SMB and mid-market manufacturers have more control over their transformation outcomes than they typically believe.
A manufacturer I worked with had launched its new ERP system on time and on budget. Employees adopted it. Six months later, inventory was still unreliable, production planning was still reactive and senior leaders were still getting pulled into decisions their teams should have been able to make.
Two decisions are easy to overlook in a transformation. First, decide which existing processes and product designs still make sense before building them into a new system. Second, realign the organization so people can deliver the intended results and sustain them as the business grows or faces disruption.
Gartner projected that by 2027, more than 70 percent of recently implemented ERP initiatives would fall short of at least some of their original business goals. A 2024 RAND report cited estimates that more than 80 percent of AI projects fail. For a CEO approving either investment, the practical question is the same: What has to change in the business for this project to pay off?
Decide what to carry forward
During an ERP rollout, we found a manufacturer stocking 268 different subassemblies, each costing about $1,000. The company sometimes took apart one version to fill an order for another. A new system could have made those transactions easier to track while preserving the product design that made them necessary.
The company redesigned the product around two core subassemblies and 25 configuration kits. It could stock common components and configure to order. Inventory fell from $26.8 million to less than $3 million.
A high-end custom furniture maker was handling 15,000 supplier quotes a month. Suppliers prepared 45 to 50 quotes to win a single line item. Even excellent software would have left suppliers doing that work, that had them overwhelmed to the point they were considering no longer working with the company. When we asked suppliers directly, they offered a 20 percent discount to switch to fixed prices across three size ranges. Cost of goods sold fell 14.5 percent, customer quotes went from five days to minutes and the close rate rose from 5 percent to just over 20 percent. The redesign eliminated the need for a 13-person team to manage quotes and there was no need to implement the Supplier Quote Management module.
Design the way the business will operate
Start with the strategic and functional layers. Develop the system layer once you know the specific system or, in an acquisition, the systems the combined business will use. Then use that design to finalize how the organization will operate.
- Strategic: Identify business goals and the outcomes that support them. Determine what must go right to achieve those outcomes and what capabilities the business needs.
- Functional: Challenge existing processes, design processes for new capabilities and establish controls to keep performance on track.
- System: Use the selected system’s capabilities to improve how the business delivers results.
- Organizational: Identify which roles need to change and update accountability, performance measures and how performance is recognized. Revise job descriptions and assess how well people fit the new roles.
Before signing off, test how the redesigned operating model handles real work, including exceptions. Business leaders own these decisions even when outside specialists do the technical work.
Judge success by two tests
1. Did we deliver the intended business outcomes?
2. Did we make the business stronger? Assess business strength along four dimensions:
- Extendable: Can we add a product or integrate a site without rebuilding the process?
- Scalable: Can we handle more volume without adding cost, headcount or management effort at the same rate?
- Predictable: Can teams consistently meet commitments without extraordinary intervention?
- Durable: Can they keep operating when a key supplier is disrupted or a key person leaves?
Before funding the next initiative, ask your team to name the business result it will own, the operating decisions it needs to change and the evidence that the company will be stronger afterward. Put those commitments in the business case and keep reviewing them after go-live, deployment or close.
