There are many organizations who are still skeptical of implementing ERP. Believe me, I am talking about organizations which are big and have very high turnovers and complex operations. Some of these organizations are still running with heterogeneous complex legacy systems with limited or no integration. And then these organizations spends huge resources on reconciling the figures. I was recently invited to an organization having turnover $ 2000 million to suggest ways to streamline their operations through deployment of ERP systems.
I would say my experience was mind boggling. I was still surprised how an organization of such mammoth proportion still living with discrete legacy systems in each of their departments. My assessment of their operations was communicated to top management and a comprehensive report was prepared and submitted.
One striking observation was that how an organization which was earlier having a market share of 40% in the transmission sector during the course of last two years stumble and report a market share of 25%. To lose 15% market share in just two years was something beyond the logical and management principles. To reach such a situation an organization might have been either in the suicidal mode or might be facing some technological obsolescence. But neither of this was the case. Organization had best of technologies. Management and employees were equally focused. Organization was operating in a competitive market and most of the orders were received through competitive bids.
It was observed that percentage difference in the rates offered by this organization compared to their rivals was gradually increasing.This took me to next logical step of reviewing their costing methodology. I found for the major raw material (constituting 23% of the finished product) organization was relying on the latest prices being quoted at the London Metal Exchange and for other raw materials either the organization had long term rate contracts in place or prices were being invited on case to case basis. It was concluded that organization was not taking in to account the ups and downs of the raw material prices and further the overheads, Power and Fuel were being taken as some notional percentage.
No doubt, organization had lived with this concept for 30 years but in present age this was an old and archaic way of pricing a product. Mind you, the organization was competing against the likes of some great MNCs who had well established ERP systems in place. Pricing a product on variable terms ( pricing linked to the prices of raw materials) demands taking the raw materials’ instant prices in to account. But this was not being done.
Organization was advised to put Sales and Financials ERP module in place. Integration of these two modules alone would lead to accurate pricing. Precise pricing was all that the organization needed in short term to gain back its market share through better strike rate in competitive bids.
Image courtesy María T.’s photostream