Despite COVID-19 shutdowns, re-openings, and partial re-closings in some parts of the state, Illinois manufacturers of all sizes are grappling with serious management decisions. Many halted the implementation of planned installations or upgrades to an Enterprise Resource Planning (ERP) software system or deferred part of their project when the pandemic began. Now, they are trying to decide whether to proceed or wait until their business returns to something approaching “normal” – whatever that might be once the virus recedes.
It is a huge decision with managerial, financial, operational, and employee relations implications that ripple throughout an organization.
For large manufacturers headquartered in Illinois or those that have operations in the state, re-starting or proceeding with a digital transformation in the current environment might also attract the attention of shareholders, Wall Street, business reporters, and even the SEC.
For smaller companies with sales between $50 million and $100 million, one or two factories and a warehouse, a complex supply chain, and perhaps a few hundred employees, the effect of a wrong decision might be the difference between thriving and barely surviving.
Digital Reopening Strategy
A recent report from McKinsey & Co. suggests that a corporate reopening strategy needs to include shifting IT and technology to a restart mode. Among the key reasons is that accelerating digital transformations will ensure that they reflect the needs of customers, employees, and the entire supply chain.
McKinsey writes, “The IT infrastructure must be relevant, secure and able to meet emerging (and changing) expectations … Executives will need to draw up a business-led technology road map to accelerate their digital transformation with urgency.”
This directly affects ERP software systems during and after COVID-19 and is why Illinois manufacturers should consider fast-tracking projects now.
Every technology project must reduce a company’s costs during and after COVID-19. Yet investments in the right ERP technology can contribute significantly to growth during the recession, which shows no signs of ending soon.
The key is ensuring that the project is relevant to an organization’s digital ecosystem in whatever comes during and after the pandemic.
The place for manufacturers to begin is by reviewing their existing contract or, for a new project that halted when COVID-19 hit, reviewing one still waiting to be signed.
If the ERP contract is negotiated and drafted – or redrafted – properly, and performance of the vendor and integrator is monitored closely, once the system comes online it should help enable a manufacturer to restart successfully and cost-effectively.
Regardless of its size, there are five key points a company needs to keep in mind as it considers fast-tracking at least portions of a new or upgraded ERP software system.
1 – Your business has likely changed. The “next normal” will require another major change as dramatic as the one when the lockdowns took effect. ERP users will continue to face a raft of unknowns that will not be clear for a while. The user’s operation may be functioning in one location but not in another. Supply chains will continue to be disrupted. Access to markets may be restricted.
2 – Recalibrate your ERP strategy. For most manufacturers with an ERP software system, what was a solid technology strategy in February may not be practical several months later. After the broad corporate strategy and direction is recalibrated, do the same with the ERP strategy, because it may need to be adjusted. This does not mean that an integration needs to be further delayed. Rather, it might be necessary to change the requirements that led to upgrading a legacy system or installing a new one. ERP vendors and integrators are much more likely to be willing to renegotiate the terms of a contract because they are even more vulnerable than many of their customers.
3 – Build a new integration roadmap. A major reason so many ERP integrations end up in a lengthy court battle is that the user did not start with a clear idea of the implementation process and how milestones would be measured and monitored. Not doing this has always been an expensive mistake, but in the time of COVID-19, it can lead to disaster for the company, with an impact on not just operations but also the bottom line. Whether or not you used a consultant at the beginning of the project, retaining one now is critical to an ERP project at this point.
4 – Include a change management initiative. Everyone has been affected by the pandemic, whether by wearing masks and following stay-at-home orders or because their pay was reduced and their job redefined. Just as senior management needs to work closely with IT to monitor the progress of an ERP project shifting back into high-gear, they also need to ensure HR is ready to help create a workable change management program. Many employees are still in shock from the effect of the pandemic on their daily lives. Without an effective change management program, employees are likely to revert to form quickly, blocking any significant shift in how they do their jobs.
5 – Management must control the change as they restart ERP projects. Despite the many unknowns over the several months, senior management can find ways to control effectively restarting ERP software system projects. Doing so requires understanding how the project will fit into Kimberling’s “next normal” and what the system needs to deliver now, however the business has had to change.
Restart ERP With Caution
A problem that has plagued many ERP projects is a slow decision-making process and seeing ERP as a technology solution rather than a management tool.
Right now, slow decision-making is the same as not deciding. A plan-ahead team is needed to identify and work through potential obstacles.
One way to sidestep problems is to work with counsel to renegotiate contract provisions that need reconfiguring to today’s reality. Vendors and integrators are in a vulnerable position, especially regarding specifics on deliverables. The responsibilities of the user, the vendor, and the integrators need to be very precise. Spell out what work will be subcontracted, and which party will be responsible for third-party performance.
For organizations just starting out on an ERP project, executives are contending with not just a transformation of the business, but also a type of contract they have not likely previously negotiated. Contracts for ERP software systems are nothing like the loan documents, sales agreements, leases, or employment offers that are typical of what businesses regularly review.
It is imperative to proceed with caution.
We have seen how large, sophisticated organizations with considerable resources can run into problems with their ERP projects, starting with the contracts they sign. Smaller manufacturers in Illinois need to be even more careful as they proceed with their efforts.
This article was originally published in the Fourth Quarter 2020 issue of The Illinois Manufacturer.