ CR3 software to $o this-9 rather. ERP ta!es a customer or$er an$ provi$es a
software roa$ map for automating the $ifferent steps along the path to fulfilling the or$er0 When a
customer service representative enters a customer or$er into an ERP system. he has all the
information necessary to complete the or$er )the customer/s cre$it rating an$ or$er history from
the finance mo$ule. the company/s inventory levels from the warehouse mo$ule an$ the shipping
$oc!/s truc!ing sche$ule from the logistics mo$ule. for e"ample-0
People in these $ifferent $epartments all see the same information an$ can up$ate it0 When one
$epartment finishes with the or$er it is automatically route$ via the ERP system to the ne"t
$epartment0 2o fin$ out where the or$er is at any point. you nee$ only log in to the ERP system to
trac! it $own0 With luc!. the or$er process moves li!e a bolt of lightning through the organi&ation.
an$ customers get their or$ers faster an$ with fewer errors than before0 ERP can apply that same
magic to the other maor business processes. such as employee benefits or financial reporting0
2hat. at least. is the $ream of ERP0 2he reality is not so rosy0
:et/s go bac! to those inbo"es for a minute0 2hat process may not have been efficient. but it was
simple0 1inance $i$ its ob. the warehouse $i$ its ob. an$ if anything went wrong outsi$e of the
$epartment/s walls. it was somebo$y else/s problem0 ;ot anymore0 With ERP. the customer
service representatives are no longer ust typists entering someone/s name into a computer an$
hitting the return !ey0 2he ERP screen ma!es them businesspeople0 #t flic!ers with the customer/s
cre$it rating from the finance $epartment an$ the pro$uct inventory levels from the warehouse0
<i$ the customer pay for the last or$er yet? Will we be able to ship the new or$er on time? 2hese
are $ecisions that customer service representatives have never ha$ to ma!e before. an$ the
answers affect the customer an$ every other $epartment in the company0 But it/s not ust the
customer service representatives who have to wa!e up0 People in the warehouse who use$ to
!eep inventory in their hea$s or on scraps of paper now nee$ to put that information online0 #f
they $on/t. customer service reps/ screens will show low inventory levels an$ reps will tell
customers that the re5ueste$ item is not in stoc!0 ,ccountability. responsibility an$
communication have never been teste$ li!e this before0
People $on/t li!e to change. an$ ERP as!s them to change how they $o their obs0 2hat is why
the value of ERP is so har$ to pin $own0 2he software is less important than the changes
companies ma!e in the ways they $o business0 #f you use ERP to improve the ways your people
ta!e or$ers an$ manufacture. ship an$ bill for goo$s. you will see value from the software0 #f you
simply install the software without trying to improve the ways people $o their obs. you may not
see any value at all%in$ee$. the new software coul$ slow you $own by simply replacing the ol$
software that everyone !new with new software that no one $oes0
How lon will an ERP pro!ect ta"e?
Companies that install ERP $o not have an easy time of it0 <on/t be foole$ when ERP ven$ors tell
you about a three( or si"(month average implementation time0 2hose short )that/s right. si"
months is short- implementations all have a catch of one !in$ or another= 2he company was
small. or the implementation was limite$ to a small area of the company. or the company use$
only the financial pieces of the ERP system )in which case the ERP system is nothing more than
a very e"pensive accounting system-0 2o $o ERP right. the ways you $o business will nee$ to
change an$ the ways people $o their obs will nee$ to change too0 ,n$ that !in$ of change
$oesn/t come without pain0 >nless. of course. your ways of $oing business are wor!ing e"tremely
well )or$ers all shippe$ on time. pro$uctivity higher than all your competitors. customers
completely satisfie$-. in which case there is no reason to even consi$er ERP0
2he important thing is not to focus on how long it will ta!e%real transformational ERP efforts
usually run between one an$ three years. on average%but rather to un$erstan$ why you nee$ it
an$ how you will use it to improve your business0
Will ERP fi# my interation problems?
;o0 #t seems almost 5uaint to thin! of it to$ay. but bac! in the $ays before 4?K. enterprise
software ven$ors. an$. more forcefully. the management consultants who installe$ the stuff. sol$
ERP as a magic bullet that companies coul$ use to escape the coming 4?K apocalypse. create
seamless technology integration across the company an$ force your silos of isolate$. sociopathic
bureaucrats to start wor!ing together0 #t was an irresistible sell to businesspeople0
#t/s true that ERP was $esigne$ to solve integration problems. but it wor!e$ only in the theoretical
environment of the ven$ors/ $evelopment labs0 <evelopers who believe they are mo$eling an
entire business in software $on/t spen$ much time thin!ing about how that system will connect
with other systems0 Who nee$s other systems when we/re creating the whole thing right here?
+f course. as soon as companies began buying these pro$ucts. it became clear that enterprise
software was another chun!%a much larger an$ better integrate$ chun! to be sure. but still a
chun!%of software in a comple" architecture of #2 systems that $esperately nee$e$ to tal! to one
another an$ e"change information0 2he ven$ors create$ clun!y. proprietary metho$s of
connecting their systems with others. which have improve$ over the years. but that misses the
point0 2he architecture of these systems. in a broa$ sense. was ust li!e the ones that they were
inten$e$ to save you from%monolithic. highly integrate$ an$ $ifficult to change0
;o problem. sai$ the ven$ors0 *ome of your maintenance an$ support fees are going to future
R@<0 ,s we $evelop new pieces to a$$ in to our highly integrate$ suites. we/ll let you upgra$e to
the ne"t version for free an$ you can gra$ually get ri$ of all those other troublesome chun!s0
,gain. it soun$e$ great to the people buying the stuff%businesspeople0
But who coul$ affor$ to install enterprise software as it was envisione$ in the ven$ors/ R@< labs?
Aery few0 C#+s built comple" integration lin!s from enterprise software to other systems to !eep
the business running0 +r they chun!e$ up the installation. buil$ing $o&ens or even hun$re$s of
uni5ue installations of the same enterprise software to meet the nee$s of in$ivi$ual $epartments
or businesses that all ha$ to be lin!e$ together0 2he high $egree of integration envisione$ in the
R@< lab was tenuous at best insi$e most organi&ations0
Bra$ually. enterprise software ven$ors came to reali&e that to serve customers better. they
nee$e$ to brea! up their suites into application components an$ create comple" ways to lin! to
them over the #nternet so that customers woul$ not have to rewrite connections to pieces of the
suite such as financials. which $i$n/t change much0
2he final $eath !nell for the original enterprise software architecture mo$el came in ?88C when
the maor enterprise software ven$ors all announce$ that they were offering pac!ages of
integration mi$$leware%tacitly ac!nowle$ging the reality that ha$ been clear since mi$$leware
was first invente$ $eca$es ago= #ntegration happens best outsi$e of specific software
applications. not insi$e them0 2he enterprise software ven$ors have been conspicuously absent
from the Web services stan$ar$s movement. loo!ing ever more li!e the <ar! Princes of :oc!(#n
while the originators of the loc!(in concept. #B3 an$ 3icrosoft. loo!e$ li!e white !nights for $oing
the lion/s share of wor! to create free )so far. anyway- stan$ar$s for integration in Web services0
,n$ it/s great stuff0 How ironic that those companies that were going to save your CE+ from
integration in D777 have been the laggar$s in $eveloping truly useful enterprise integration0
2his is not to say that ERP is a boon$oggle. or even that the software isn/t valuable to the
companies that bought it0 Even though most ven$ors have ha$ some big bumps in the roa$. most
of their pro$ucts wor! well0 2he happiest customers are those who use$ enterprise software to
create new capabilities an$ processes that they coul$ not e"press in software with their ol$
systems0 But bac! in D777. many C#+s tal!e$ about ERP as an integration strategy. about
replacing systems that ha$ more an$ better functionality than the enterprise software they were
installing in or$er to be more integrate$. more efficient when the new software was installe$0 1or
the few companies that coul$ affor$ to install enterprise software in the manner envisione$ in the
ven$ors/ R@< labs. they may have gotten there0 3any are still maintaining the custom co$e they
ha$ to write for outrage$ business users who lost capabilities they ha$ in the ol$ software0
What will ERP fi# in my business?
2here are five maor reasons why companies un$erta!e ERP0
D0 $nterate financial information%9,s the CE+ tries to un$erstan$ the company/s overall
performance. he may fin$ many $ifferent versions of the truth0 1inance has its own set of
revenue numbers. sales has another version. an$ the $ifferent business units may each
have their own version of how much they contribute$ to revenue0 ERP creates a single
version of the truth that cannot be 5uestione$ because everyone is using the same
system0
?0 $nterate customer or%er information%9ERP systems can become the place where the
customer or$er lives from the time a customer service representative receives it until the
loa$ing $oc! ships the merchan$ise an$ finance sen$s an invoice0 By having this
information in one software system. rather than scattere$ among many $ifferent systems
that can/t communicate with one another. companies can !eep trac! of or$ers more
easily. an$ coor$inate manufacturing. inventory an$ shipping among many $ifferent
locations simultaneously0
E0 &tan%ar%i'e an% spee% up manufacturin processes%93anufacturing companies%
especially those with an appetite for mergers an$ ac5uisitions%often fin$ that multiple
business units across the company ma!e the same wi$get using $ifferent metho$s an$
computer systems0 ERP systems come with stan$ar$ metho$s for automating some of
the steps of a manufacturing process0 *tan$ar$i&ing those processes an$ using a single.
integrate$ computer system can save time. increase pro$uctivity an$ re$uce hea$count0
C0 Re%uce inventory%9ERP helps the manufacturing process flow more smoothly. an$ it
improves visibility of the or$er fulfillment process insi$e the company0 2hat can lea$ to
re$uce$ inventories of the materials use$ to ma!e pro$ucts )wor!(in(progress inventory-.
an$ it can help users better plan $eliveries to customers. re$ucing the finishe$ goo$
inventory at the warehouses an$ shipping $oc!s0 2o really improve the flow of your
supply chain. you nee$ supply chain software. but ERP helps too0
F0 &tan%ar%i'e HR information%9Especially in companies with multiple business units. HR
may not have a unifie$. simple metho$ for trac!ing employees/ time an$ communicating
with them about benefits an$ services0 ERP can fi" that0
#n the race to fi" these problems. companies often lose sight of the fact that ERP pac!ages are
nothing more than generic representations of the ways a typical company $oes business0 While
most pac!ages are e"haustively comprehensive. each in$ustry has 5uir!s that ma!e it uni5ue0
3ost ERP systems were $esigne$ to be use$ by $iscrete manufacturing companies )that ma!e
physical things that can be counte$-. which imme$iately left all the process manufacturers )oil.
chemical an$ utility companies that measure their pro$ucts by flow rather than in$ivi$ual units-
out in the col$0 Each of these in$ustries has struggle$ with the $ifferent ERP ven$ors to mo$ify
core ERP programs to their nee$s0
Will ERP fit the ways $ %o business?
Before the chec!s are signe$ an$ the implementation begins. it/s critical for companies to figure
out if their ways of $oing business will fit within a stan$ar$ ERP pac!age0 2he most common
reason that companies wal! away from multimillion($ollar ERP proects is that they $iscover the
software $oes not support one of their important business processes0 ,t that point there are two
things they can $o= 2hey can change the business process to accommo$ate the software. which
will mean $eep changes in long(establishe$ ways of $oing business )that often provi$e
competitive a$vantage- an$ sha!e up important people/s roles an$ responsibilities )something
that few companies have the stomach for-0 +r they can mo$ify the software to fit the process.
which will slow $own the proect. intro$uce $angerous bugs into the system an$ ma!e upgra$ing
the software to the ERP ven$or/s ne"t release e"cruciatingly $ifficult because the customi&ations
will nee$ to be torn apart an$ rewritten to fit with the new version0
;ee$less to say. the move to ERP is a proect of breathta!ing scope. an$ the price tags on the
front en$ are enough to ma!e the most placi$ C1+ a little twitchy0 #n a$$ition to bu$geting for
software costs. financial e"ecutives shoul$ plan to write chec!s to cover consulting. process
rewor!. integration testing an$ a long laun$ry list of other e"penses before the benefits of ERP
start to manifest themselves0 >n$erestimating the price of teaching users their new ob processes
can lea$ to a ru$e shoc! $own the line. an$ so can failure to consi$er $ata warehouse integration
re5uirements an$ the cost of e"tra software to $uplicate the ol$ report formats0 , few oversights
in the bu$geting an$ planning stage can sen$ ERP costs spiraling out of control faster than
oversights in planning almost any other information system un$erta!ing0
What %oes ERP really cost?
2here aren/t any goo$ numbers to pre$ict ERP costs because the software installation has so
many variables. such as= the number of $ivisions it will serve. the number of mo$ules installe$.
the amount of integration that will be re5uire$ with e"isting systems. the rea$iness of the
company to change an$ the ambition of the proect%if the proect is truly meant to be a battering
ram for reengineering how the company $oes its most important wor!. the proect will cost much
more an$ ta!e much longer than one in which ERP is simply replacing an ol$ transaction system0
2here is a s!etchy rule of thumb that e"perts have use$ for years to pre$ict ERP installation
costs. which is that the installation will cost about si" times as much as the software license0 But
this has become increasingly less relevant as the mar!et for ERP has slowe$ over time an$
ven$ors have offere$ $eep $iscounts on the software up front0
Research companies $on/t even bother trying to pre$ict costs anymore0 , few years ago. the
$early $eparte$ 3eta Broup $i$ a stu$y loo!ing at the total cost of ownership )2C+- of ERP.
inclu$ing har$ware. software. professional services an$ internal staff costs0 2he 2C+ numbers
inclu$e getting the software installe$ an$ the two years afterwar$. which is when the real costs of
maintaining. upgra$ing an$ optimi&ing the system for your business are felt0 ,mong the GE
companies surveye$%inclu$ing small. mi$si&e an$ large companies in a range of in$ustries%the
average 2C+ was HDF million )the highest was HE88 million an$ the lowest was HC88.888-0 While
it/s har$ to $raw a soli$ number from that !in$ of range of companies an$ ERP efforts. 3eta came
up with one statistic that proves that ERP is e"pensive no matter what !in$ of company is using it=
2he 2C+ for someone who uses the system a lot over that perio$ was a staggering HFE.E?80
When will $ et paybac" from ERP(an% how much will it be?
<on/t e"pect to revolutioni&e your business with ERP0 #ts contribution is optimi&ing the way things
are $one internally rather than with customers. suppliers or partners0 ,gain. value $epen$s on
ambition0 #f ERP is the focus of an effort to bring $ramatic improvements to the way a company
$oes business. it will bring more value than if the proect is treate$ as a simple systems
replacement0 ,n$ even if ERP $oes bring $ramatic change. because it affects mostly e"isting
'bac! office' processes such as or$er management rather than creating new revenue
opportunities. the bottom(line value may not be much0 Aeterans say ERP is more a cost of $oing
business to ma!e the company operate more efficiently than something that offers $ramatic
paybac!0 ,n$ most veterans say it ta!es si" months or more to get the new systems an$
processes running up to snuff0 , 3eta Broup stu$y of GE companies a few years ago foun$ that it
too! eight months after the new system was in )ED months total- to see any benefits0 2he me$ian
annual savings from the new ERP system were HD0G million%pretty mo$est. consi$ering that
ERP proects at big companies can cost HF8 million or more0
What are the hi%%en costs of ERP?
,lthough $ifferent companies will fin$ $ifferent lan$ mines in the bu$geting process. those who
have implemente$ ERP pac!ages agree that certain costs are more commonly overloo!e$ or
un$erestimate$ than others0 ,rme$ with insights from across the business. ERP pros vote the
following areas as most li!ely to result in bu$get overrun0
1. Trainin%2raining is the near(unanimous choice of e"perience$ ERP implementers as
the most un$erestimate$ bu$get item0 2raining e"penses are high because wor!ers
almost invariably have to learn a new set of processes. not ust a new software interface0
Worse. outsi$e training companies may not be able to help you0 2hey are focuse$ on
telling people how to use software. not on e$ucating people about the particular ways you
$o business0 Prepare to $evelop a curriculum yourself that i$entifies an$ e"plains the
$ifferent business processes that will be affecte$ by the ERP system0 +ne enterprising
C#+ hire$ staff from a local business school to help him $evelop an$ teach the ERP
business(training course to employees0 Remember that with ERP. finance people will be
using the same software as warehouse people an$ they will both be entering information
that affects the other0 2o $o this accurately. they have to have a much broa$er
un$erstan$ing of how others in the company $o their obs than they $i$ before ERP came
along0 >ltimately. it will be up to your #2 an$ businesspeople to provi$e that training0 *o
ta!e whatever you have bu$gete$ for ERP training an$ $ouble or triple it up front0 #t will
be the best ERP investment you ever ma!e0
2. $nteration an% testin%2esting the lin!s between ERP pac!ages an$ other corporate
software lin!s that have to be built on a case(by(case basis is another often(
un$erestimate$ cost0 , typical manufacturing company may have a$$(on applications
from the maor%e(commerce an$ supply chain%to the minor%sales ta" computation
an$ bar co$ing0 ,ll re5uire integration lin!s to ERP0 4ou/re better off if you can buy a$$(
ons from the ERP ven$ors that are pre(integrate$0 #f you nee$ to buil$ the lin!s yourself.
e"pect things to get ugly0 ,s with training. testing ERP integration has to be $one from a
process(oriente$ perspective0 Aeterans recommen$ that instea$ of plugging in $ummy
$ata an$ moving it from one application to the ne"t. you shoul$ run a real purchase or$er
through the system. from or$er entry through shipping an$ receipt of payment%the whole
or$er(to(cash banana%preferably with the participation of the employees who will
eventually $o those obs0
3. Customi'ation%,$$(ons are only the beginning of the integration costs of ERP0 3uch
more costly. an$ something to be avoi$e$ if at all possible. is actual customi&ation of the
core ERP software itself0 2his happens when the ERP software can/t han$le one of your
business processes an$ you $eci$e to mess with the software to ma!e it $o what you
want0 4ou/re playing with fire0 2he customi&ations can affect every mo$ule of the ERP
system because they are all so tightly lin!e$ together0 >pgra$ing the ERP pac!age%no
wal! in the par! un$er the best of circumstances%becomes a nightmare because you/ll
have to $o the customi&ation all over again in the new version0 3aybe it will wor!. maybe
it won/t0 ;o matter what. the ven$or will not be there to support you0 4ou will have to hire
e"tra staffers to $o the customi&ation wor!. an$ !eep them on for goo$ to maintain it0
4. )ata conversion%#t costs money to move corporate information. such as customer an$
supplier recor$s. pro$uct $esign $ata an$ the li!e. from ol$ systems to new ERP homes0
,lthough few C#+s will a$mit it. most $ata in most legacy systems is of little use0
Companies often $eny their $ata is $irty until they actually have to move it to the new
clientIserver setups that popular ERP pac!ages re5uire0 Conse5uently. those companies
are more li!ely to un$erestimate the cost of the move0 But even clean $ata may $eman$
some overhaul to match process mo$ifications necessitate$%or inspire$%by the ERP
implementation0
5. )ata analysis%+ften. the $ata from the ERP system must be combine$ with $ata from
e"ternal systems for analysis purposes0 >sers with heavy analysis nee$s shoul$ inclu$e
the cost of a $ata warehouse in the ERP bu$get%an$ they shoul$ e"pect to $o 5uite a bit
of wor! to ma!e it run smoothly0 >sers are in a pic!le here= Refreshing all the ERP $ata
every $ay in a big corporate $ata warehouse is $ifficult. an$ ERP systems $o a poor ob
of in$icating which information has change$ from $ay to $ay. ma!ing selective warehouse
up$ates tough0 +ne e"pensive solution is custom programming0 2he upshot is that the
wise will chec! all their $ata analysis nee$s before signing off on the bu$get0
6. Consultants a% infinitum%When users fail to plan for $isengagement. consulting fees
run wil$0 2o avoi$ this. companies shoul$ i$entify obectives for which its consulting
partners must aim when training internal staff0 #nclu$e metrics in the consultants/ contract9
for e"ample. a specific number of the user company/s staff shoul$ be able to pass a
proect(management lea$ership test%similar to what the consultants have to pass to lea$
an ERP engagement0
7. Replacin your best an% brihtest%#t is accepte$ wis$om that ERP success $epen$s
on staffing the proect with the best an$ brightest from the business an$ #* $ivisions0 2he
software is too comple" an$ the business changes too $ramatic to trust the proect to ust
anyone0 2he ba$ news is a company must be prepare$ to replace many of those people
when the proect is over0 2hough the ERP mar!et is not as hot as it once was.
consultancies an$ other companies that have lost their best people will be houn$ing
yours with higher salaries an$ bonus offers than you can affor$%or that your HR policies
permit0 Hu$$le with HR early on to $evelop a retention bonus program an$ create new
salary strata for ERP veterans0 #f you let them go. you/ll win$ up hiring them%or someone
li!e them%bac! as consultants for twice what you pai$ them in salaries0
8. $mplementation teams can never stop%3ost companies inten$ to treat their ERP
implementation as they woul$ any other software proect0 +nce the software is installe$.
they figure the team will be scuttle$. an$ everyone will go bac! to his or her $ay ob0 But
after ERP. you can/t go home again0 2he implementers are too valuable0 Because the
implementers have wor!e$ so closely with ERP. they !now more about the sales process
than the salespeople an$ more about the manufacturing process than the manufacturing
people0 Companies can/t affor$ to sen$ their proect people bac! into the business
because there/s so much to $o after the ERP software is installe$0 Just writing reports to
pull information out of the new ERP system will !eep the proect team busy for a year at
least0 ,n$ it is in analysis%an$. one hopes. insight%that companies ma!e their money
bac! on an ERP implementation0 >nfortunately. few #* $epartments plan for the fren&y of
post(ERP installation activity. an$ fewer still buil$ it into their bu$gets when they start their
ERP proects0 3any are force$ to beg for more money an$ staff imme$iately after the go(
live $ate. long before the ERP proect has $emonstrate$ any benefit0
9. Waitin for R*$%+ne of the most mislea$ing legacies of tra$itional software proect
management is that the company e"pects to gain value from the application as soon as it
is installe$. while the proect team e"pects a brea! an$ maybe a pat on the bac!0 ;either
e"pectation applies to ERP0 3ost of the systems $on/t reveal their value until after
companies have ha$ them running for some time an$ can concentrate on ma!ing
improvements in the business processes that are affecte$ by the system0 ,n$ the proect
team is not going to be rewar$e$ until their efforts pay off0
10. Post+ERP %epression%ERP systems often wrea! cause havoc in the companies that
install them0 #n a recent <eloitte Consulting survey of GC 1ortune F88 companies. one in
four a$mitte$ that they suffere$ a $rop in performance when their ERP system went live0
2he true percentage is un$oubte$ly much higher0 2he most common reason for the
performance problems is that everything loo!s an$ wor!s $ifferently from the way it $i$
before0 When people can/t $o their obs in the familiar way an$ haven/t yet mastere$ the
new way. they panic. an$ the business goes into spasms0
Why %o ERP pro!ects fail so often?
,t its simplest level. ERP is a set of best practices for performing the various $uties in the
$epartments of your company. inclu$ing in finance. manufacturing an$ the warehouse0 2o get the
most from the software. you have to get people insi$e your company to a$opt the wor! metho$s
outline$ in the software0 #f the people in the $ifferent $epartments that will use ERP $on/t agree
that the wor! metho$s embe$$e$ in the software are better than the ones they currently use. they
will resist using the software or will want #2 to change the software to match the ways they
currently $o things0 2his is where ERP proects brea! $own0
Political fights erupt over how%or even whether%the software will be installe$0 #2 gets bogge$
$own in long. e"pensive customi&ation efforts to mo$ify the ERP software to fit with powerful
business barons/ wishes0 Customi&ations ma!e the software more unstable an$ har$er to
maintain when it finally $oes come to life0 2he horror stories you hear in the press about ERP can
usually be trace$ to the changes the company ma$e in the core ERP software to fit its own wor!
metho$s0 Because ERP covers so much of what a business $oes. a failure in the software can
bring a company to a halt. literally0
But #2 can fi" the bugs pretty 5uic!ly in most cases. an$ besi$es. few big companies can avoi$
customi&ing ERP in some fashion%every business is $ifferent an$ is boun$ to have uni5ue wor!
metho$s that a ven$or cannot account for when $eveloping its software0 2he mista!e companies
ma!e is assuming that changing people/s habits will be easier than customi&ing the software0 #t/s
not0 Betting people insi$e your company to use the software to improve the ways they $o their
obs is by far the har$er challenge0 #f your company is resistant to change. then your ERP proect
is more li!ely to fail0
How %o $ confiure ERP software?
Even if a company installs ERP software for the so(calle$ right reasons an$ everyone can agree
on the optimal $efinition of a customer. the inherent $ifficulties of implementing something as
comple" as ERP is li!e. well. teaching an elephant to $o the hootchy(!ootchy0 2he pac!ages are
built from $atabase tables. thousan$s of them. that #* programmers an$ en$ users must set to
match their business processes9 each table has a $ecision 'switch' that lea$s the software $own
one $ecision path or another0 By presenting only one way for the company to $o each tas!%say.
run the payroll or close the boo!s%a company/s in$ivi$ual operating units an$ far(flung $ivisions
are integrate$ un$er one system0 But figuring out precisely how to set all the switches in the
tables re5uires a $eep un$erstan$ing of the e"isting processes being use$ to operate the
business0 ,s the table settings are $eci$e$. these business processes are reengineere$. ERP/s
way0 3ost ERP systems are preconfigure$ for most of the maor processes. however. allowing
ust hun$re$s%rather than thousan$s%of proce$ural settings to be ma$e by the customer0
How %o companies orani'e their ERP pro!ects?
Base$ on our observations. there are three commonly use$ ways of installing ERP0
The Bi Ban%#n this. the most ambitious an$ $ifficult of approaches to ERP implementation.
companies cast off all their legacy systems at once an$ they install a single ERP system across
the entire company0 2hough this metho$ $ominate$ early ERP implementations because of the
nee$ to revamp ol$ systems for 4?K. few companies $are to attempt it anymore because it calls
for the entire company to mobili&e an$ change at once0 3ost of the ERP implementation horror
stories from the late 678s warn us about companies that use$ this strategy0 Betting everyone to
cooperate an$ accept a new software system at the same time is a tremen$ous effort. largely
because the new system will not have any a$vocates0 ;o one within the company has any
e"perience using it. so no one is sure whether it will wor!0 ,lso. ERP inevitably involves
compromises0 3any $epartments have computer systems that have been hone$ to match the
ways they wor!0 #n most cases. ERP offers neither the range of functionality nor the comfort of
familiarity that a custom legacy system can offer0 #n many cases. the spee$ of the new system
may suffer because it is serving the entire company rather than a single $epartment0 ERP
implementation re5uires a $irect man$ate from the CE+0
,ranchisin stratey%2his approach suits large or $iverse companies that $o not share many
common processes across business units0 #n$epen$ent ERP systems are installe$ in each unit.
while lin!ing common processes. such as financial boo!!eeping. across the enterprise0 2his has
emerge$ as the most common way of implementing ERP0 #n most cases. the business units each
have their own 'instances' of ERP%that is. a separate system an$ $atabase0 2he systems lin!
together only to share the information necessary for the corporation to get a performance big
picture across all the business units )business unit revenue. for e"ample-. or for processes that
$on/t vary much from business unit to business unit )perhaps HR benefits-0 >sually. these
implementations begin with a $emonstration or pilot installation in a particularly open(min$e$ an$
patient business unit where the core business of the corporation will not be $isrupte$ if something
goes wrong0 +nce the proect team gets the system up an$ running an$ wor!s out all the bugs.
the team begins selling other units on ERP. using the first implementation as a !in$ of in(house
customer reference0 Plan for this strategy to ta!e a long time0 #nterestingly. many companies that
initially installe$ ERP using a franchising strategy are now trying to consoli$ate as many of those
$ifferent instances of ERP as possible $own into a han$ful or even one for the entire company0
&lam %un"%ERP $ictates the process $esign in this metho$. where the focus is on ust a few
!ey processes. such as those containe$ in an ERP system/s financial mo$ule0 2he slam $un! is
generally for smaller companies e"pecting to grow into ERP0 2he goal here is to get ERP up an$
running 5uic!ly an$ to $itch the fancy reengineering in favor of the ERP system/s 'canne$'
processes0 1ew companies that have approache$ ERP this way can claim much paybac! from
the new system0 3ost use it as an infrastructure to support more $iligent installation efforts $own
the roa$0 4et many $iscover that a slamme$(in ERP system is little better than a legacy system
because it $oesn/t force employees to change any of their ol$ habits0 #n fact. $oing the har$ wor!
of process reengineering after the system is in can be more challenging than if there ha$ been no
system at all because at that point few people in the company will have felt much benefit from the
new software0
$s a -sinle instance- of ERP better?
,n 'instance' refers to the number of $iscreet versions of ERP software you have in your
company0 2he original vision of ERP was that companies shoul$ have a single instance%that is.
a single implementation of the software running on a single $atabase%that serves the entire
company0 #t woul$ mean no $uplication of information in $ifferent $epartments or in $ifferent
geographic $ivisions an$ thus better integration an$ information 5uality across the company0
>pgra$ing the software woul$ also be easier than with multiple customi&e$ instances of ERP
across the company0
But few companies installe$ ERP that way0 1irst. there were the technology limitations=
$atabases. networ!s an$ storage systems coul$n/t han$le the loa$. an$ ban$wi$th was still
e"pensive enough that lin!ing globally base$ $ivisions together on a single $atabase was
e"pensive0 Worse. $ifferent business units often ha$ uni5ue processes or resiste$ the ones that
came in the ERP bo"0 ,ll these factors combine$ cause$ many big. global corporations to install
$o&ens%even hun$re$s%of instances of software from a single ERP ven$or0
2o$ay. many of those early barriers have come $own0 *o $oes it ma!e sense to create a single
)or a significantly re$uce$ number- of instances%while also getting ri$ of out$ate$ or feature(
poor systems from other ven$ors? :i!e most comple" technology issues. it $epen$s0
2here are some compelling reasons to un$erta!e such a proect now0 1or starters. the *arbanes(
+"ley ,ct. the government/s post(Enron accounting legislation re5uires that financial reports have
a verifiable au$it trail0 With a single instance. all of a company/s financial $ata will live in one
application an$ will originate from one source. eliminating consoli$ation errors an$ greatly
re$ucing the time it ta!es to close the boo!s0 Having a single $ata source coul$ also create new
revenue opportunities an$ cut costs0 Companies woul$ be able to run reports that show cross(
promotion opportunities. places where they coul$ reuse e5uipment or leverage purchasing power0
,lso. ,3R estimates that companies shoul$ bu$get HC0E million for a single(instance or$er
management mo$ule versus HK0D million for multiple instances0
But $espite these benefits. rip(an$(replace is a $ifficult pill for C#+s to swallow. many of whom are
ust sha!ing off the multiyear. multimillion($ollar hangover of their first ERP proect0 ,n$ they/re
won$ering if there isn/t another cure for their integration hea$aches= Web services an$ the
promise of service(oriente$ architecture )*+,-0 Web services coul$%with the emphasis on coul$
%allow C#+s who have investe$ in best(of(bree$ solutions to integrate their stan$alone systems
without either shelling out millions for single instance or tying their company/s future to a single
ven$or0 2rouble is. Web services an$ *+, are still immature an$ re5uire comple" planning an$ a
long list of programming an$ architectural talents insi$e the #2 $epartment%an$ $on/t forget
implementation time an$ cost0
3ost pun$its believe some form of stan$ar$. simple. ven$or(in$epen$ent integration will emerge
over the long term. but that $oesn/t help C#+s to$ay0 3ost e"perts recommen$ waiting for better
integration stan$ar$s if the costs of operating your systems as(is $on/t outweigh the costs an$
benefits of ripping an$ replacing with a single instance an$ the business is not missing out on
important revenue opportunities because of problems with the current system0
Essentially. single instance an$ Web servicesI*+, are two ways to get to the same place. an$
C#+s will nee$ to choose which path to lea$ their company $own0 1or much more $etail on this
choice. see Ben Worthen/s piece 'E"treme ERP 3a!eover' www0cio0comIarchiveIDDDF8EIerp0html
Here are some very basic gui$elines=
4ou shoul$ consi$er single instance if you000
Have fairly commonplace business processes that e"ten$ across all $ivisions
Have ol$er systems that nee$ to be replace$
Have multiple ERP instances from a single ven$or
4ou shoul$ consi$er an integration layer if you000
Have $ivisions with uni5ue business processes that can/t be change$
Consi$er an e"isting investment in best(of(bree$ solutions a competitive a$vantage
Want an environment in which it is easy to integrate new applications
How %ifficult is it to upra%e ERP software?
#t/s e"tremely $ifficult. unless you are one of the rare companies that $i$ not tin!er with the
system while installing it0 #n the early $ays of ERP. ven$ors pursue$ a vision that has since been
$isproven= Business processes built into the software shoul$ be a$opte$ by every customer0
Change your business to fit the system0 CE+s li!e the soun$ of reengineering. but ta!e that logic
to the $epartmental hea$ who won/t be able to serve her customers as well with the process in
the software bo" an$ su$$enly reengineering soun$s less compelling0 C#+s were force$ )or
ac5uiesce$- to tin!er with the innar$s of these pac!ages to avoi$ losing valuable chun!s of
business processes. an$ it ma$e their lives hell0 Aen$ors ignore$ this reality for years0 2hey
thought changing the system to fit your own processes meant you were a wea! girly man who
coul$n/t stan$ up to your business people0 2hose processes coul$n/t be any goo$ anyway if they
ha$n/t ma$e it into the ven$ors/ best practice pool when they $evelope$ the stuff0 3o$ifying the
core co$e of ERP was li!e turning your Pinto into a low ri$er0 4ou ust voi$e$ the warranty. $u$e0
2ough luc!0 ERP ven$ors woul$ not support customi&e$ versions of their software0
When a new version of the highly integrate$ suite arrive$ with cool new features. customers
sometimes coul$ not affor$ to install them because they ha$ ma$e so many changes to the
previous version0 C#+s ha$ built so many $ifferent lin!s to the enterprise systems to get them
wor!ing with other systems in the company that an upgra$e was a!in to starting over0 3any of the
ol$ lin!s ha$ to be torn apart an$ rewritten to fit with the new version0 ,n$ many of those rewrites
were completely pointless0 2he new suite might have one new piece an$ nine others that ha$
change$ little since the last version0 But it was all so integrate$ together that every custom lin!
ha$ to be re$one. even to the pieces that $i$n/t change0
When ven$ors began brea!ing up an$ componenti&ing their suites to ma!e them easier to
integrate with each other an$ with legacy systems insi$e the company. they also bro!e up one of
the value propositions that ha$ been so enticing in the first place= LfreeM upgra$es0 1ree$ of the
suite mo$el. enterprise software ven$ors starte$ charging fresh license fees for the new
components they $evelope$0 3any early ERP suites ha$ their $evelopment Lfro&en0M Customers
coul$ continue to get support. but newer features cost e"tra an$ wor!e$ much better%or
sometimes only%with the newer version of the ven$or/s software0 ,n$ C#+s stuc! with the ol$
suites began won$ering where all their maintenance fees ha$ gone0 2hey coul$n/t affor$ to
upgra$e to the newer. componenti&e$ version of the ven$ors/ software mo$els an$ if they coul$.
they/$ pay a new license fee for their trouble0
#n theory. early users of ERP pai$ for those new versions of the software through yearly
maintenance fees to the ven$or that every ERP ven$or charges0 2he largest percentage of those
fees went to R@< rather than to support an$ maintenance of e"isting software0 But the economics
became untenable for ven$ors0 When the ERP boom crashe$ after ?888. sales of new software
slowe$ to a crawl an$ ven$ors sai$ they were force$ to charge for new components0 #t may be
true. but it en$e$ the short era of LfreeM upgra$es0
Will service+oriente% architecture .&*A/ replace ERP?
;o0 Every company nee$s a core transactional system that recor$s the information from its most
important business processes0 But companies are reali&ing that ERP is shifting from being the
sum total of their software architecture strategy to being a component of a larger strategy base$
on e"pressing technology as specific business services that business people can easily
un$erstan$%such as Lcustomer recor$M or Lget cre$it rating.M for e"ample%rather than arcane
software applications li!e ERP0
2he services strategy entails buil$ing an integration layer that is separate an$ $istinct from any of
the software applications%inclu$ing ERP%in a company/s portfolio0 2he foun$ational piece%
!nown as the messaging infrastructure%is li!e a goo$ e"ecutive assistant%translating. routing
an$ monitoring information from $ifferent systems without these systems nee$ing to connect
$irectly0 ,$$ing. changing or removing a system becomes a matter of mo$ifying a single lin!.
rather than ripping apart connections to all the $ifferent systems it may nee$ to communicate
with0
But while the messaging infrastructure ma!es connecting systems easier. it $oesn/t free business
processes from their mainframe prisons. or eliminate re$un$ancies in applications. or provi$e any
impetus to create a useful architecture0 #n$ee$. a goo$ messaging infrastructure can perpetuate
the chaos by ma!ing it easier to $eal with0
3essaging has long lac!e$ a higher purpose. a strategy0 *ervice obects )or ust plain LservicesM-
are that strategy. an$ it is the secon$ core piece of the integration layer0 2his is an ol$ concept.
base$ on obect(oriente$ programming from the 6N8s0 *ervices e"tract pieces of $ata an$
business logic from systems an$ $atabases aroun$ the company an$ bun$le them together into
chun!s that are e"presse$ in business terms0
,t telecom company Aeri&on. for e"ample. the service calle$ Lget C*RM )get customer service
recor$- is a comple" umble of software actions an$ $ata an$ business logic e"tractions that uses
Aeri&on/s messaging infrastructure to access more than ?F systems in as many as four $ata
centers across the country0 Before buil$ing the Lget C*RM service. Aeri&on $evelopers wanting to
get at that critical lump of $ata woul$ have to buil$ lin!s to all ?F systems%a$$ing their own lin!s
on top of the web of lin!s alrea$y hanging off the popular systems0
But with the Lget C*RM service sitting in a central repository on Aeri&on/s intranet. those
$evelopers can now buil$ a single lin! to the carefully crafte$ interface that wraps aroun$ the
service using the Web services stan$ar$ simple obect access protocol )*+,P-0 2hose ?F
systems imme$iately line up an$ march. sen$ing customer information to the new application an$
saving $evelopers months. even years. of $evelopment time each time the service is use$0
2he most interesting new LfeatureM being $evelope$ by the ERP ven$ors to$ay is the e"tent to
which they will ma!e their software part of a service *+, using their own homegrown integration
software. !nown as mi$$leware. an$ Web services so that customers can more easily lin! ERP
with other types of software in the architecture0 Each ven$or has claime$ fealty to the concept
an$ each has its own vision of how to create an integration layer in$epen$ent of its own software
that is capable of lin!ing to any other piece of software in the universe0 But view their
pronouncements s!eptically because if they $o it well they will eliminate an important piece of
their competitive $ifferentiation= $ominance over the software ac5uisition process of their
customers0
When C#+s call themselves a L*,P shopM or an L+racle shop.M it/s because software from those
companies $ominates their architecture an$ new software from those provi$ers wor!s better with
their e"isting co$e base than $oes co$e from other ven$ors0 Aen$ors who ma!e integration with
their software truly universal eliminate the built(in a$vantage they have with e"isting customers0
*ome ways that ven$ors use their new mi$$leware strategies to !eep customers= 2he
mi$$leware is offere$ only to customers who upgra$e to the latest version of ERP. or customers
are charge$ a fee for using the mi$$leware to lin! with software from another ven$or0
How %oes ERP fit with e+commerce?
ERP ven$ors were not prepare$ for the onslaught of e(commerce0 ERP is comple" an$ not
inten$e$ for public consumption0 #t assumes that the only people han$ling or$er information will
be your employees. who are highly traine$ an$ comfortable with the tech argon embe$$e$ in the
software0 But now customers an$ suppliers are $eman$ing access to the same information your
employees get through the ERP system%things such as or$er status. inventory levels an$
invoice reconciliation%e"cept they want to get all this information simply. without all the ERP
software argon. through your website0
E(commerce means #2 $epartments nee$ to buil$ two new channels of access into ERP systems
%one for customers )otherwise !nown as business(to(consumer- an$ one for suppliers an$
partners )business(to(business-0 2hese two au$iences want two $ifferent types of information
from your ERP system0 Consumers want or$er status an$ billing information. an$ suppliers an$
partners want ust about everything else0
2ra$itional ERP ven$ors are having a har$ time buil$ing the lin!s between the Web an$ their
software. though they certainly all reali&e that they must $o it an$ have been wor!ing har$ for
years to $evelop it0 2he bottom line. however. is that companies with e(commerce ambitions face
a lot of har$ integration wor! to ma!e their ERP systems available over the Web0 1or those
companies that were smart%or luc!y%enough to have bought their ERP systems from a ven$or
e"perience$ in $eveloping e(commerce wares. a$$ing easily integrate$ applications from that
same ven$or can be a money(saving option0 1or those companies whose ERP systems came
from ven$ors that are less e"perience$ with e(commerce $evelopment. the best%an$ possibly
only%option might be to have a combination of internal staff an$ consultants hac! through a
custom integration0
But no matter what the $etails are. solving the $ifficult problem of integrating ERP an$ e(
commerce re5uires careful planning. which is !ey to getting integration off on the right trac!0
Can $ use ERP to manae a networ" of forein suppliers?
ERP was $esigne$ at a time when process management was an internal affair0 2he systems have
lagge$ behin$ the e"plosive growth of globali&ation an$ offshore outsourcing of manufacturing0
When most >0*0 manufacturing was still mostly local. companies coul$ lin! their ERP systems
through e"pensive electronic $ata interchange )E<#- connections0 But E<# lin!s )an$ ERP
systems themselves- never penetrate$ much beyon$ a manufacturer/s top tier )rea$ biggest.
richest- of suppliers. $ue to the cost of installing an$ managing the lin!s at the supplier0 #n thir$(
worl$ manufacturing $estinations. even an #nternet connection is often a lu"ury0 2he mar!et for
managing the core ERP information )or$ers. inventory. etc0- of the Le"ten$e$ supply chain.M is
only now beginning to emerge
Kan ban(visual card):
According to aiic!i "!no# t!$ %an cr$dit$d &it! d$v$lo'ing ()# *anban is t!$ %$ans
t!roug! &!ic! () is %anag$d
Kanban is a signaling s+st$%. As its na%$ sugg$sts# Kanban us$s cards to signal t!$ n$$d
,or an it$%. "t!$r d$vic$s suc! as 'lastic %ar*$rs (Kanban s-uar$s) or balls (o,t$n gol,
balls) can also b$ us$d to trigg$r t!$ %ov$%$nt# 'roduction# or su''l+ o, a unit in a
,actor+.
!$ Kanban s+st$% %ig!t b$ visualis$d as a .t!r$$ bin s+st$%. ,or t!$ broug!t out 'arts
(&!$r$ t!$r$ is no in!ous$ %anu,acturing) // on$ bin on t!$ ,actor+ ,loor# on$ bin in t!$
,actor+ stor$ and on$ bin at t!$ su''li$rs0 stor$. !$ bins usuall+ !av$ a r$%ovabl$ card
t!at contains t!$ 'roduct d$tails and ot!$r r$l$vant in,or%ation // t!$ Kanban card. 1!$n
t!$ bin on t!$ s!o' ,loor is $%'t+# t!$ Kanban card is r$%ov$d and giv$n to t!$ stor$.
!$ stor$ t!$n r$'lac$s t!$ bin on t!$ ,actor+ ,loor &it! a ,ull bin &!ic! also contains a
r$%ovabl$ Kanban card. !$ stor$ t!$n contacts t!$ su''li$r and indicat$s t!$ n$$d to
r$'l$nis! t!$ Kanban card. !$ 'roduct also containing a Kanban card is d$liv$r$d into
t!$ ,actor+ stor$ co%'l$ting t!$ ,inal st$' to t!$ s+st$%. 2o it &ill n$v$r run out o,
'roduct# 'roviding o, cours$# t!$ cards ar$ r$liabl+ coll$ct$d ,ro% $%'t+ contain$rs. )t is
a '$r,$ct .'us!/'ull. t!at could also b$ d$scrib$d as a .loo'.# 'roviding t!$ $3act a%ount
r$-uir$d# &it! onl+ .on$. s'ar$ so t!$r$ &ill n$v$r b$ an issu$ o, .ov$r/su''l+.. !$
s$cr$t to a good Kanban s+st$% is to calculat$ !o& %an+ Kanban cards ar$ r$-uir$d ,or
$ac! 'roduct. 4ost ,actori$s us$ t!$ colour$d board s+st$% (5$i6un*a 7o3). !is consists
o, a board cr$at$d $s'$ciall+ ,or t!$ 'ur'os$ o, !olding t!$ Kanban cards.
Just(#n(2ime )J#2- 3anufacturing )Page D of ?-

0ust+$n+time manufacturin. or 0$T. is a management philosophy aime$ at eliminating
manufacturing wastes by pro$ucing only the right amount an$ combination of parts at the right
place at the right time0 2his is base$ on the fact that wastes result from any activity that a$$s
cost without a$$ing value to the pro$uct. such as transferring of inventories from one place to
another or even the mere act of storing them0


2he goal of J#2. therefore. is to minimi&e the presence of non(value(a$$ing operations an$ non(
moving inventories in the pro$uction line0 2his will result in shorter throughput times. better on(
time $elivery performance. higher e5uipment utili&ation. lesser space re5uirement. lower $pm/s.
lower costs. an$ greater profits0

J#2 fin$s its origin in Japan. where it has been in practice since the early D7K8/s0 #t was
$evelope$ an$ perfecte$ by 2aiichi +hno of 2oyota. who is now referre$ to as the father of J#20
2aiichi +hno $evelope$ this philosophy as a means of meeting customer $eman$s with minimum
$elays0 2hus. in the ol$en $ays. J#2 is use$ not to re$uce manufacturing wastage. but primarily to
pro$uce goo$s so that customer or$ers are met e"actly when they nee$ the pro$ucts0

J#2 is also !nown as lean pro$uction or stoc!less pro$uction. since the !ey behin$ a successful
implementation of J#2 is the re$uction of inventory levels at the various stations of the pro$uction
line to the absolute minimum0 2his necessitates goo$ coor$ination between stations such that
every station pro$uces only the e"act volume that the ne"t station nee$s0 +n the other han$. a
station pulls in only the e"act volume that it nee$s from the prece$ing station0

2he J#2 system consists of $efining the pro$uction flow an$ setting up the pro$uction floor such
that the flow of materials as they get manufacture$ through the line is smooth an$ unimpe$e$.
thereby re$ucing material waiting time0 2his re5uires that the capacities of the various wor!
stations that the materials pass through are very evenly matche$ an$ balance$. such that bottle
nec!s in the pro$uction line are eliminate$0 2his set(up ensures that the materials will un$ergo
manufacturing without 5ueueing or stoppage0

,nother important aspect of J#2 is the use of a 'pull' system to move inventories through the
pro$uction line0 >n$er such a system. the re5uirements of the ne"t station is what mo$ulates the
pro$uction of a particular station0 #t is therefore necessary un$er J#2 to $efine a process by
which the pulling of lots from one station to the ne"t is facilitate$0

J#2 is most applicable to operations or pro$uction flows that $o not change. i0e0. those that are
simply repeate$ over an$ over again0 ,n e"ample of this woul$ be an automobile assembly line.
wherein every car un$ergoes the same pro$uction process as the one before it0

J#2 has li!ewise been practice$ successfully by some semicon$uctor companies0 *till. there are
some semicon$uctor companies that $on/t practice J#2 for the simple reason that their operations
are too comple" for J#2 application0 +n the other han$. that/s precisely the challenge of J#2 O
creation of a pro$uction set(up that is simple enough to allow J#20
1ui%elines for &uccessful 0$T $mplementation

D- 3a!e the factory loa$ings uniform. linear. an$ stable0 1luctuations in manufacturing loa$ings
will result in bottlenec!s0
?- Re$uce. if not eliminate. conversion an$ set(up times0
E- Re$uce lot si&es0 2his will smoothen out the flow of inventories from one station to another.
although this may necessitate more fre5uent $eliveries or transfers0
C- Re$uce lea$ times by moving wor! stations closer together an$ streamlining the pro$uction
floor lay(out. applying cellular manufacturing concepts. using technology to automate processes
an$ improve coor$ination0
F- Re$uce e5uipment $owntimes through goo$ preventive maintenance0
G- Cross(train personnel to achieve a very fle"ible wor! force0
K- Re5uire stringent supplier 5uality assurance since an operation un$er J#2 can not affor$ to
incur errors $ue to $efects0
N- >se a control system to convey lots between wor!stations efficiently9 the use of a !anban
system is an e"ample of this

2anban &ystems

Kanban systems are often associate$ with J#2 implementation0 #n fact. some people have the
misimpression that J#2 re5uires the use of a !anban system0 Having a !anban system is not a
strict re5uirement of J#2 implementation. but their use as a tool for practicing J#2 has become
5uite popular owing to its simplicity0

, !anban is a car$ attache$ to the carrier or container of a lot use$ to match what nee$s to be
pro$uce$ in a wor! station an$ what nee$s to be $elivere$ to the ne"t station0 ,s mentione$. a
J#2 system is basically a 'pull' system. which means that what nee$s to be pro$uce$ in a
particular station $epen$s on what the ne"t station nee$s0 >ltimately the pro$uction is therefore
mo$ulate$ by en$ customer or$ers0 Kanbans. which contain information about the lots an$
5uantities involve$. are therefore use$ to facilitate the e"ecution of this 'pull' system0 With this
'pull' system. no parts that can not be processe$ in succee$ing stations will be pro$uce$0

2here are two types of !anban assigne$ to every lot. namely. a pro$uction !anban )P(!anban-
an$ a conveyance !anban )C(!anban-0 2he P(!anban $enotes the nee$ to pro$uce more parts
while the C(!anban $enotes the nee$ to $eliver more parts to the ne"t station0 ;o parts can be
pro$uce$ unless authori&e$ by a P(!anban0 +n the other han$. a C(!anban triggers the 'pulling'
or 'with$rawal' of units from the prece$ing station0 C(!anbans are also !nown as 'move' or
'with$rawal' !anbans