Oct 19, 2012

Cost Trap when developing reports

One of the fascinating experiences in my ERP Career has been the consistency with which organizations go 'Penny wise pound foolish' when it comes to paying for creating new reports. 

Normally, as a part of implementation, there are a few reports that the implementation team has to deliver. What normally happens is that at the time of implementation, Organizations are not aware of the potential of ERP and hence ask for their regular day to day reports. Most of these are operational in nature and are based on the requirements from the implementation key users. 

Soon, all these reports are delivered by the implementation team and the ERP has stabilized. This is when the organization realizes that there is a huge volume of information available in ERP and that we can significantly improve our operational performance and business decision making by creating new reports.

This is also the time when the implementation team try to improve the margins from this project and normally, one of the ways in which they do is to inflate the cost of each report by adding more effort and promising senior people to develop the reports.

Now the senior management of the organization goes bonkers over the fact that the cost of report development is very high. 

As the Head - IT of a manufacturing organization, I also fall into this trap. It is my responsibility to ensure that the IT budget is spend optimally and some time I enter into to many negotiations with both the developers and the managers who ask me for these reports. 

One senior manager showed me the mistake in this approach the other day.

"Sir, we enter into too much of discussions on the cost of the reports. However what we forget is that we can recoup the cost and some more in just one day if the report helps me to take quick decisions and follow ups. Let me give you an example. As you know we have containers that need to be shipped out of Mumbai Port. These containers travel from our Factories, laden with our products and gets loaded into the ships at the port. Previously I never knew where the container was located. Now after our ERP implementation,  I found that maximum time is spend by the container in our factories waiting for material to be loaded. I got a  'Container Tracking Report' developed to track the status of the containers and take quick decisions on loading them at Factories." 

"When I wanted this report, I was told that it is very expensive to develop. I persisted and got it done"

"I schedule this report every day. I have a very clear visibility into the location status of each container, and I track and follow up with each Factory to ensure quick release of containers. Since I am very demanding, and I have facts to back me up, the factories have now become very focused and prompt in releasing the containers. Now I see that our monthly Container waiting (demurrage) charges have come down significantly and I have recouped, in one month, the cost and much more just by the savings that I made in these container waiting charges. In fact, I recouped the cost of the report in the savings that I made in the first day itself." he concluded.

This is an eye opener. While we should be looking at the reports, we should also be alert to the fact that we can get significant business gains by use of effective reports and we should not become 'Pennywise, pound foolish' when it comes to developing new reports.

As consultants, it is your responsibility to educate the customer when they fall into this trap. 

No comments: