Integrating Six Sigma and ERP

I recently came across a good question on how to integrate Six Sigma with an ERP project. Using an ERP financials implementation as an example, there are three key items to keep in mind to link your Six Sigma and ERP initiatives:

First, to integrate Six Sigma with your ERP Financials, it will be important for you to define your business processes for key financial processes, such as period-end close, A/P, A/R, consolidation, reporting, etc. These processes should be documented in detail (at least level 2/3), along with the inputs, outputs, and employee responsible for each process.

Second, it is important to define what the key performance measures are for each of the sub-processes you define. For example, measures such as number of business days required to close the books, number of adjustments, A/R days outstanding, etc. will help you measure the efficiency and quality of your processes. These measures should also map and align with higher-level corporate goals and performance measures.

Finally, once you have defined the key business processes in detail along with their related performance measures, it is important to ensure your ERP reporting is aligned accordingly. If your performance measures are not easily attained from within your ERP's business analytics, then you may have to measure using report-writers, other systems, or manual processes. Either way, you will need to define the process for collecting performance measure data on a regular basis to measure process and performance quality.

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The Hidden Costs of ERP

A common problem with many ERP implementations is inaccurately projecting total project costs. In order to achieve a high ROI on projects, costs need to be controlled and constantly compared to benefits. Some of the common indirect or hidden or costs of ERP projects include:

• Internal company resources to make decisions on ERP requirements, help with system design, and perform testing. Aside from a full-time core team, most ERP projects require the involvement of 3-5 part-time subject matter experts for each full-time core team member.
• Internal or external resources to manage data conversion, interface development, and report generation
• Employees to support communications, training material development, and training deployment activities
• Time that senior management is involved in decision-making and conflict resolution
• Design of business processes, particularly if the project involves a large, multi-national company with fragmented operations
• "Backfilling" project team members with contract or other employees that manage day-to-day activities while the team members are working on the implementation project
• Travel and expenses for team members, particularly if dealing with a global project. Project budgets should assume at least 15% of total consulting costs for travel, then double this amount to account for internal project team travel.

Obviously, these are not all the costs associated with an ERP project, but they are the ones that are most likely to be overlooked during the budgeting and planning process. These costs should be included in the ERP business case and budgeting process.

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