Theory of Constraints — A Concise, Expert Management Briefing

ERP implementations by themselves rarely provide improvement at the potential level TOC generates the Business Process improvements that make ERP pay-off Even stalled ERP implementations can be revived and made successful via TOC

Theory of Constraints and Enterprise Resource Planning

When I first encountered Eli Goldratt's concepts I had designed MRP systems, developed MRP systems, implemented a simple MRP system in the factory where I worked, and project-managed the implementation of more than 20 systems in Europe and North America, as a consultant.

What I learned when I first encountered Eli's new ideas was precisely why so many MRP implementations — although considered successful in relative terms — failed to yield the scale of performance improvement that could have been expected given the advancement that the MRP logic and computer technology represented over the previous means of production planning, scheduling and control.

Jump forward 20 years. We've seen MRP II, the ABC checklist. Just In Time, Total Quality Management, Business Process Reengineering. World Class Manufacturing. Lean Thinking. Six Sigma. "Excellence." "7 Habits." You name it. What a wealth of knowledge has been unleashed on our manufacturers! And MRP systems have become ERP systems. The speed and power of the computer technology is several orders of magnitude beyond those early days. The software is incredibly complex; and extremely expensive, in many cases. The vendors are handed a bonanza ... the millennium. More companies probably buy and install ERP systems in a 2-3 years span than in any other such span, before or after. So surely there should have been an equivalent bonanza in productivity and profitability for hundreds, probably thousands of companies seeing the benefits of their new software after all the expense and hard work.

The reality? We were told in confidence (so, no names will be mentioned) by one of the major vendors that fewer than 20% of users were achieving the business case that was the nominal justification for the acquisition. Our experience in the field supports that.

ERP implementations, if not managed correctly, can become VPAI's

A Very Powerful Alternative to Improvement or VPAI is the cynical name we give to anything that costs a lot, sucks up amazing amounts of time and energy, drags on for years, satisfies all the pressure for "Best Practices" then yields very little performance improvement. Sadly, that's the record of many ERP implementations.

Reality is, that there will be no improvements in an organization unless behaviors change. And behaviors will not change until there are changed procedures and measurements — the latter more important then the former, incidentally — which in turn won't happen unless there are changes in policies and even in the belief systems which give rise to the policies. Implementing a new ERP system may well provide some benefit, in terms of better integration of data across departments or companies, for example. It can also be a catalyst for cleaning up data and tightening some procedures. And there can be benefits from the more powerful computer technology; of course. But unless a company's business processes do not substantially change in the form of an improvement, then performance will not be substantially improved. And the type of business processes imposed by ERP systems are typically not improvements of a kind that generate significant performance improvement in a company.

Theory of Constraints can provide the ERP system's business case

Theory of Constraints can be a godsend to a manufacturer considering, engaged in, or having given up on, an ERP implementation. Because it offers Business process improvements that provide fast, direct and often massive whole-company performance improvement.

If a manufacturer hasn't selected and implemented an ERP system yet, then an implementation of TOC will cause them to select differently and implement differently and the benefits will be clear. Plus, the Theory of Constraints to project management, Critical Chain, will make the implementation smooth and fast.

If they are in the middle of an implementation, perhaps experiencing a stalled implementation, Theory of Constraints provides a set of policies, procedures and measurements that give new focus and momentum to the implementation; it can cause a previously pushed-down ERP system that met resistance to be "pulled in" to the TOC implementation, because people can see the value in what it provides when they understand TOC. And again, Critical Chain can help the management of the project.

If the ERP system implementation has been shelved, it can be revived and "pulled in" by a TOC implementation as described above.