8/10/2019 IT ERP Case Study

1/4

ERP Implementation Goes Awry,Takes a $5.9 Million Bite Out of Profits.How One Company Bounced Back.

It wasnt the first business unit in the company to

implement the corporate-mandated ERP system.Managers knew what to expect, or thought they did.Several years ago the company had even snapped upa competitor financially weakened by a botched ERPimplementation, so managers understood that therecould be risks. Their IT consultants assured everyone thatchanging over to the new ERP systemeven though theirproducts were fairly complex and highly customizedwould go smoothly. What could possibly go wrong?

ERP systems are supposed to streamline processes sothat businesses run faster, smarter and more profitably.And they usually deliver, sooner or later. In this case,a few weeks after the new ERP system was turned on,the business could barely ship product, in the wordsof one executive. Internal quality defects jumped fromless than 4 percent of orders to more than 11 percent.Needing to ship around 650 orders per day, past dueorders ballooned from around 500 to over 7,000,prompting a number of disgruntled customers to cancelorders and find alternative suppliers.

All of these issues added up. Unbudgeted costs

included: external consultants, additional customerservice reps, manufacturing, customer service and ordeentry overtime, higher scrap rates and premium freight.

www.tbmcg.com

ClientThe largest and most complex division of a publicly tradedcompanythat wishes to remain anonymouswith factoriesin the United States and Mexico. It manufactures andmarkets highly customized products through retail outletsworldwide.

ChallengeAfter a new ERP system went live the company couldbarely get product out the door. After several months ofintense manual effortsincluding major overtime on theshop floor, and a doubling of order-entry personnelthe unit had improved the situation to some extent, butperformance gains had stalled at around 70 percent ofwhere they were before the installation of the new system.Excessive product defects, increased labor requirements,and order expediting were still costing $118,000 perweek. Delayed deliveries and poor customer service werealso eroding the companys dominant market share.

SolutionA steering committee led by top management targetedfour key problem areas that needed to be fixed to get thebusiness aligned with customer needs again. Utilizing TBMswell-dened LeanSigma methodology and highly structuredimprovement approach, we worked with the client on:

1) scheduling

2)shop-floor simplification

3)order-entry/customer service processes

4)inventory management

Visual management and disciplined daily managementprocesses accelerated and sustained the processchanges in each of these areas.

ResultsWithin 12 weeks, all of the improvement plans had beenimplemented, performance was improving, and the companybegan working to rebuild its reputation and recover lostmarket share. They reduced past due orders by over 90% fromover 5,000 orders to less than 500, and cut work-in-processinventory in half. Order entry time fell from over 10 days to lessthan two days, and the business had reduced order-entry headcount back to original staffing levels.

Information Technology: An ERP Go-Live Recovery Story Case Study

8/10/2019 IT ERP Case Study

2/4

In total, the ERP implementation issues were costing

$118,000 per week$5.9 million per yearandwere reducing margins by 3.6 points. Managementcited the unexpected costs as a drag on earnings in thecompanys quarterly financial report to shareholders.

Righting the Ship

Over an intense 12-week period, a team of TBMconsultants worked with the companys executives,operations managers and IT team members to turnthings around. Their objective wasat minimumtoreturn the business to its performance levels prior to

the ERP system implementation by reducing transactioncomplexity, simplifying and standardizing business andproduction processes, training and certifying all systemusers and locking down information and material flows.

At a high level the TBM team followed the DMAICprocess. Starting with an overview of the currentsituation, they worked with the clients managers todefine the current problems, measure and analyze thedata, establish quantifiable recovery goals and createdetailed project plans to fix the situation. A steeringcommittee, which included high-level executives and aTBM representative, met every week. They monitoredthe progress of the four improvement teams assignedto each major problem area.

The commitment by the senior management teamat the company was unquestionable, recalls KenVan Winkle, TBM Senior Management Consultant.Everyone attended the regularly scheduled steeringcommittee meetings and participated in the 12-weekrecovery plan every day as needed.

The underlying problem, as indicated by the doublingof the companys order-entry personnel, was thatcustomer service people couldnt enter orders quickly oraccurately. Thats a big issue when every product youship must be customized in some way. Such complexityis not what ERP systems were traditionally designed tomanage, Van Winkle notes.

www.tbmcg.com

Processes Targeted forImmediate Improvement

1. Order entry.There was no standard work for entering orders,which came in by mail, fax and email. Ordersvary from basic to complex. Using a perfectorder metric, which is defined as complete andaccurate orders, the order-entry improvementteam simplified, standardized and error-proofed

the order entry process.

2. Scheduling.In contrast to the previous ad hoc approachto production scheduling, the new systemallows optimization by customer types. Itlooks at due dates and prioritizes expeditesusing a visual process (colored folders) and ascheduling wheel.

3. Shop floor.There was limited process documentation,standard work, or visual management. Theshop-floor team simplified and standardizedproduction processes, and created workinstructions that everyone could understand.Day-to-day problem-solving tools helpedsupervisors drive a variety of significantimprovements in their areas.

4. Inventory management.Incompatibilities between the new system andthe companys legacy system contributed to

inventory increases and replenishment failures.A comprehensive review of all procured materialsre-established replenishment types, whichimproved material availability and allowedinventory levels to be reduced significantly.

8/10/2019 IT ERP Case Study

3/4www.tbmcg.com

After three months, the improvement plans had been

executed and the organization was in full recovery mode.Testifying to the culture of the organization, there wasvirtually no pushback against the changes that had to bemade to improve the companys performance.

The level of commitment was very obvious at all levelsthroughout the organization. The prevailing attitude wasand is that they would do whatever it takes to serve theircustomers better, says Van Winkle.

To maintain forward progress, TBM helped eachwork area implement SQDC boards (safety, quality,

delivery, and cost) for monitoring and reporting currentperformance. A floor-level management process formonitoring that performance (managing for dailyimprovement) established a system for assigningresponsibility and addressing abnormalities when theyarose. The engagement also included the creation ofan assessment process for key personnel using a skillsmatrix. Going forward the expectation is that everyonein critical roles will be required to achieve a defined skillscertification level.

The results speak for themselves:

> Past due orders are down over 90 percent,to less than 500.

> Order-entry errors are down 22 percent.

> The average time to enter an orderis now less than two daysand fallingcompared to over 10 days.

> Order-entry productivity is up 39 percent,with the total number of people needed toenter orders reduced from 38 to 23.

> Internal defect rate dropped by 50 percent,back to pre-ERP system levels in most areas, andby 75 percent in one critical production area.

> Work-in-process inventory has been cut fromsix to three weeks.

On the cost front, annual operating costs have beenreduced by millions of dollars, and are well on their wayback to pre-ERP implementation levels, which will return$6 million to the bottom line.

Within weeks of implementing the SQDC boards,recalls Ken Van Winkle, I was in the facility when one

of the area managers presented the performance of hisarea to the CEO. He did better than people at manyorganizations who have been doing it for years. Thatsa sign of a company with talented people who ownthe process, own the problems, and own the solutions.The CEO thanked him and his team personally for theircommitment and dedication.

Te level of commitment was very obvious

at all levels throughout the organization.

Te prevailing attitude was and is that theywould do whatever it takes to serve their

customers better. Ken Van Winkle,

Senior Consultant, TBM Consulting Group

Information Technology: An ERP Go-Live Recovery Story Case Study

8/10/2019 IT ERP Case Study

4/4

Join us on

OurBlog

China Brazil France Germany India Mexico United Kingdom United States

TBM Consulting Groupwww.tbmcg.com

01/2013 TBM, the TBM logo and LeanSigma are registered trademarks of TBM Consulting Group, Inc.

TBM is a global operations management consulting firm that maximizes enterprise value and accelerates growthby working with clients to leverage operational excellence. Our clients achieve growth rates 3-5X their industryaverage and EBITDA growth at least 2X their topline. We focus on results with a bias for action and work side byside with our clients to immediately improve EBITDA, accelerate organic growth, ensure the rapid realization ofresults from newly acquired businesses, and generate immediate and long-term balance sheet improvements. Oursubject-matter professionals average 1025 years of operational, management and executive experience in themanufacturing sector and none are career consultants. We leave behind a customized framework and structurefor lasting change using our proprietary LeanSigmaapproach, which has been continuously improved since weintroduced it over 20 years ago.

About TBM Consulting Group

http://www.tbmcg.com/blog/http://www.tbmcg.com/blog/http://www.tbmcg.com/blog/http://www.youtube.com/user/TBMConsultingGrouphttp://twitter.com/#!/TBMtalkshttp://www.linkedin.com/company/tbm-consulting-grouphttp://www.facebook.com/pages/TBM-Consulting-Group/140423676025642