Draining the Swamp A business rationale for an ERP implementation project

1. Draining the SwampA business rationale for an ERP implementation project Peter Palmer CMACS (Snr) Weyerhaeuser Australia Ltd peter.palmer@acslink.net.au

2. Agenda Setting the scene – the business environment The information supply chain – and process maturity The ERP implementation project – a report card

3. Setting the scene Business environment The production process The trouble with making timber

4. The product supply chain

5. The difficulties of timber production Disaggregation One log becomes many finished products Stochastic Not predictable, 70% accuracy Dynamic It’s a flow, very fast In Australia/New Zealand Even a big mill is small, and we have lots Making thousands of discrete products From small logs We’ve under-invested in the production process Most manufacturing is MRPII based Aggregation, discrete, deterministic Most ERPs are MRPII based Reverse BOMs, ghost routing, flushing

6. The information supply chain Production planning Manufacturing strategy The Process Maturity Model

7. The information supply chain

8. Current production planning Manual with spreadsheet support Last month’s plan with tweaks Two days to develop a feasible monthly plan Little supply chain optimisation or integration Focus is utilisation of raw material and production capacity KPIs are efficiency based eg recovery and cost of production

9. Manufacturing orientation Production orientation Efficiency focus on best use of raw material and capacity Inward-facing KPIs eg manufacturing costs The traditional way as we started to understand processes Asserted to result in greater profitability Doomed, the commodity product trap Customer orientation Effectiveness focus on satisfying the needs of the customer Customer-facing KPIs eg Delivery In-Full On-Time In-Spec A trend noted since the early 1980s Asserted to result in greater profitability Inevitable, customers demand it and have choices Timber industry Production orientated But change is in the air Can the industry be customer orientated (and profitable)?

10. Customer orientated and profitable? Customers won’t let us stay production orientated Clear signals from customer surveys But as customer orientation increases, profit declines More constraints in the production environment Thus a need to be both Production orientated Costs, predictability, quality Production excellence The product supply chain Customer orientated Right products, right customers, right time Planning excellence The information supply chain

11. Cultural Change – the Process Maturity Model

12. Process maturity observations Most companies at Level 1 It take 2-3 years to jump a level, 10 years top to bottom You can’t skip levels You can slide back Need level 3 for an ERP “Decline & Fall of the American Programmer” Ed Yourdon, 1993

13. The information supply chain Didn’t exist Manual, not able to be integrated or optimised Production planning is the key to production management Seen to be uniformly poor in Australia/New Zealand Need a toolset to provide this capability Re-implement the information supply chain Deal with stochastic disaggregation Integrate customer demand with production capability Optimise: doing the best with what we’ve got Process maturity Cultural change from level 1 to level 3 Process change first, then the toolset Computer support Mandatory An ERP implementation project is conceived

14. The ERP implementation project The approach The lessons The results

15. System implementation Phase 1 – Plant maintenance Mid 2004 Phase 2 – Sales and distribution One implementation: early 2005 Phase 3 – Manufacturing Mill by mill: June to October 2006 Phase 4 – Supply chain planning Work in progress: end 2006

16. The lessons Big bang = big risk We are all lean organisations now, no spare headcount to help go live Need to borrow staff from other sites for implementation fortnight Keep technical folks free to solve the problems as they occur Minimise the revenue hit at implementation by keeping the impact small Minimise the modifications Good intentions and better than before but still room to improve The standard system works, your mods change that, never enough testing Forever. Significantly changes the total cost of ownership Process re-engineering Good intentions but business inertia and project budgets don’t mix An ERP is a process engine and demands a level 3 process maturity Either do it calmly before implementation, or under pressure later Benefits Come from process simplification (without the toolset?) And analysis of operational data, ie 6-12 months down the track Name the names and the date, and list the operational budget line items Or nothing happens

17. The results

18. Summary Setting the scene – the business environment Dynamic stochastic disaggregation not supported by the usual ERPs The information supply chain – and process maturity A demand for customer orientation and a new implementation of the information supply chain, requiring improved process maturity and new toolsets The ERP implementation project – a report card Re-engineer processes calmly before implementation or under pressure later, but you will do it