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Which are Your Most Profitable Customers? Leveraging Your ERP System to Analyze True Customer Profitability

Wednesday, August 19th, 2009 by admin

Strong ERP software systems can enable companies to more accurately assess true customer profitability.  While gross profit margin is an obvious measure of customer profitability, there are a number of other factors which can affect true customer profitability dramatically.  Executives and sales managers are encouraged to include the below gross margin costs in their overall customer profitability calculations.  An obvious place to start is to make sure you’re including all of the costs of promotions, allowances, and rebates that the customer qualifies for in the cost equation.

Next, consider the internal administrative costs associated with entering customer sales orders into your system.  These costs can vary substantially depending upon the methods by which your customers place their orders.  Do they email, fax, or phone in orders, or do they require a company representative to call out to them to get their orders placed?  Or, do your customers place orders via EDI transactions where there can be little or no manual interaction required beyond the initial setup of the transactions in the EDI translation solution being used?

Assuming you have a company representative speak with your customers to get orders placed in your system, you may have the opportunity to perform cross-selling or up-selling to those customers.  Likewise, the company representative can discuss with your customer contacts about products they may have ordered from you in the past and how they’re sourcing those currently.  You might be pleasantly surprised by how much information you can receive from your customers by merely asking the appropriate questions.  You can potentially find out from whom your customers are buying and the associated prices they’re paying your competitors for these items.

Does your customer access order status electronically through your Web site or via EDI transactions, or do they call your customer service personnel to inquire about the status of their orders?  One of the most interesting facts about enabling customer self-service has been that not only has this process resulted in reductions of administrative costs by companies, it has also produced increased customer satisfaction by enabling their customers to get the information they desire any time of the day or night, 24 hours a day, 365 days a year.

One of the costs that is frequently overlooked when analyzing true customer profitability is the rate at which your customers change their orders once they’ve been placed in your system. If you’ve enabled your customers to be able to change their orders themselves via the Internet or electronically via EDI transactions, this will result in reduced administrative costs over customers who communicate their order changes via email, fax, or phone which requires your personnel to make these changes manually in your systems.

Of course, your customers’ orders must be picked, packed, and shipped.  Are your customers ordering in bulk quantities where there are efficiencies gained through picking case or pallet quantities, or are they buying in eaches where individual products must be picked and packed for shipment?  Similarly, you may be making margin on the shipment of your products to your customers by charging the customer at standard transportation rates while you’re paying a reduced rate to your carriers.  Alternatively, you may be giving your customers free or reduced freight due to their status as a preferred customer or based on the overall pricing of the given order.

Once your customer receives its products, what is their frequency of returning products to you via RMA’s?  Some organizations may be charging their customers restocking fees in an attempt to offset some or all of the cost for the RMA processing while others may not.  Additionally, you may want to analyze how frequently your customer places a shipment variance claim with you where they’re claiming they’ve received less than the quantity you believe you had shipped them.

Next, there are costs associated with customers short paying invoices or taking unauthorized discounts.  Likewise, it costs you money to provide your customers with a professional, well-trained account management team that may include direct sales reps, indirect sales reps, inside sales reps, and sales management.  There will be costs associated with traveling to see your customers and sales related travel and living expenses for activities such as golf outings or other entertainment activities.

The bottom line is that strong ERP systems can better enable executives and sales management to more accurately assess the true profitability of their customer base by including all relevant costs to get a handle on the bottom line.


Selecting the Best Options for Successful ERP Software Implementation Training

Monday, August 10th, 2009 by admin

One of the key requirements for the successful implementation of a new ERP software solution is a well-defined and executed training plan.  A training plan should document how, when, and where all executive, functional, and technical user personnel will learn how to execute their work processes in the new system.

Some of the key elements of a training plan include whether the software vendor or implementation services provider will train all end users or if a train-the-trainer approach will be used.  A train-the-trainer approach is one in which key members of the implementation core team become functional experts or super users who then train their peers and colleagues within various functional areas.

Another decision to be made is how much of the training will be performed in an on-site classroom environment, via off-site remote or Internet-based training, or via computer-based or self-directed methods.  Please note that these methods are not mutually exclusive and may be used in combination during a successful implementation training process.

Some of the key aspects that will help determine how training is performed will be determined by the sheer number of personnel to train, the number of locations at which the personnel to be trained reside, and whether or not an entire workgroup can be trained concurrently vs. needing to stagger their training to keep portions of the team engaged in day-to-day operations while training others.

When the customer implementing new software is of any substantial size with multiple locations, a train-the-trainer approach typically can be delivered at a reduced cost over a method of having the software vendor or implementation services provider train all functional users.  Another benefit of a train-the-trainer approach is that the company implementing the new ERP software will generally come away with better overall internal functional knowledge because of the depth of training of the super users who become the internal trainers.  If this method is of interest, don’t assume that a given software vendor or implementation services provider has a core competency in training internal trainers.  Make certain to ask the various vendors about their training approaches and preferences during the software evaluation process.

While remote or Internet-based training can be performed concurrently with personnel from various locations without the need for travel, a key element which can be lost by using this approach is the ability for the trainer to walk around and observe the participants’ comprehension during hands-on exercises.  There will be both hands-on learners and lecture learners, and it will be imperative to cater to the needs of both groups equally.

Finally, there are advantages to using canned training aids such as computer-based training including the ability to ensure that a consistent level of training is provided and that the training materials can be used after initial production Go Live with the new system for ongoing training of existing and new personnel.  Ongoing training is a critical success factor to prolong the longevity of the ERP system and enable the company who is implementing new software to use the system as-designed and as extensively as possible.


Selecting a Third-Party IT Service Provider

Tuesday, August 4th, 2009 by Alex Smith

After selecting an ERP solution and vendor, the next step for the selection team, in the case of small business manufacturers and distributors, is to select a third-party IT service provider (this assumes that the small business does not choose a Software as a Service or Managed Infrastructure model, and the small business does not wish to employ a full-time IT employee). It is a good idea to discuss the ERP software’s hardware and network requirements with the chosen software vendor and then communicate these requirements to potential service providers. It is also a good idea to purchase new hardware (if new hardware is required) directly from the selected IT service provider. In choosing a third-party IT service provider, quality and scope of services and cost should be the main focus of the selection process.

From a services perspective, the organization should look for an IT provider who offers 24-hour technical support in the event of server or network issues should they arise. The organization should also look for a service provider who is capable of delivering a guaranteed, on-site response time should on-site fixes be required. Typically, a guaranteed response time of 4 hours or less is a fairly good service offering. In addition, the organization should look for an IT service provider with local representation and local technical and support staff. Choosing an IT service provider who is in relatively close proximity to the manufacturer’s or distributor’s facilities can improve response time and make on-site visits much more plausible. To gauge quality of service, the provider should have some references of other comparably-sized businesses in the area that use the provider for similar services. The selection team should talk to these existing customers to ensure the IT provider is capable of delivering the services and expertise it promises during the selection process.

In terms of cost, the selection team should be careful not to buy into providers’ claims that system failure and network disasters are always lurking around the corner. Some IT service providers have fairly sophisticated software offerings that can monitor hardware performance and check for potential issues that may arise. While these service providers can deliver value to larger organizations, they are not really a cost-effective solution for small businesses. The reality is that while hardware issues do occur, complete system failure (short of a natural disaster, fire, etc.) is highly unlikely with today’s technology, and as long as data is routinely backed up and stored, hardware issues should be minimal and in no way catastrophic.


Once You Sign on the Dotted Line for a New ERP System, You Own It – for Better or Worse; Not if Your Software Vendor Provides You With a Software Acceptance Process

Tuesday, July 28th, 2009 by admin

I received a recent email from a firm that provides ERP software evaluation tools and has analysts and consultants who work with clients to evaluate software solutions.  Their headline message jumped out at me immediately, which read, “Once you sign on the dotted line for a new ERP system, you own it – for better or worse.”   While this statement is true in almost every case, it is not true when companies work with a software vendor that provides them with a software acceptance process.

So, what is a software acceptance process, and how does it work?  A software acceptance process is a money-back guarantee to a company acquiring ERP software following contract signing and initial software installation.  We know that during a software evaluation process, personnel from the company evaluating software do their best to describe the processes and capabilities they require in a new software solution.  The vendor’s responsibility is to understand the prospect’s requirements and to show and describe to them how their software matches up with those requirements.  Unfortunately, this process is flawed.

Prospect personnel cannot understand and describe clearly what they are looking for from new software.  Likewise, software vendor personnel cannot comprehend perfectly what is being requested by the prospect personnel.  There will always be gaps in understanding and communication; however, a software company that offers a software acceptance process embraces this fact and helps to make it a non-issue.  Software vendors who offer the software acceptance process don’t want customers to be fooled or misled into buying software that isn’t what they thought it was during the evaluation process.

This reminds me of an old joke about a guy who is given the opportunity to choose where he wants to spend eternity.  He visits heaven and finds it to be sedate – with harps and angels singing.  He then visits hell and finds gourmet food, great music, and lots of golf courses to play.  The guy debates his options and then chooses hell.  He’s immediately whisked away to fire-engulfed surroundings to which the guy asks where the food, music, and golf courses went.  The response he receives is, “When you visited, you were a prospect. Now, you’re a customer.”

Don’t allow this to become you when you’re buying new ERP software.  I saw a recent Web posting by a software demo person who stated that his job was to get the prospect to believe the software would do whatever they want it to do.  Even if someone were inclined to approach things in this manner, there would be no value in doing so if that demo person’s employer offered its customers a software acceptance process.

I could cite numerous examples in which people have said they wished they had insisted on a software acceptance process with their vendors.  Here’s one such example.  Back in 2006 we participated in a software evaluation against a well-known ERP software vendor.  The prospect had a consultant guide them through the process, did scripted demos, scored the demos, and saw things as too close to decide.  Finally, the prospect selected the other solution.  When they did so, we strongly recommended to the prospect and consultant that they insist on a software acceptance process to which their response was, “We don’t need that; we’ve seen the other software’s capabilities demonstrated.”

In following up with that consultant in January 2009, he stated his client regretted many times not going with us.  They have been disappointed with the product they chose.  There was functionality that was promised to them by the vendor that wasn’t there when they bought and still isn’t there.

There are numerous stories and reports showing that the percentage of failed ERP software implementations is too high.  One root cause of this problem is that companies select the wrong software.  If vendors offering a software acceptance process became the norm in the ERP software industry, the issue of selecting the wrong software could be minimized.

As part of “The TGI Difference,” TGI offers a risk free, money-back software acceptance period to all of its customers following contract signing and initial software installation. This period allows customers to validate their selection of TGI and Enterprise 21.  We encourage all prospects to insist on a software acceptance process when buying new ERP software.


TGI’s Stance On Software Development and Support Outsourcing

Tuesday, July 21st, 2009 by Alex Smith

A rising trend in the ERP software industry is the outsourcing of development and support services to third-party companies overseas. In the last two years, virtually every prospect I have spoken to during the selection process has inquired as to who is responsible for support services and, more importantly, where such support staff is located. There seems to be a common concern among business owners, senior management, and IT directors across the United States that should they ever require software support and/or assistance that they will be directed to somebody who is not a full-time employee of the software company and that this person will not be able to communicate an adequate diagnosis and solution with customer staff effectively.

ERP vendors’ justification for third-party development and support outsourcing is fairly simple – third-party outsourcing to other companies (and countries) can provide significant cost savings for software vendors. The cost to educate, train, and staff full-time software developers in the U.S. is significantly greater than for staff in many regions internationally. Average wages for software developers and support staff are substantially lower outside the United States, and by outsourcing to other companies, software vendors are able to eliminate costs such as employee benefits and retirement contributions.

While such development and support outsourcing is quickly becoming the rule rather than the exception in the ERP software industry, TGI believes that a key to providing effective, exceptional customer service lies in the quality and knowledge of the support staff the software vendor employs. TGI has remained committed to providing direct developer support for each of its clients; when calls are placed to TGI’s customer support line, calls are answered directly by TGI software developers with an average tenure of over ten years. We believe this philosophy provides our customers with an opportunity to interact with their software developer (TGI) in a truly unique way, which in turn leads to better business relations and lasting partnerships. This philosophy also places an added pressure (and opportunity) exclusively on TGI to routinely deliver effective solutions and responses to customer requirements. It is our job to respond to and meet these customer demands on a daily basis.

When selecting an ERP software solution and provider, software functionality is certainly of the utmost importance in the selection process; however, software selection teams should also conduct a thorough analysis of the software company and the support staff that will be charged with the task of meeting customer requirements on an on-going basis.


Use Your ERP Software Implementation to Clean Up Your Garbage Data

Tuesday, July 7th, 2009 by Alex Smith

A common concern many small business owners have when selecting a small business ERP software package is how they are going to be able to extract their existing data from their legacy software systems (QuickBooks, Excel, etc.) and transfer the data into their new ERP software solution. While migrating historical data into the new software package is important, the real question small business owners should ask is what historical data should be migrated over to the new ERP solution?

Within most small businesses, manufacturing and distribution operations use multiple software packages simultaneously, which leads to numerous instances in which data is duplicated, and, in many cases, inconsistent. Products are often times entered with one product description in one software package and a different product description in a second software package; the organization may also have a customer’s shipping address entered in one software package and the same customer’s billing address entered in a different software package. The software implementation process is an excellent opportunity for the organization to clean up its duplicated and inconsistent data and develop a single, cohesive data set for products, customers, ingredients and raw materials, suppliers, financial accounts, etc.

While the process of going through potentially hundreds or thousands of data records may be painful, it will prove to be highly beneficial to the small business during the initial system go-live and beyond. A sophisticated ERP software solution is only as good as its associated data. I recently spoke with one small business owner, and I believe his take on data migration was probably one of the most simplistic, yet most accurate statements I have heard when he said, “Garbage data in is just going to mean garbage data out.” This statement is just as true today as it has always been when using automated systems.

Establishing an accurate and consistent data set during software implementation is one of the first steps for the small business in realizing significant ROI for its software purchase and developing improved, efficient business operations.


Find a Proven ERP Software Selection Process and Execute It

Tuesday, May 26th, 2009 by Alex Smith

One of the keys to proper ERP selection is finding a proven ERP software selection process and then executing that process. Many times, manufacturing and distribution organizations start their search for a new ERP system with little understanding of what selection process elements will provide them with the best software solution for their respective businesses. Furthermore, even if the organization has committed to a specific selection process or methodology at the initiation of the selection project, the software selection process is frequently executed incorrectly as the organization gets further along in the project. Fortunately, TGI provides free software selection tools to aid manufacturers and distributors in selecting the best software for their individual business operations. TGI’s proven software selection process can be easily followed, and, more importantly, executed in a timely, efficient manner. TGI’s ERP software selection process consists of five key phases: (1) Project Preparation and Planning; (2) RFI and Introductory Demonstrations; (3) Requirements and Request for Proposal; (4) Scripted Software Demonstrations; and (5) Reference Calls, Site Visit, and Supplier Selection.

While I will not expand on these steps in detail, it is imperative that the organization searching for new ERP software adheres to these five phases and does not initiate the next phase of a selection process without first completing all activities of the prior phase. For example, an organization should not move into the RFP phase of the selection process without first completing the RFI and Introductory Demonstrations phase for all potential ERP software vendors. It is astonishing the number of times we see prospects send Request for Information (RFI) documents and conduct initial remote software demonstrations and move into the RFP phase only to have another software vendor enter the mix of potential software suppliers without conducting the same detailed software analysis for the new software supplier as it did for all other software suppliers in consideration. To provide the most comprehensive, quantitative analysis of each ERP software vendor and solution, the same standards and requirements must be applied to each software vendor at each phase of the selection process. This strategy will give the organization the best apples-to-apples comparison of each software vendor and will ultimately lead the organization to make the best software selection decision.

Again, find a proven software selection process, follow the process, and execute it in full at each step along the way. For more information on TGI’s proven software selection process, click here. You can also request TGI’s free software selection tool kit CD by visiting our online request form.


Training Before and After Go-Live – Critical Success Factors to Gaining Desired Benefits from Enterprise Software Systems

Friday, May 22nd, 2009 by Alex Smith

Training is an integral part of every business software implementation. End users must be trained in the software application’s processing of all transactions and functions they perform on a routine basis. Customer service and order management personnel need to learn a new process for not only entering but tracking both existing and past customer orders; warehouse managers and operators must learn what could be a completely new warehouse process focused on improved warehouse productivity and inventory accuracy while reducing inventory levels; and business executives will learn to use new business intelligence tools for improved visibility and analysis of key business performance metrics such as days supply on hand for a given product, gross sales on a product-by-product basis, and sales margin on a product-by-product basis.

The overriding principle is that training is an important part of the implementation process regardless of a given software user’s role or organizational level. Without training in the business’s newly selected manufacturing software or distribution software package, the capabilities such software provides cannot be utilized to their fullest potential.

During the Enterprise 21 implementation process, training can be conducted in one of two ways. First, training can be delivered to all software users in a given functional area simultaneously. For example, business executives and accounting personnel will be trained in the software’s financial management tools; warehouse workers will be trained to receive and putaway materials and pick, pack, and ship products to customers using Enterprise 21’s fully-integrated warehouse management system; customer service and order management representatives will be trained to utilize Enterprise 21’s order management and CRM ERP software functionality; etc.

A second form of Enterprise 21 training that can be employed during software implementation is a train-the-trainer approach. Using this approach, TGI personnel would train each business department’s functional leader or super user, and those functional leaders would in turn train other software users in their given functional areas. No matter which training methodology is employed, adequate end-user training in the new business software package is essential for a successful go-live experience.

Following go-live, management and software users must remember that the training process is not over. Training should be an on-going effort. TGI offers integrated training tools that include multimedia-enabled presentations, how-to help, screen help, and field help. These tools can be updated and altered to meet each organization’s specific requirements. Furthermore, TGI’s integrated training services enable existing users to refresh the knowledge they learned during implementation and new employees to receive a level of training consistent with all other employees in the organization. This approach to training enables organizations to maintain consistent system and process knowledge across all of the organization’s departments and functional areas.

Both during and after implementation go-live, adequate training in an enterprise software solution is essential to increased productivity and on-going business process improvements.


Integrated Lot Traceability: A Critical Ingredient for Today’s Small Business Food Processor

Thursday, May 7th, 2009 by Alex Smith

I received a call recently from a small business owner who made a statement that I found to be quite profound, alarming, and unfortunately, characteristic of far too many small business food manufacturing and distribution companies. He said, “This whole situation with the peanut epidemic has really woken everybody up around here and made us realize it’s time to get a lot tracking software solution that will protect us in case of a recall. Is that something you guys might be able to help us with?”

This small business owner, despite being in the business of processing various nuts and fruits, was fortunate enough to have avoided the existing peanut crisis and was not forced to recall any of the company’s products. Nonetheless, he did say that the current peanut situation had made many of his existing customers call and inquire as to the company’s ability to manage any unforeseen recall. These customer inquiries, then, led the small business owner to call TGI.

My conversation with this particular small business owner only made me more aware of what many of us who develop and sell food manufacturing software have been aware of for some time now – there are a lot (no pun intended) of small food processing companies who do not have an adequate lot tracking software solution to protect themselves in the unlikely possibility of a recall. Smaller food processors frequently resort to entering raw ingredient and finished good lot numbers manually in Excel spreadsheets. Aside from the obvious problem of an employee entering a lot number incorrectly, the task of tracking the specific raw ingredient lot numbers used in specific manufacturing runs to produce multiple products that were eventually shipped to multiple customers is a near impossible feat to accomplish without data entry errors using Excel. Consequently, organizations of all sizes turn to food ERP software solutions with complete forward and backward lot traceability, such as Enterprise 21, to arm the company with the management and tracking tools necessary in the event of a food epidemic and subsequent product recall. While this type of software functionality is a must for any sizeable food processor, more and more food processing companies of all sizes are recognizing the need to migrate to a software solution that can account for the company’s lot tracking needs. As the small business owner I spoke with told me, “If we had been hit by the peanut recall, we would have gone from a small business to out of business.”

In Enterprise 21, lot traceability occurs for both raw ingredients and finished goods. Enterprise 21 tracks the receipt of raw ingredients and their associated lot numbers from suppliers, the use of these raw ingredient lots in manufacturing runs, and the lot numbers of finished goods (and the lot numbers of the raw ingredients used to produce those finished goods) that were shipped to end customers. This software functionality provides food processors complete lot traceability that begins with the supplier and ends with the customer. Enterprise 21 goes one step further to provide complete recall management, tracks the receipt of recalled goods back into inventory, and allows for any necessary accounting entries to be made for expenses incurred to the business as a result of the recall.

With rising levels of competition in the food processing industry and continuously changing compliance regulations in a global economy, complete lot traceability software functionality is becoming increasingly critical to smaller food processors’ sustained business growth and longevity. For the small business owner, lot traceability is worth more than just peanuts.


Wholesale Distributors Enjoy Flexibility When Implementing Enterprise 21 Warehouse Management Functionality

Monday, May 4th, 2009 by admin

A common discussion we have with wholesale distributors revolves around how they can best implement Enterprise 21’s warehouse management system. The great majority of these distributors envision moving to a completely paperless warehouse environment where warehouse workers are prompted via handheld and fork lift-mounted devices to perform the next highest priority task in their work queues.

Prior to moving to Enterprise 21, all of the distributors with whom we work were using some form of paper in their warehouse operations. Most of these organizations had their warehouse personnel writing on paper pick tickets as they went through the picking process and had the data electronically entered into their existing legacy systems hours later. Others may have been using a combination of paper and some scanning when they initially approached TGI.

In the case where there was manual recording of results, a paper pick ticket was printed and associated with each given sales order. Warehouse personnel would take the paper pick ticket, walk through the facility, and pick the items associated with that order. As the workers picked the order(s), they wrote the results of their efforts on the paper pick ticket, especially noting any places where there were discrepancies in the number of items picked or locations from which they picked. Some time later (and in many cases, much later), warehouse operators gave their hand-written picking results to an administrator for keying this information into their legacy system.

This paper-based process presented several challenges. First, there were delays between the time the physical transactions occurred and when those transactions were recorded into the system. Second, the one who recorded the data into the system was frequently not the same person who performed the physical transactions. In this case, there were opportunities for recording incorrect data when the written results were illegible and the data entry person made his or her best guess as to what was recorded. Because of these practices, the information in the computer system was inaccurate and generally not trusted. By moving to a real-time inventory system, such as Enterprise 21, where transactions are recorded in the system at the point and time in which they occur, inventory data becomes more accurate and timely.

In addition to improving inventory accuracy, distributors can take advantage of more efficient warehouse processes in Enterprise 21. One of the major advantages that organizations who ship a lot of small package deliveries can gain from Enterprise 21 is moving to a cart picking process. When doing cart picking, rather than performing picking on an order-by-order basis, warehouse personnel can perform a consolidated picking process for multiple orders concurrently, thus reducing labor consumed compared with picking each order on its own. Once a cart picking process is completed, the cart is moved to a packing location where the various orders on the cart are packed and prepared for shipment. Enterprise 21 can also enable warehouse operations to take advantage of other warehouse efficiencies including zone picking and wave picking.

The warehouse management software functionality in Enterprise 21 is fully-integrated with the entire Enterprise 21 ERP software application. Since this functionality is built into Enterprise 21, TGI customers do not have to try to keep separate systems in sync with each other or have to worry about what will occur to their ERP to WMS interface when they upgrade one of these systems.

A major advantage of Enterprise 21’s warehouse management system is that new TGI customers can elect to start their initial operations at system go-live at any point on the functionality continuum, from printing of paper pick tickets and manually recording the data to fully paperless operations. Over time, distributors can continue to streamline their operations and take advantage of more and more of the process efficiencies afforded by Enterprise 21.

By implementing the warehouse management functionality in Enterprise 21, distributors can improve inventory accuracy and gain operational efficiencies in a manner that can best be assimilated into their warehouse operations.