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The organizational assessment checklist in Table 5.1 provides a simple and practical reference to determine if your company is ready for the competitive business environment of today and its positioning for tomorrow.

To score your own organization on these criteria, review the question and mark your organization’s status on a scale of 0 (not at all) to 4 (completely). For an explanation of what is meant by each question, see the pages following the questionnaire. An explanation of each question follows.

Table 5.1 ERM Organizational Assessment Checklist

Checklist Score

(0–4)

1. Have you transitioned from internally focused performance measurements to customer-focused performance measurement systems?

2. Have you flattened the organizational hierarchy? 3. Have you fully educated your personnel in enterprise-wide thinking? 4. Have you successfully moved to a team-based organization? 5. Have you reengineered your major business processes and eliminated all waste? 6. Have you moved from traditional costing methods to value-added costing? 7. Have you adopted the principles of Integrated Supply Chain Management? 8. Have you implemented completely reliable information networks and

communication systems (software, hardware, and human systems)?

9. Have you changed your evaluation and appraisal systems to recognize both team and individual performance?

10. Have you become a customer-focused organization? 11. Have you developed and implemented procedures that ensure standardization of information in all business operations?

12. Are your business leaders committed to the principle of lifelong learning? 13. Have you replaced organizational silos with process teams? 14. Have you adopted a single company compensation program? 15. Have you benchmarked your organizational performance with best in class

practices by global leaders?

16. Can you demonstrate total company-wide process capability performance of Six Sigma or better?

Table 5.1 (Continued) ERM Organizational Assessment Checklist

Checklist Score (0–4)

17. Have you developed business policies and procedures to ensure complete data integrity?

18. Have you prepared your people to operate in a paperless environment? 19. Have you become a truly global organization? 20. Have you adopted an organizational culture with shared vision, values, and

goals?

21. Have you driven out fear? 22. Have you developed a truly flexible workforce and process capability? 23. Have you educated all your business leaders in Integrated Resource

Management?

24. Do you have a formal process for identifying and resolving process

constraints?

25. Have you institutionalized the process of continuous and rapid operational

improvement?

Score 4 points for full implementation, 2 for partial, 0 for no evidence.

Total Score

90 points or higher—Organization is ready for ERM. 70–90 points—Organization is close to ready for ERM. 50–70 points—Organization needs significant work.

ERM Checklist Questions

Have You Transitioned from Internally Focused Performance Measurements to Customer-Focused Performance Measurement Systems?

Customers care only about how their needs are serviced and how their business benefits. They care little about the supplier’s internal efficiencies and utilization. When a company clearly understands the needs of the customer and aligns its business processes to meet those needs, it enjoys a market advantage over the competition. This is the drive behind the use of Customer Relationship Management (CRM) systems. These systems provide analyses of which customers tend to purchase what products. This kind of information is invaluable when deciding how to market new product introductions. Rather than marketing in a shotgun fashion, CRM allows the enterprise to market with laser accuracy. In addition, a CRM system provides insights into the customer’s ordering patterns such that the enterprise can begin to anticipate the customer’s needs for new products and/or services. The integrated resource model begins and ends with the customer. Without the customer there is really no reason to be in business. The goal of any business, manufacturing or service is to profitably service the customer. Remember two simple facts:

1. What gets measured will be done.

2. If something cannot be measured then it cannot be improved.

If the performance measures that are used to run the business are customer focused, then the enterprise will be customer focused. If the business measures are internally focused, such as efficiency and utilization, then the enterprise will be internally focused. In any case, the managers will focus on what is reported and visible. Competitiveness in today’s market requires that the enterprise not only focuses on the needs of its customers, but also focuses on the needs of its customer’s customer until the final consumer is reached. This is the essence of supply chain management where performance measures are consistent from the supplier’s supplier to the customer’s customer. Some customer-focused measures could include:

1. Response lead-time—This measures the amount of time that a company takes to deliver a product once the demand is received. Customers are increasingly demanding and expect products that are mass customized to fit their needs delivered in a relatively short lead-time. Decreasing this lead-time also reduces the possible negative impact that the market forecast has on the operation. Remember that forecasts are by their very nature less accurate with a longer forecast horizon. Having an agile response capability within the enterprise translates directly into a more accurate market

purchase.

Source: From Keith Launchbury, CFPIM, CIRM, and Carol A. Ptak, CFPIM, CIRM, Jonah,

forecasts because the time period to forecast is shorter.

2. Product development time—Customers can provide a wealth of information

concerning potential new products. Derivative product ideas easily come from current products as different applications are realized for the current product. Rarely will a customer develop a breakthrough idea like Post-It™ Notes, but once this type of product has been developed customers will discover many additional uses for it. Listening to this kind of feedback can be very profitable as the company can leverage on what has already been developed already. The time to market for these derivative products is another very useful performance measure. The less time it takes the more market share that should be available.

3. On time to promise—This measure is a rather traditional measure, but still very important. How did the delivery promise to the customer compare to the actual ship date? Having reliable deliveries to customers is a key part of overall customer satisfaction.

4. On time to request—We may promise the customer a date, but in reality this is not the date the customer requested. On time to request is a comparison of the actual shipping date to what the customer really wanted. This measure can realistically be expected to be more aggressive than on time to promise and some would question its use. On time to request provides very valuable information about the customer’s needs and wants and can provide market driven target goals for the response lead-time.

Have You Flattened the Organizational Hierarchy?

An organization with many levels of supervision suffers reduced speed of communication and agility. A flattened organization has more direct communication and can respond more quickly to the needs of the customer. The biggest benefit of a successful ERP implementation is that useful information that can be used to make quality decisions is available throughout all levels of the enterprise. No longer are key decisions reserved only for senior management. Given a common vision and good performance measures, decisions can be accurately made at much lower levels in the organization. Flattening the organizational hierarchy means less overhead expense and more rapid communication. A flattened organization has a structural advantage that encourages closer communication between departments since there are fewer levels that must be coordinated. Many levels in the organizational hierarchy lead to nonvalue-added bureaucracy. Reducing the levels of the organization reduces the cost and improves the overall performance provided adequate information is available.

Have You Fully Educated Your Personnel in Enterprise-Wide Thinking?

Only personnel that understand what the organization is attempting to achieve and why, can begin to implement customer-focused ideas and processes. Silo-based organizational myopia must be replaced with a holistic enterprise-wide focus. Departments are not in competition with each other but rather must collaborate with an integrated customer focus. This collaboration then extends outside of the enterprise through the entire supply chain. This type of thinking is not taught in schools. In fact, our entire education system is

based on silo-focused concepts. Rarely is higher order thinking taught which provides the participant with the tools to understand the impact and implications of actions from one part of the enterprise on other areas. This is the reason why the Management Interactive Case Study Simulator (MICSS) was included with this book. This simulator provides an interactive learning opportunity to apply the tools and techniques covered by the text. Integrated resource management is extremely difficult since it causes people to think outside of their own box. In addition, having sufficient understanding about the different functional areas to be able to consider implications of strategies and choices requires specific study and curriculum. The functional areas that should be included in this integrated resource management education are:

1. Marketing and sales 2. Field service

3. Product design and development 4. Production and inventory control 5. Procurement

6. Distribution

7. Industrial facilities management 8. Process design and development 9. Manufacturing

10. Total quality management 11. Human resources

12. Finance and accounting 13. Information systems

This is a wide variety of functional areas, but each impacts the other within the enterprise. Each should have an understanding of the implication of ITS choices. An excellent program that is proven to deliver this type of education is the APICS Certified in Integrated Resource Manage-ment (CIRM) program. This curriculum was developed by a team of practitioners, consultants and academicians to ensure that the theory that is taught is successfully used in practice in a variety of industries.

Have You Successfully Moved to a Team-Based Organization?

Teams with a clear vision and mission have consistently outperformed individual efforts. The creativity of a high performing team can successfully move the organization to significantly higher levels of performance. Team skills are not taught in most school curriculums. In fact, our entire education system enforces a model of individual effort and reward. Assigning people to work together does not make them a team, only a work group. Skills needed to ensure an effective team based organization include facilitation, communication, brainstorming, and problem solving to name just a few.

According to Kenneth Blanchard’s One Minute Manager Builds High Performing Teams, teams normally will evolve through four stages of development. These stages are forming, storming, norming, and performing. The forming stage is where the team has just been named and people are trying to determine how they individually fit. This is usually a time of professional aloofness. The storming phase is when the team begins to

get to the task at hand. This entails experiencing conflict on roles and responsibilities, while the team determines how it will work together. The team can get stuck in this phase and tear the team and the overall organization apart if the leader does not have the necessary skills to move the team to norming. Norming is where the team really determines how it will work together including roles, responsibilities, and communication. The final stage is performing where the team is able to accomplish more than the individuals could. A high performing team can help ensure a competitive edge for the company. High performing teams do not just happen. Education and training is required. Above all, leadership is needed to provide the overall guidance and vision of the goal. According to Taiichi Ohno, “Manpower is something that is beyond measurement. Capabilities can be extended indefinitely when everyone begins to think.” This is what teams are all about, engaging all facets of everyone’s capability in pursuit of a common goal.

Have You Reengineered Your Major Business Processes and Eliminated All Waste?

Waste is any nonvalue-added activity upon which the organization expends resources. These critical resources can yield consistently higher profits for the organization when they are focused on the desired results only. A key part of the ERP implementation process is to closely examine the current business processes and how they map to industry best practices. This is not to suggest that processes that have been developed as a strategic competitive edge should be changed just to fit the software. Implementing ERP is an excellent time to re-examine the current business processes to ensure that they really do best fit the organization.

Keep in mind the story of the ham in the pan:

A little girl was watching her mom make Easter ham. She asked, ‘Mommy why do you cut the ham in half before putting it in the pan?’ The Mother who was harried and trying to get a large holiday dinner together replied that this was the process for making ham and the little girl should just go away. Not to be dissuaded the little girl then went to see Grandma. ‘Grandma, why does Mommy cut the ham in half before putting it in the pan?’ Grandma replied, ‘Honey you need to understand that cutting the ham in half is how you make ham! Now go out and play.’ Anyone who has even been around a 10-year-old can appreciate how persistent they can be. Next, the little girl went to see Great- grandma. Great-grandma is happy because she no longer has to worry about putting on the large holiday meals. She pulls the little girl up into her lap. The little girls asks once again, ‘Great-grandma, why does Mommy cut the ham in half before putting it into the pan?’ Great-grandma responded, ‘Well, you see, back when I was a bride the family was so large that we could not fit the whole ham into one pan. We had to cut it in half to allow it to fit.’

Three generations later the ham is still being cut in half and the reason why has been lost. When we translate this to manufacturing, this likely means:

1. We have a specification for the allowable variability of the cut.

2. We have automated the process so that robots and lasers are used to cut the ham. 3. We have outsourced this operation to our supplier to provide the extra value-added

step of cutting the ham.

4. We pay them because we really do not understand why we cut it in the first place. Upon telling this story to an audience one day, a participant related a story that he asked his new bride once (and only once) why she cut both ends off the ham before she put it in the oven? She looked at him like he was crazy and replied that of course anyone who knew anything about cooking knew that the ends had to be cut off or the ham would explode! Too many times, this is how well we understand our business processes. There is no understanding of why we do the things we do. Nobody in the organization has a clear idea of the impact of a decision on other areas so everyone fears the consequences of a change. The easy way out for companies has been to accept the industry best practices that are forced on them during the ERP implementation. Unfortunately, these industry best practices may be exactly the wrong answer and may replace some processes that are actually the competitive advantage for the company.

There is not one right answer on how to configure an ERP system. The first step in every ERP implementation is to carefully examine the current business processes and determine which should be changed because they contain nonvalue-added activities and which should not be touched because they provide a competitive advantage. This can only be completed in context of an overall strategic vision. Education in integrated resource management and teamwork is required to be able to know the difference. Blindly accepting processes to implement the system from a consulting group will lead to disaster as the enterprise refuses to internalize these new ill-fitting processes and quickly reverts back to the informal system.

Have You Moved from Traditional Costing Methods to Value-Added Costing?

Traditional costing methods spread overhead on direct labor hours. This has caused many organizations to think the cost to produce in-house is too high. The result is they purchase at the lowest purchase cost. This encourages large volume overseas procurement, while decreasing in-house production at the same time. Overall costs rise from the increased inventory and real profits decline. There is no direct cause and effect between overhead charges and direct labor cost. Value-added costing includes only those direct benefits and costs when considering product line costing. Only those costs that would be eliminated if the product were no longer produced in house are considered when costing a product. More realistic profit contribution information is available using value added costing. The Theory of Constraints (TOC) has taught us that if the product is not sold to the end customer, we really have not made a profit on it just because we have put it into inventory. This is called throughput. Unlike generally accepted accounting practice where value is earned when the product goes into inventory, the theory of constraints does not recognize value until the product is shipped to the customer. Throughput value-added costing provides a more realistic cost assessment based on what is constraining a company’s ability to move more product out the door to the customer.

Have You Adopted the Principles of Integrated Supply Chain Management?

The information about the available supply and desired demand must be shared from your supplier’s supplier to your customer’s customer. These principles of Integrated Supply Chain Management provide a seamless integration of supply and demand and the ability for the company to deliver products that uniquely meet the needs of the market. Integrated Supply Chain Management can be defined as achieving a sustainable competitive position and maximizing shareholder value by optimizing the relationship of process, information, and physical goods among internal and external trading partners. Supply chain management includes:

1. Integrated supply and demand planning 2. Order fulfillment and customer service 3. Procurement and strategic sourcing 4. Production logistics

5. Distribution networks and warehouse management 6. Transportation and shipment management

Real-time information systems are required as an enabler for effective Integrated Supply Chain Management. Having accurate information at all links in the supply chain supporting a win-win value proposition is a necessary condition for good decisions.

Have You Implemented Completely Reliable Information Networks and Communication Systems (Software, Hardware, and Human Systems)?

The information systems of a company, including software, hardware, and human systems, must be completely reliable for the information to be trusted by everyone using them. Sophisticated computer tools still require the basic building blocks of information to be accurate for the tool to be effective. Data accuracy is so important that Chapter 14 has been dedicated to this subject. As computers and other technologies directly connect