I was sitting in a meeting a few weeks ago and the term “Digital Transformation” came up. I heard the term before but wasn’t sure what it actually meant, so I Googled it. Here is what I found on i-SCOOP’s website:
“Digital transformation is the profound transformation of business and organizational activities, processes, competencies and models to fully leverage the changes and opportunities of a mix of digital technologies and their accelerating impact across society in a strategic and prioritized way, with present and future shifts in mind.”
That left me with more questions than answers, so I came up with my own definition:
“Use ERP to manage work order costs, capacity and inventory so you can stop guessing.”
I liked my definition better than i-SCOOP’s. (No offense i-Scoop.) I still like it and believe it. But I’ve come to realize my definition needs some explaining.
So let me break it down for you, starting with the last part: “…so you can stop guessing”. In most cases, your customers require a ship date from you for the order they place with you. When companies don’t manage their capacity, they rely on standard lead times for the date. If a customer wants an earlier date, it requires approval. This usually requires a phone call or meeting. Each method is a gut feel. Or as I say, it’s a guess. Guessing only gets you so far, so companies who do this typically deal with late orders every single day. Every. Single. Day.
The goal then is to stop guessing. How do you do that? That brings us to the middle part of the statement: “… to manage work order costs, capacity and inventory…” This is the digital part. Make sure the data is correct; keep the data clean. This is the part that many companies struggle with. The data is not clean, so they don’t use it. Since they don’t use it, it just gets worse. The way to promote clean data is by relying on it. If you don’t rely on it, who cares if it’s right or wrong? I’m not suggesting using bad data; I’m suggesting developing a process to answer a reasonable business question by using data in your ERP system. What did it cost me to make that? is a reasonable business question. Using ERP to answer that question is an appropriate use of ERP. If you don’t believe the data, find out why it’s wrong and fix it.
Recommended for You
Webcast, October 17th: How to Solve Your Marketing Data Nightmare
Now let’s look at the first part of the definition: “Use ERP…”. This is the transformation part. This is by far, the biggest challenge for companies. This is much harder than keeping the data clean because it involves a culture change. Companies that have not gone through this are “voice-activated” companies. Production tells Sales what date a rush order is going to ship. Supervisors tell employees what to run. Production meetings are held so everyone can talk about where orders are and if they will ship on time.
Companies that go through the transformation use ERP to see if they can meet their customers’ demand. Employees know what to run because they have a dispatch report produced from the schedule. Everyone knows the status of orders before they even walk into a production meeting. The meeting is to discuss how to get problem orders back on track.
There is a certain “freedom” in being voice-activated; there is a certain discipline in being digitally driven. (Freedom is in quotes because you are actually a slave to the lack of data, but it feels like freedom because you can say and do what feels right without worrying about what the data would say.) This is the culture change I’m referring to data-driven decisions versus guesses and discussions. Intellectually, most will agree data-driven decisions make more sense. That is until they need to become more disciplined and use data to make decisions. It feels weird, so it seems difficult, so employees want to retreat to their old ways.
Any change is hard; but having a plan lowers the risk of failure. Learn how to manage an ERP implementation project by reading my eBook, ClearFocus, 6 Steps to Successfully Implement ERP.