System vs. process?

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The System answers 5 questions:

Working with custom manufacturers on a daily basis, I often notice that systems and processes are often combined into one. This can create enormous complexity and unnecessary time loss in projects. 

1. Why to do?

Before deciding to take on a project, a lot of processes have happened, and if there is no CRM, not much if anything has come into the system. Every company will have their own qualification rules to ensure that only the right opportunities enter "the system".

Some examples:

  1. Does the customer fit our target market?
  2. Does the scope and requirements fit our capacity?

The assumption is that the sales engineer has asked all questions required to understand the product, process, layout, environment, standards requirements and financial factors.

Often when this is completed now inside sales and engineering gets involved to validate and specify what the estimate should look like and to come up with a price.

2. What to do?

The big milestones that should be reached, unless there is no progressive payments. If there is only one payment at the end of the project then, the ultimate goal is ship. It is helpful if it is a larger project to have a few milestones as long as they are simple. - "Roughly right is better than precisely wrong."

3. When to do?

This is a subject that very few companies pay attention to. Whether it is due to lack of understanding or lack of tools to achieve this, or I claim it often is because they have too many tools to achieve this.

For example:

The system handles the priorities of estimating, quoting, BOM, WIP, Inventory, Purchasing, Shipping and Receiving, etc., however, the engineering priorities are managed in a Project Management software. The assumption usually is that with many meetings both Project Management software and the Execution System (MRP / ERP) will align. In my estimation it could not be impossible that 90% of the time they are not aligned at all, in fact, they have opposite priorities to optimize local efficiency for the engineering department.

4. In what order to do?

Depending on the environment of the custom manufacturer that Engineers and or Makes to Order. There are a few companies that have successfully answered this question, holistically, but in my estimation it's only 10-20% of EtO companies. These could potentially be the same companies that ship at shorter lead-times, are less cost focused, and have a higher rate of sales growth, long term net profit and return on investment.

When priorities are dictated by two different systems, such as Project Management and ERP, and in many cases departmental Excel sheets to optimize departmental efficiency we should not expect that they align automatically, even with excessive amounts of meetings. Often it is also departmental measurements that drive this behavior to ensure the local optima under the responsibility of a department manager looks good, even if it would cost the holistic picture 30% of "shipping door productivity".

Perhaps when looking at this departmentally, it could be considered a "Process Driven" organization, and when looking at this holistically (company wide) it would be a "Systems Driven" organization.

5. Why we should or should not have done it.

In my estimation, in 95+% of EtO and MtO companies, this becomes clear when a project happened to demand more time than other projects from their unknown company wide constraint (limitation), and typically by surprise. This project is then remembered as a black cloud and should be avoided next time. Taking in consideration that in EtO and MtO companies, some projects could take more than 3 months, this could have impact not only on the quarter's results, but even the annual performance of the company.

So What?

When purchasing an ERP system, it is helpful to realize that you are looking at optimizing a "system" not "many departmental processes". Although a good system may alter process behavior, departmental processes should not all drive system's behavior, since this leads to the compromise that everything should change, except "my department".

How to take your company from being a (departmental) "Process Driven Organization" to a (holistic) "Systems Driven Organization".

  1. There is only one (place to find) priority!
  2. Priority is caused, executed and measured on company wide impact.
  3. All predecessor and successor aspects are in one place.
  4. All dependent resources (human, machine, space, material availability, customer approvals, engineering approvals) are in one place.
  5. The completion of priority triggers the next priority.

The benefits:

  1. Increase sales (Reduce Lead-Time)
  2. Reduce WIP / Inventory (Less Resources Tied Up)
  3. Reduce Cost (Optional, depending on success with 1 and 2, this one is totally negligible and not required. The two biggest costs are obviously always related to employees and suppliers, which means significant successes in this area, will reduce capacity (reliability) and/or lengthen the lead-time = decrease sales).
Dr. Goldratt: "Our customers never complained about our quoted lead-times." - The Manager of a closed plant

Peter Mol

Peter has extensive experience working with mid and c-level management teams helping them to increase their throughput and level of performance. He has consulted with plants in a variety of manufacturing industries, including automotive, fabrication, food, plastics, stamping, aluminum and steel.

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