Does ERP, by itself, provide a sustainable competitive advantage to companies that deploy it? Not really. If an ERP vendor is really proficient at a vertical (e.g., consumer packaged goods, health care), customers will flock to that vendor’s ERP software. Then, if 10 companies are all running the same software, where is the competitive advantage?
You know, it’s like the company BASF used to say (or perhaps still does) – “We don’t make your carpet, we make your carpet better.” The same is true of ERP software. A company must determine what its sources of competitive advantage are, and then determine how the ERP package can help the company sustain its competitive advantage. Clearly, strategic competitive advantage is a good thing.
I have always been a big fan of the approach laid out by Treacy and Weirsema in their book: “The Discipline of Market Leaders.” To be a leader, they say, you must be brilliant in one of the following three areas (and quite competent in the other two):
- Product differentiation: You win because your products are perceived to be highly differentiated in the marketplace. Harley Davidson might be a good example of a company in this area.
- Customer service: You win because you provide outstanding service to your customers. FedEx might be a good example here.
- Operational efficiency: Your products may be commoditized (you might manufacture aluminum), but you manage costs well. Consider mining companies, steel manufacturers, etc.
So, what does this have to with ERP? Once you determine a strategy, you select ERP software to help you with the strategy. And, in so doing, you determine benefits (as I said in my first blog – ERP is all about TCO, time to benefits and benefits achieved). So, let’s look at some examples from Lawson’s customers.
- Product differentiation: Lawson M3 gives us the ability to process high volumes of order lines quickly every day. It also enables us to bake the right products as close as possible to the moment they are delivered, and in the correct volumes to avoid waste (Schulstad Bread). I suppose you could also argue for customer service. But, Schulstad has a real quantifiable benefit here, and should measure its net advantage in the marketplace.
- Customer service: With Lawson M3, we have total visibility over every product and its physical location. GBC has been successful in improving service to customers, delivering the correct product on time and, just as importantly, invoicing correctly (General Binding Corp.). In the rental business, visibility can lead to competitive advantage.
- Operational Efficiency: Saved $30 million in supply chain costs during initial 18-month period; $50 million in cumulative savings from 2001 through the end of 2003. Reduced supply cost per adjusted discharge ratio to 14% below national average. Reduced supply cost compared to net revenue to 21% below national average. Maintained consistent capture of vendor discounts (Advocate Health Care). Procurement-related benefits are often the easiest to obtain and quantify.
Bottom Line: Understand what drives your company, tie benefits to the ERP implementation, figure out which processes need to be implemented first and quantify, quantify and quantify.
