Saphran Monthly Best-Practice Analytic: Where Did the "P" Go in ERP?!
4 essential capabilities manufacturers must adopt to have the "P"
I've never understood why there was a “P” in ERP. Most discrete manufacturers don't leverage ERP for forecasting and planning the future of the business beyond a few weeks.
Planning for future capital needs, negotiating with vendors for better future pricing on materials, and seeing your future topline revenue and margins require looking well beyond a few months. I have always thought that it should be “ERR" (pun intended), for Enterprise Resource Recording. It reeks of the old way of forecasting which looks only backward to inform a guess about the future.
Discrete manufacturers in OEM supply chains have more data and better tools to plan the future now. Many industries have third-party forecasters who do a fair job of projecting industry demand, or at least suppliers can leverage expected volumes from their customers. Manufactures are learning to employ a rolling sales forecast contented with real opportunities. And some discrete manufacturers even cost and quote their future business opportunities in relational database tools, instead of Excel spreadsheets.
The long-lead window associated with commercial opportunities for most discrete manufacturers means that building a forecast accommodates more than the current Production-status business that is housed in ERP. You must add Awarded-status business that has not yet launched production, and include high probability Quoted-status and Target-status business. Forecasting these future business opportunities is what drives forecasting of your real future capital needs and offers high-value opportunities to plan for cost savings, while targeting revenue growth.
Here are a few essential capabilities to employ soon to have the “P” before you find yourself falling behind your competition:
#1 - Have a rolling sales forecast. This means managing your future commercial opportunities in a rolling revenue/volume environment. Today's opportunity management tools often couple opportunity management functionality with third-party industry data and/or customer volumes to maintain a rolling intermediate to long-term forecast.
#2 - Stop costing and quoting your future business opportunities in individual Excel files. When you cost and quote new business in Excel you waste the opportunity to leverage the bill-of-material you've just crafted against a rolling forecast to become a financial and operational forecast for the future. Said differently cost and quote your business in a relational database toolset instead of Excel files. This typically speeds the costing/quoting process for better response time to customers, plus makes costing and pricing more accurate. It also makes the bill-of-material available to extend the sales forecast (long before ERP will house that bill-of-material) and unlocks visibility to the evolution of margin for each piece of business over time.
#3 - Alignment of #1 and #2 above into unified commercial process flow. This alignment allows these commercial tasks to be performed in a singular process flow toolset instead of separate systems, or, typically worse, myriad disparate Excel files. Can you say, “Lean!” Once aligned this yields financial and operational forecasts (beyond a sales forecast) that are what you hoped for from ERP to begin with. This alignment produces forecasts for margin, capacity utilization of assets, detailed material and component spend, and helps budget for capital.
#4 – Connect the forecast system with ERP for ship history, customer order (EDI) feedback, and Production B-O-M's. This creates a feedback loop that helps you adjust your forecasting based on recent actuals. Adjusting an installation take rate to be more accurate comes to mind. By capturing archives this can also help you validate which customers are accurate (or grossly inaccurate) with their near-term order schedules, aiding inventory planning. This connection also taps current bill-of-material data for the parts you make today to content the financial and operational forecast mentioned above.
So, ironically, putting the “P” into your enterprise financial and operational planning doesn’t simply mean accounting for what came out of your plants yesterday, but harnessing your commercial processes to create the real Enterprise Resource Planning that you hoped for.
--John Brennan, EVP & Chief Strategy Officer, Saphran, Inc.
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