Podcast – All About Industry – Why ERP is the central nervous system of a company – Milan Tesar
- 18 May 2022
- Posted by: jack
- Category: News
ERP implementation / ERP Project Management should be based on the company’s strategic goals. You should not perceive the implementation of the system only as an IT project, but you should approach it as a transformation project for the whole company, whose goal is not only software implementation, “says our sales director Milan Tesař in the new episode of our podcast.
Many topics surrounding ERP project management and digital transformation were discussed. Listen to the full interview in the Czech language or read the transcribed version below in English.
How often do you have to explain what the acronym ERP means during a business meeting?
We don’t have to explain anymore. I’d say luckily. On the other hand, we sometimes have trouble with everyone imagining something different under the three-letter abbreviation. Without exaggeration, I’d say that if you ask three people what ERP means, you will get three different answers and each one is a little different from the other. If I had to define ERP on its own merits, ERP is enterprise resource management. In ERP, we try to manage a value-creation process that, simply put, works by buying something, such as material, adding human resources to it, and the output is products or services that I deliver to customers. Every company does this in a different way, with commercial and manufacturing companies differing in their approaches. We are here today mainly to focus on manufacturing companies and how ERP can help them.
Speaking of manufacturing companies, I think perhaps the biggest misunderstanding with ERP and specific MES systems Is that these systems are often confusing. How are they different and what can companies expect from them?
This can be difficult to understand because the two classes of systems overlap to some extent. When we talk about ERP, it’s the broader framework, the process from start to finish, when someone orders something from me until I ship or service it. MES is purely for production management. When we look at ERP and MES in terms of manufacturing, the fundamental difference is that MES works under ERP and is closer to the physical machines, the shop floor, and the production itself. The classic division is that MES works much more with real-time data, because it is something that is directly connected to the machines and obtains information from them in real-time, so it can reset the parameters of the machines to match the measured values. We talk about working with a large amount of data in real-time, and this requires a different structure or architectural approach than the standard ERP system. You have to produce so much and then, moreover, this process can be scheduled.
But detailed management, which is actually in production processes, in the workshop, is typically a matter for MES. Even in ERP, you can probably plan some part of the production, and manage the maintenance, but as usual, the devil is hidden in the detail in the end. When a person decides whether to go the route of MES or ERP or for which area which system they should choose, from my point of view it is always about getting to know a specific MES or ERP. You need to find out what they both offer you and compare them to what you need ideally in terms of price/performance.
When we focus in practice, there are companies that have both an ERP system and an MES system. How can these systems work together? After all, data integration is a big problem in IT in general, so can you connect to individual systems and draw mutual data, or is this not common?
It’s common and we have to manage it. ERP does not exist in a vacuum in a company. You mentioned the mess of three-letter abbreviations at the beginning, so we’re used to it when we have to come to a company with an ERP project management outline. We typically integrate some PLM tool, MES, or some advanced production planning system, if the company has one. Integration is moving forward, but in the past, it was a nightmare. Now, maybe it’s a little less difficult because the technology for managing integration or the use of integration platforms moves the whole process forward quickly. No need to worry, having everything in one system still has some added value. But integration is not to be feared and is a perfectly legitimate step because both systems need a unified database, they need to share data and work with it. Every system in production allows for something different.
You mentioned the possibility of having one system from one supplier, there is a certain marketing pressure from many suppliers of these systems. What are the benefits for a company implementing a complete information structure from a single vendor?
When I speak about ERP and look at what it could bring me if I had most of the processes or all the business processes in one ERP system, the basic thing is that I have one database, one user environment, so employees in all areas work with one system. The data is centrally connected. So when I need something or information in production, maintenance, or purchasing, all the components involved work together and don’t have to make complicated API calls between different systems. It’s about the fact that when something happens in some part of the company, it’s simply known in the other part of the company. Typically, it is like a CRM and we can decide whether to include it in the ERP or make it external. If I’m a salesman, the fact that I see the ERP system via CRM allows me to track orders, and invoices, see what and when we deliver, and in theory, I also see if there is a problem in production. This is the advantage of having everything in one system and having the project management of your ERP system under one umbrella.
On the other hand, of course, there are some disadvantages. Deploying such a system takes some time, it is not an exaggeration to say, we are replacing the company’s
“nervous system”. When I look at the recent trend, it’s about using the best of both worlds. ERP then becomes a central version of the truth, a database that covers
all processes and makes sense of the data. ERP systems are also open, they have a defined interface and how they exchange messages with the outside world and other
systems. The so-called integration platform has come a long way, so the integration of the ERP vs CRM, ERP vs PLM, ERP vs. MES does not address point-to-point integration, but uses an integration platform that monitors integration, making it easier to create or manage. It really ceases to be such a problem as it used to be. The trend is shifting so that the customer can choose whether he wants to use ERP and benefit from having everything in one system and interconnection very close, or whether they want the advantages of using specialized software in detail, and this needs to connect to ERP. But the database must be one in the final outcome of any project.
When we decide to replace the company’s “nervous system”, migrate to another information system, or approach the first installation, how can we define the most common errors in the selection or implementation of the system? Do you have any instruction or advice?
I have already experienced many selections or tender processes for information systems. The funny thing is that neither is the same. Every company approaches it a little differently. It’s hard to talk about mistakes because for the customer, replacing an ERP system is a thing that doesn’t happen very often. I know from tenders that companies often have no experience, they do not know what it means, or what the exchange can bring. The various marketing messages of the manufacturers do not help either, because sometimes this creates more confusion than is necessary. I think that it is very difficult for a customer to navigate the market of ERP systems or other three-letter abbreviated software tools. It is our job to explain what an ERP system can bring, and how to move it or connect it to other systems using solid ERP project management and consulting. It is sometimes underestimated that ERP should not be an IT project. ERP change is a change in the “nervous system” of a company and is mainly done to move the company forward significantly. It’s not fun to implement systems, but when done well, the benefits can be huge. The first thing I would mention is that the company should approach this as a transformation process, not as an IT project that aims to implement some software. Many of the manufacturing companies we go to have, over time, found themselves in a situation where they have an ERP system that, thanks to its customizations and huge adaptations, is essentially such a frog at its source. There is nothing that can be done about it, everyone is afraid of any interventions, but everyone knows that something has to change. Change is painful, on the other hand, it can bring benefits – it unlocks the possibilities of interconnection, functionality, and technologies that the old system will not allow. My basic view is to transform the company, not to complete an IT project. Everything should be based on that. But when we talk about company transformation, the justification for ERP and its implementation should be based on the company’s strategic goals – they want to enter other markets, they want to supply other products, they want to supply more services for existing products, etc. This is what we are interested in, and what ERP will bring as strategic improvements. Not if it can issue a purchase order with some parameters, all systems can. It is crucial to track strategic value.
When do you consider the implementation or deployment of the system to be successful? This is probably not when the system is deployed, or when it is running properly on all computers, but rather when it delivers specific tangible results. Do you agree?
From the company’s point of view for sure. The launch is always considered a milestone. Other system vendors may say to me that our role in this is quite standard. After launch, no one will praise you. Maybe they will praise you after half a year, after a year when the system settles, it starts up, everyone uses it as it should, and all related processes stabilize. When you implement an ERP system, suddenly someone does some things differently, they have to enter data differently, but the routine daily work is a little different. It takes a while for everything to settle down. You’re dealing with a classic human: Why should I do it differently when it’s worked well so far? Some resistance to change is always present. But when we sit down in half a year and the solution has been designed correctly, most people can understand the benefits of a unified solution, because, with a bit of exaggeration, we are actually trying to build a digital twin organization. The ERP system lists the processes, data, real-time image of the company, and what is happening where. Everything is visible. Access to information is simplified, there is no need to verify things by telephone between departments, everything can be traced inside the system. That is a beautiful advantage. Then you can reap the benefits of unification into one system.
If we wanted to be more specific, which industries or industry segments are the most frequent customers of your solutions? Where do they have the greatest added value?
IFS applications have solutions for five industries worldwide. When I look at the Czech and Slovak Republics, we are focused mainly on production. Over 80% of our customers are manufacturing companies, so we cover production in all its forms. Our specialty, and where there are currently the most interesting projects, are complex production organisations. The more complicated the better for us. Where it is typically not just about series production, but rather about custom production or service, or if a company needs to monitor the entire product life cycle from the moment a product was developed to how it was delivered or serviced and changed. We are very interested in that. We prefer to go into this spectrum, although of course, we can cover all types of production. But this is a sector where digitization has more added value than what is commonly mentioned in the public and at first sight.
There are many words about digital transformation in our podcast show. Most often they are stories based on experience from serial production. At the conference where we met, you also mentioned an example of complex piece production. Could you calculate the benefits of digitization in this type of production a little more specifically?
I see it mainly in that we get most of the company data and information under one roof. When you look at piece and project production, each department (development, design, technology, production, assembly) uses some of its own software and outputs. But the whole thing is covered by some form of order, a project that is delivered to the customer at the required time. It is difficult for companies to see this as a single project because the information is scattered. Information about the timeframe of the project, resources, people working on it, finances, etc. varies. It is essential to gather all the information under one roof so that everything is visible in one place. Then it is possible to have an overview of the project’s financial plan, its implementation, the fulfillment of the project time frame or the production or assembly process. You need to know all this so that someone can manage the project. Previously, before using the software, a project manager had to monitor five to six software applications, or just make phone calls and check the status. Digitization is also about relieving people of the need to deal with routine things. These are automated and at the same time, we have provided enough information for those non-routine matters. When something happens, one has to make a decision (a project manager, a designer, a technologist, a director) when there is already a big problem. Information is needed to make that decision. But the person does not want to look for that information in various ways, they need to have them, even with predictions for the future, in a systematic form. This is the fundamental added value we can bring to piece production.
There is also the second part because many companies that supply complex or custom equipment do not end with just delivering, or selling the product. Another source of
income is the servicing of the product, its care, its further development, and its application. This is another domain that we can draw into the system, we have documentation about the product, we know how it was made, and what changes it had during production. Changes are also made during servicing, for example, the failure of some components may be considered in the future, which will be passed on to the next service or, for example, further design modifications.
Does the fact that digitalisation and its benefits are being widely promoted have a direct effect on the amount of demand from companies? Or is it more and more up to you to enlighten companies?
Both probably go hand in hand. We talk a lot about it and because we are doing well, it’s nice that not only we but also our customers are talking about it. Education
plays a big role, but companies are also thinking in this direction. When opting for MES or another three-letter abbreviation, there is always a technologically advanced ERP system in the background, which is sufficiently stable and allows sufficient space for development. It will allow you to build on it in the future. It is good to build digitization from the ground up. Whether you like it or not, the ERP system is somewhere in the back, because in the end, the company’s accounting is a vital part of any internal system. I return to the unified version of the truth, accounting must be correct, and specialized tools can be built on this basis. But it is always necessary to think about whether I will use something from ERP, or rather specialized tools. Both are fine. Both must be justified in what a company wants to achieve and what it wants to do in the future via sound ERP project management planning internally.
When I looked at your primary product, IFS Cloud, which is an eternal controversy. Is the word “cloud” a scarecrow for customers today? Are they still suspicious? Are they afraid of data theft, or data unavailability? How do they react to it?
I think it’s been talked about for so long, and it’s been going to the cloud for so long that it’s starting to become the norm. It’s no longer anyone’s fear of it because all global manufacturers have been using it for a long time. People just got used to it. You also use a lot of applications in the cloud for personal use. ERP is heading there, it’s gotten there, and when I look at it from a security point of view, I think it’s much more secure in the cloud than in a standard basic manufacturing company. The resources invested by the ERP system supplier are much larger than in a manufacturing company, for system suppliers it is a business and it is also their business card. Of course, the larger the manufacturing company, the higher the level of IT security and technology it needs to achieve. But I still think that the cloud tool plays a key role in security, and alleviates the problem when the Internet crashes for whatever reason. There may be a risk that I personally see, but it is due to the lack of supply of electricity. It may be that internet connections are not working, the factory will not produce but data is not lost.
It is also interesting in the cloud that the technologies on which the current ERP systems run no longer work by installing something on your computer or servers. The expertise associated with the operation of an entire ERP solution requires such competencies that it is no longer easy to find a person, pay them and have them running the system. It now makes sense to use it in the cloud, because it will work there for every level of user.
We are at the end of the talk, I just want to go back to the beginning. If our conversation inspired and enticed the integration of processes into one large information system for any companies listening or reading this, even if it was not IFS Cloud, what should they consider at the beginning to achieve a successful integration, that is, how to create value? What are the very first steps?
When I visit a potential customer, it is important for me to map out the current situation. I notice if there is ERP or other three-letter abbreviation systems, how they are interconnected, etc. I also ask why the current situation does not suit. I try to look for the reason for dissatisfaction in connection with the goals of the company’s strategic development. I find out where the company wants to go, then I look for the functionality of the ERP system so that it makes sense in line with the development that the company is looking for and expects for itself. It may be more important to use specialized software. This is a basic architectural view of where to go and why to go there and why ERP project management is a vital part of any project. That’s what I’d think about first. Contrasting the other extreme, which I also sometimes encounter. In the latter case, someone goes through the individual departments and then asks what anyone would want from the new ERP system. A list is created, based on which a selection is made. However, this meets the requirements of specific people, which will achieve some local optimisation within a department, but in this scenario, we do not look at all where the company is heading, where it wants to go. Enormous management or leadership support is needed to implement an ERP system. Management must be justified that if it goes into an ERP system implementation that this step will bring a strategic advantage in the future. This is the only way to meet the transformation of a company with ERP. So my recommendation is: Find out what you want to achieve first, the end goal, then we can set how to get there accordingly.