Episode Show Notes
Episode 2 features Pandora Ovanessian, Senior Technology Consultant at CMTC. Pandora explains what enterprise resource planning (ERP) is, how it works, and its evolution over the years. In addition, Pandora discusses common signs that point to an organization needing technology improvements and explores what a roadmap for digital transformation looks like.
Pandora Ovanessian is a Senior Technology Consultant at CMTC. Pandora has over 22 years of experience as a CIO at various start-ups, mid-size organizations, and multi-billion dollar global operations. Beginning her career at Ernst & Young, Pandora has diversified expertise in strategic planning, tactical execution, product development, and ERP selections and implementations. She has extensive experience in selecting relevant innovative technologies, leading the technology lifecycle, and establishing cost-effective secure infrastructures.
Highlights
00:00:02 - Introductions
00:01:14 - Definition of enterprise resource planning and its evolution
00:03:25 - Where ERP fits in the technology landscape
00:05:29 - Definition of EBITDA
00:05:35 - The value proposition of ERP
00:09:30 - Examples of how organizations can use software to advance their digital journeys
00:13:15 - Examples of how an ERP system can be deployed to positively impact key indicators like customer service, waste reduction, inefficiencies, and compliance
00:16:23 - How SMMs can use ERP to gain a competitive advantage and increase margins
00:20:00 - Using ERP to facilitate communication and collaboration across departments
00:26:02 - Pros and cons of on-premise versus cloud-based ERP solutions
00:31:23 - Definition of GCC
00:32:32 - Future of ERP as all-in-one solution versus modules
00:34:27 - High-level road map for digital transformation based on ERP system
00:38:20 - Discussion about Cyber Maturity Model Certification (CMMC) levels
Transcript
Gregg Profozich [00:00:02] In the world of manufacturing, change is the only constant. How are small and medium-sized manufacturers, SMMs, to keep up with new technologies, regulations, and other important shifts let alone leverage them to become leaders in their industries? Shifting Gears, a podcast from CMTC, highlights leaders from the modern world of manufacturing, from SMMs to consultants to industry experts. Each quarter we go deep into topics pertinent to both operating a manufacturing firm and the industry as a whole. Join us to hear about manufacturing sectors' latest trends, groundbreaking technologies, and expert insights to help SMMs in California set themselves apart in this exciting modern world of innovation and change. I'm Gregg Profozich, Director of Advanced Manufacturing Technologies at CMTC. I’d like to welcome you. In this episode I’m joined by Pandora Ovanessian, Senior Technology Consultant at CMTC. Pandora explains what enterprise resource planning is, how it works, and its evolution over the years. In addition, Pandora discusses common signs that point to an organization needing technology improvements and explores what a road map for digital transformation looks like. Welcome, Pandora. It’s great to have you here today. Look forward to our conversation.
Pandora Ovanessian [00:01:12] Thank you, Gregg. Pleasure to be here.
Gregg Profozich [00:01:14] Pandora, we’re here to talk about ERP systems today. I did some internet research in preparation for our conversation, and I learned the ERP market for cloud ERP alone is valued at over $53.7 billion in 2022 and is expected to grow to over $123 billion by 2030. Now, that’s a very sizable market. It means a lot of companies have adopted the ERP. A significant portion of that valuation is from sales to large companies, and not just manufacturers. We’re here to discuss the value of ERP to all manufacturers, particularly to the small and medium-sized manufacturers. Let’s get started. ERP is one of those acronyms that have been around for quite a while. For context, can you define for our listeners exactly what enterprise resource planning is and how it has evolved over the years.
Pandora Ovanessian [00:02:04] Sure, Gregg. Pretty much the ERP, or enterprise resource planning, is a digital technology tool. As simple as three initials, it supports and integrates all areas of your business to improve your core operations and also customer experience. It’s primarily the digital tool, or what I call your digital backbone of your organization, for automation integration. It’s the key tool that you’re going to use to help find ways to generate value. It’s going to help your overall business efficiencies and create cost reductions. When you have that tool in place, you have opportunities to position yourself for any changes within the market, customers, products. It gives you agility.
Gregg Profozich [00:02:53] Essentially, it’s an enterprise-level tool—hence the name—that can support all the different functions within your business.
Pandora Ovanessian [00:03:00] Yes, all the different functions, but it also is key in operations, and it’s also very key in being able to give you visibility and give you real-time data. The list can go on and on. But it is that primary digital backbone to help position your organization for a number of things strategically.
Gregg Profozich [00:03:25] My next question was about that. Where does ERP fit inside the technology landscape? But you’ve just said technology backbone. Can you elaborate on that just a little bit more?
Pandora Ovanessian [00:03:34] Sure. Primarily, the technology backbone of ERP—again, it’s automation integration, real-time data, and visibility—but as I mentioned, it is the primary tool that we use to plan for strategic growth within the organization. For example, I want to be increasing EBITDA, or I want to be able to grow my business products and services or geographies, sales and marketing, customer satisfaction. Where do I go? Where you go when you’ve got this digital backbone is within this what we call ERP system. One of the key things that we live in is a technology-based economy. With this technology-based economy, one of the key areas that businesses need to be able to be successful in their strategic growth is to have that cognitive enterprise data and technologies that allows all the workers, including decision-makers, to perform at a higher level and more efficient and productive levels. The backbone manages your entire organization. It tracks your quality. It tracks your people. It’s the dynamic manufacturing process that’s taking place. Whether you’re a small organization or a large organization, it’s the primary tool that businesses use today to eliminate data silos and one source of truth. If you’re in silos, you’ve got one team that has one data and another has another. It also brings financial accuracy.
Gregg Profozich [00:05:11] Because it’s an enterprise system, it captures data from all the given silos, departments, parts of the organization, and potentially distributed plants or sites, whatever that is, and gives you that one source of truth. Is that what you’re saying?
Pandora Ovanessian [00:05:25] Absolutely. One database, one source.
Gregg Profozich [00:05:29] You mentioned EBITDA a minute ago—earnings before interest, taxes, depreciation, and amortization. Right?
Pandora Ovanessian [00:05:35] Correct.
Gregg Profozich [00:05:35] From a high level, what’s the value proposition? We talked a little bit about it, but the value proposition of ERP. If I’m a small manufacturer and I don’t have one, why do I need one? What’s it going to do?
Pandora Ovanessian [00:05:49] Well, again, I think that the key thing that we need to have an awareness is that we are in a technology-based economy. The changes that we’ve seen in 2020 has definitely forced massive changes in the industry globally and the scenario of being in Industry 4.0, where we’re utilizing more advanced technologies. Companies, regardless of the size—small or big—if they are not making that transition, they are going to be left behind. Companies that are beginning to see that they can’t be where they are and they are behind in this technology economy are making those changes. We’ve seen companies, for example, in 2020 that no longer exist. They didn’t have the tools; they didn’t have the people; they didn’t have the automation. It was very hard for them to compete with those companies that already were positioned in the technology world.
Gregg Profozich [00:06:44] If I’m hearing you correctly, the value proposition is that the centralization of data across silos or departments and the automation that can be built in can allow competitive advantage, if it’s implemented correctly, and can keep you on the cutting edge—not the bleeding edge, but the cutting edge—of the next round of technology evolution.
Pandora Ovanessian [00:07:04] We are in Industry 4.0, and we’re looking at advanced technologies. It’s no longer cutting edge or bleeding edge; it’s being able to be competitive. It is the tool that we need to just stay current in the marketplace. I put the analogy in a discussion I had with someone the other day. They were having a hard time understanding. “Well, why would I need this tool?” I said to him, “Well, do you remember the…? How about if I take your mobile phone away and give you a Day-Timer, and I give you a GPS tool, and you can log in your appointments on your Day-Timer and chase down people?” It’s not really very efficient, and people would have a very difficult time to continue doing business without their mobile phone. Oh, by the way, they can go back to using Rolodex and see how efficient that would be. Again, it’s not staying cutting edge or bleeding edge, but it’s staying competitive. None of us would work very well with a Day-Timer, or a Rolodex, or a separate map getting us from point A to point B.
Gregg Profozich [00:08:16] I don’t want to go back to my Thomas map. I don’t. Remember those days?
Pandora Ovanessian [00:08:20] Any map. I don’t want to use any map.
Gregg Profozich [00:08:22] Turn-by-turn directions is definitely nice. Once you have the technology, a lot of times, you can’t think of how you did without it. But you did something before. Being able to use that technology in the right way to continue to be effective. Yes, I can be effective with a Day-Timer and Rolodex, but I can’t be efficient. Being effective and efficient. That’s continuously looking for those ways to apply technology for additional efficiency. Is that what I’m hearing you say?
Pandora Ovanessian [00:08:50] Yeah. The thing that’s key to what we have today is once you put that digital backbone, you’re able to leverage opportunities. I don’t know about you, but someone could give you all the lessons on how to use a map, and a Day-Timer, and a Rolodex, but it’s hard to become efficient in that world. But once you have the digital backbone, you are able to easily be an agile organization to change with dynamic times that we are in and be able to position yourself for opportunities. How do you position yourself in an opportunity with paper and pencil and Excel spreadsheets?
Gregg Profozich [00:09:30] Let's talk a little bit about it. You mentioned that there’s some examples I’m sure that you could share with us. How can ERP software be used by organizations to advance along the digital journey? We hear about this digital journey a lot that we’re all on as a society as well as a manufacturing sector. What are some examples of how organizations can use software to advance along that journey?
Pandora Ovanessian [00:09:56] Well, because it’s the backbone, it is the tool that’s going to manage your day-to-day business. It’s going to track from the point of sale to receipt to shipping. It’s going to be able to track your different movements within the manufacturing floor. It is basically the plant floor operations in the palm of your hand. The other nice thing about it is what we can do with quality. We always look at quality at the end. If we have to correct something at the end or it scraps it at the end, we’re able to check that quality work in process. Then you’re able to see the performance of your employees. You could actually recognize and do pay-for-performance or recognize areas where your employees need further training so that they could be corrected. It gives you that performance capabilities that you won’t have using an Excel spreadsheet or using a Word document paper trail.
Gregg Profozich [00:11:03] You said something a moment ago—your manufacturing company in the palm of your hand. I like that. I think that summarizes things nicely. If I have that backbone in place, because it’s collecting data from all of the different portions of the organization that are connected, I hear you saying that you can see, and summarize, and understand the flow of materials from receiving through inventory through production through quality control through shipping out the door until receipt, and have that holistic end-to-end view is what it allows.
Pandora Ovanessian [00:11:34] Yeah, and it also gives you quicker turnaround times because you now have efficient work processes in place. Because it’s not just a digital tool that makes you more efficient, it’s taking and eliminating certain processes that you no longer are using, so you’re able to do quicker turnarounds. The other key part of it is the customer information. For example, you might be in sales. You’re actually seeing information—any complaints, requests from your customers, things that need improvement—and then seeing the sales cycle. From a sales and marketing piece of it, that’s real-time information. You can be proactive as opposed to reactive. On the product knowledge piece of it, you’re actually having more information about do I have enough inventory, just-in-time inventory, and then being able to use that information. Lead time. Having that real-time lead time so you can track your orders and get the information back to your customers and let them know delivery times. I mentioned inventory levels. Doing that just in time so that you’re minimizing your cost. I think one of the most important things that I hear a lot of clients talk about is pricing, being able to standardize pricing, special offers, promotions. For example, most recently, when they have price changes, they get orders in one month, but they don’t want delivery for another two months, and you have a price change. You got to go track that down. You have that real-time tracking capabilities to make those price adjustments accordingly.
Gregg Profozich [00:13:15] How can an ERP system be deployed to positively impact key indicators like customer service, waste reduction, inefficiencies, compliance? Can you give us some specific examples of how the system can enable those?
Pandora Ovanessian [00:13:29] What we use is success models. Our key indicators of success models of deployment is working with people, the process, and technology. A lot of folks will make a decision and make the leap to technology. Whatever tool they use, whether it’s ERP and all the other parts of it, manufacturing execution system—MES—or they’re using sensory devices, or they’re doing artificial intelligence or any of the other advanced technologies, they jump into the tool. That’s not where we want to start. We definitely want to start with your people. First and foremost, have you shored up your organization to have a sustainable organization? Once you put in that technology, who’s going to be supporting it? Who are your superusers? Who are your point people if something goes wrong? It’s the people part of it in your organizational structure. The other part of it is the processes. Are you putting a system that’s going to duplicate your redundant processes? That was a cost to begin with. It will be an added cost if you just put the system and never re-engineer your processes. You’ll end up actually costing more by not reengineering. You’ll just take certain processes that are costly, and you just will do it a lot faster. That could be an expense to the company. Having reengineered the processes for best practices, not only the best practices within your organization but with best practices with the ERP system and leveraging the tool. Other folks don’t want to reengineer, and they’ll try to do customization, which then just multiplies the cost of implementation and ongoing support.
Gregg Profozich [00:15:18] It’s about the success models: the people, process, technology, and looking at that three-legged stool. If one of those legs isn’t strong enough, it’s probably going to be some difficulty in implementation, is what I hear you saying. Start with the people. Get the right people in place, and make sure you got the right people on the bus in the right seats on the bus. You have the right skills; you have the right people who can support you. Have the right people who’ve got the right attitude and the skill sets to back it up to make this successful. Then look at the process. Streamline the processes, and make them as efficient as possible. On the automation side, the factory automation side of the world where I work a lot, also, I don’t want to put a robot in until we take a look at streamlining and doing some Lean work on the process because I don’t want to automate waste. Automating waste is counterproductive. I hear you saying something along the same lines there on the processes piece. Then the technology, of course. When you have those two foundational pieces and level in place, then the technology added in creates that stable three-legged stool. Yes?
Pandora Ovanessian [00:16:23] Yes.
Gregg Profozich [00:16:26] Awesome. Let’s talk a little bit about how SMMs can use ERP to gain competitive advantage, increase margins, those kinds of things. Can you give us some specific examples?
Pandora Ovanessian [00:16:38] Well, I think one of those key areas that the small companies or medium-sized companies is leveraging operations and the visibility of employees on the manufacturing floor. That's the shop floor. And going paperless. Being able to use barcoding and labeling, touch screens. Being able to track the performance of labor cost, a big one and a good opportunity for our companies. Regardless of the size of the tool itself, you get the same results, whether you’re a medium-sized company, small, or large. You’re being able to track your data, your people, your performance, your turnaround times, your delivery times, your customer experience.
Gregg Profozich [00:17:28] What I hear you saying is that small to midsize manufacturers can leverage the technology. The fact that it’s a backbone. I keep going back to that, because I think it’s so fundamental. I hear you saying the fact that it’s a backbone allows real-time communication information. If I have a paper system and at the end of the shift, I bring the paper up to somebody who has to then key it in, and then it gets put on a report for tomorrow, that’s a whole lot different than if I’m on a touch screen, or using a barcode, or an RFID tag to move material through, where the system can see it instantaneously. It’s that real-time connection to the backbone that allows visibility, analysis, continuous improvement, all those things.
Pandora Ovanessian [00:18:08] It is the tool for Lean manufacturing. It gives you the capability to eliminate waste. Very hard to do that if you’re running on spreadsheets and Word documents. It gives you traceability and product recall. The other key part of the success factor that we’re looking at, especially in the regulatory compliance area and in the area of security, you have a locked system, and you’ve got the material, the information, the Lean processes all in one place as opposed to being spread around the shop floor.
Gregg Profozich [00:18:45] You can update things then, too, in real-time. How many times do we see it on the production floor? You walk out there, and you have the paperwork instructions that are a month old, and nobody knows there’s a new revision.
Pandora Ovanessian [00:18:54] It’s borderless. For companies that are doing version control, document management, control documents, the ERP system has all of that. Some companies don’t realize that. We worked with companies where they purchased an ERP system and then they purchased another system for document management. Then they went out and purchased another system for quality management. The ERP systems, the way they are today, I would say that one of the evolutions is… I would say not five years ago or six years ago but today, ERP vendors have gotten very sophisticated, and they’ve gotten very well able to provide a holistic approach to companies that need everything under one umbrella. It makes it a lot easier to manage, control. Then the visibility piece of it, I can see from engineering what’s going on in quality. I can see it in production. The quality people can see what’s going on on the shop floor. When you have this all-in-one system, that real-time visibility, upgrade capability, maintenance all is under one umbrella.
Gregg Profozich [00:20:00] That makes a lot of sense. I think you’re starting to touch on this anyway and talk about that collaboration across departments you were just mentioning. It sounds like it’s not only a continuous improvement tool; it sounds like it’s also a tool that can facilitate communication and collaboration across departments.
Pandora Ovanessian [00:20:19] What we have now is the capability of actually using electronic tools to do continuous improvement. Because you’re able to put workflow in your system and you’re able to put alerts there, there are tools that you could add to the workflow process that will evaluate the stream of business and then tell you or recommend how you could Lean out that process. Without the technology attached to it, it’s a little hard to do that visually. But tools will provide you a workflow diagram, and you could see where the bottlenecks are and where you would then take out and move those around, or reduce, or change so that you can Lean out your business processes. Very difficult to do if you don’t have a system in place.
Gregg Profozich [00:21:11] It’s that visibility first from a Lean perspective at the very least. Lean does a great job of making problems visible so they can be dealt with.
Pandora Ovanessian [00:21:21] Exactly.
Gregg Profozich [00:21:22] Visibility is the key. We’ve talked a little bit about the background—where ERP came from, what it can do, how it's the backbone, some of those things. If I’m a manufacturer, what are some of the signs my organization might need to improve my technology and become more modern? What are some of the characteristics that I would look for to say, “Oh, you know what? I should probably think about upgrading,” or, “I should probably think about implementing”?
Pandora Ovanessian [00:21:47] The signs would be the paper trail, spreadsheets, and not able to see real-time data. Another key one is the lagging indicators, companies making decisions based on lagging information as opposed to real-time. The data accuracy. We see the inventory management piece of it is a challenge. Manual processes, where people are walking around from one office to the other or one desk to the other to get the information. The functional limitations. I would say that company’s outgrowing their current capabilities that they have in their current ERP system. Their business needs are growing, but their system isn’t keeping up. Then having the ability to meet your customer needs, whether it’s delivery times or frequently asked questions that they’re not getting the answers to things. Being able to identify those small inefficiencies that eventually end up adding to your cost. Then, of course, regulatory compliance, especially in the aerospace industry. We have significant changes in the cyber world. A lot of times, software that companies have may not meet the expectations of the new world for DOD or aerospace compliance.
Gregg Profozich [00:23:08] The signs are any of those manual paper or lagging processes at the highest level. Right?
Pandora Ovanessian [00:23:14] I think the key one is if you have lagging indicators, whether it’s lagging indicators to make decisions, or lagging indicators about your inventory or lagging indicators about your customers and their needs, your lagging indicators about when products are going to be delivered. And then production, too. The salesperson takes the order. Doesn’t really know what the inventory levels are. Can’t properly estimate delivery times. All of that in a technology economy base is concerning. The customers. Our customers and who we do business with have higher expectations from us.
Gregg Profozich [00:23:59] I think that’s totally on target. I’ve come to the point where I often think about the fact when I go online and order something from a certain large internet retailer, I sometimes get same-day delivery.
Pandora Ovanessian [00:24:12] You do?
Gregg Profozich [00:24:14] I order at 9:00 am, and it’s on my doorstep at 2:00. We all live in that world. We’re all becoming conditioned to that service level. When I pick up the phone and have to call my vendor and say, “Can you tell me about the quality issue on the product you just shipped me?” and the answer is, “Well, let me do some research and get back to you. I’ll call you in a day or two.”
Pandora Ovanessian [00:24:34] They want to know when I’m going to get my product or what happened. I put my order in.
Gregg Profozich [00:24:39] It’s that lag in that responsiveness. We begin to get conditioned to the responsiveness of the world around us, and that it seems like it’s a much different thing. It's that gap. If you have a system, and I pick up the phone and call you to ask about it, and you tickle the keys for a moment and then give me all the background data. “Well, it shipped on this date. It should be here. You should have it by then,” or, “These were the quality specs. By the way, here are the inspection reports,” or any of that stuff at your fingertips almost instantaneously. That’s what we’re coming to as a society to expect almost globally, I think. I think it’s what I hear your point making. If it’s those lags, those lagging indicators, those lagging responses, those are things that are marks of not being current and not being technologically up to speed.
Pandora Ovanessian [00:25:30] We’re experiencing a huge technology boom. Because of 2020, the demand has changed. A lot of companies became very responsive to the needs, and the companies that didn’t have been left behind or have gone out of business. There is a concern for companies if they’re not focusing on these things. Will they be able to have customers that want to do business? They made the shift to companies who have the perception that I can get my orders filled.
Gregg Profozich [00:26:02] I wanted to ask you a little bit about that - the pandemic changes. I think you probably just summarized it there. Let’s talk a little bit about the technology that ERP is built on itself. A decade or two ago, ERP existed almost exclusively in a client-server architecture. With the advent of the cloud, can you discuss some of the pros and cons of on-premise versus cloud-based ERP solutions?
Pandora Ovanessian [00:26:28] Sure. There’s two choices, and it depends, of course, even the vendor that you pick because some vendors now just don’t even provide on-prem solutions. But a majority of them try to provide on-prem and cloud solutions. On-prem, it’s pretty much the company owns the servers; they maintain it; they’re responsible for the backups; they’re responsible for doing all the maintenance, and they buy the licensing rights. The other one, of course, is the cloud, where people are signing in through a web browser, and the vendor is providing the services and doing the upgrades. The difference primarily is that a lot of companies, depending on what industry you’re in, like the idea of going on the cloud because they could take a better leverage on the Industry 4.0, the advanced technologies such as sensory devices or artificial intelligence, or big data, or machine learning, where, depending on the industry, on-prem you have more control over your system; you’re not taking the maintenance upgrades until you’re ready; you have a more controlled environment as far as cost. It really depends on the industry you’re in and then also what your business objectives are. The cloud version provides more agility, and it’s something that you don’t have to think about. But you do have to move along with any upgrades that they make, maintenance, et cetera. You get notified, obviously, about these changes, but it’s more controlled by the vendor, where on-prem is more controlled by you, and it’s for security purposes. There’s multiple variations of cloud. There’s the regular cloud, commercial cloud. There’s the government cloud. There’s high government cloud services. Depending what level of security level, you would pick one of those cloud services, what we call high GCC. Those are a little bit more expensive, but it is purposeful because of the security factors.
Gregg Profozich [00:28:38] What I hear you saying is it’s getting down to an individual decision. Using the cloud, the pros sound like they’re in the areas of things like better leverage of Industry 4.0 technology. It’s already cloud-based; it’s already connected, so it’s easier to connect; it’s easier to take advantage of some of those tools—analytics tools, censoring tools, et cetera. There’s also more agility in the cloud. Ostensibly, I would suppose you can turn off and on modules depending on what your need is as your business changes and change that profile. If you have on-prem, you have more control of when you do upgrades; you have more control of the system because it’s on your servers or within your firewall, et cetera, but at the same time, upgrades are on you. It’s up to you to keep up to the latest version. Sometimes, you don’t want to keep up to the latest version. Sometimes, you may have done some customizations or integrated other software that works great on this version, and you don’t want to change it yet. There’s a pro/con. If you’re on the cloud, it’s going to get updated on a regular basis, so those integrations are going to have to be upgraded along with it. Security, the cloud is going to be fairly secure, highly secure. Anything on your side is going to be up to your level of security within your firewall, your protection, your security posture.
Pandora Ovanessian [00:30:05] The decisioning factor is it just depends. It depends on the company. That’s company size, the type of business that you do, and then not only current state but future state, what kind of business you’re going to do. Some clients that we’re working with are saying they’re interested in the cloud. Then as I look at their strategic plan and we do a strategy planning discussion, through that strategy planning discussion, I see that they’re going into all the areas of regulatory requirements that would prohibit them being on a cloud, or if they were going to be on a cloud, they would have to be on a high GCC. When we start looking at those factors, they start to think about, “Well, maybe cloud isn’t the solution for us because in two years, we’re going to be doing DOD projects.” That’s when it depends on what the company is, what they’re doing, and then their strategy. Where are they going to go? Some companies, the other part of this decisioning factor isn’t just regulatory; it’s their IP. How well and where do they want to keep their IP? They may want to have it on-site because they want to make sure that it’s within their four walls and nowhere else. It’s dependent on the business and then their strategic plans.
Gregg Profozich [00:31:23] You mentioned a couple times GCC. I want to make sure all our listeners understand what that stands for.
Pandora Ovanessian [00:31:27] GCC is Government Community Cloud, High GCC. There’s a government cloud, what we call, and then there’s a High Government Cloud. The High Government Cloud has different security factors than the general government cloud. These are available on Microsoft Azure and AWS, which is the Amazon version, and a number of other private companies that will provide you that.
Gregg Profozich [00:31:55] A GCC, or a GCC High or High GCC, whichever way you say it, essentially is something I would subscribe to when I go to cloud services. It’s basically for a Social Security profile or platform. Is that how it works?
Pandora Ovanessian [00:32:10] It is, but it’s also dependent on the level of security you would need. If your security level is… Not to get too complicated, but if your security level is one to two, then you wouldn’t have to pay the high version of it; you would just do a government. If your security level is three and above, then you would be looking at a High GCC.
Gregg Profozich [00:32:32] We’ve been talking about the cloud a little bit. With the advent of the cloud and a lot of technology cloud-based point solution players in the market, how do you see the future of ERP, the backbone tool that can cover all the departments as opposed to potentially assembling your own ERP system out of a couple of different point solutions for your most pressing needs?
Pandora Ovanessian [00:32:55] Are you saying where do we see the cloud versus on-prem going?
Gregg Profozich [00:33:00] No. There’s point solution providers out there that do data analytics, or do inventory management, or any of these kinds of things. Picking up individual modules, if you will, of what ERP covers and using cloud-based point solutions to create your own custom, if you will, ERP to a given small manufacturer’s need.
Pandora Ovanessian [00:33:22] That is not the current state of solutions in the industry. We did that many years ago where vendors would sell modules. Some people still, in some respect, can do that—for example, buy a separate module for a customer relation management system—but most of the solutions right now are integrated. They’re tightly integrated, and you can’t buy it separately. There’s some open-source solutions out there, but you’ll want to make sure that if you do go in that open-source solution that you’ve got a good, strong IT team to help you. But we don’t see companies looking at solutions that are modular based, for the exception of what we call CRM, the customer relation management system. The direction that the industry is going and has been going for the past couple of years is that backbone all-in-one solution.
Gregg Profozich [00:34:27] From a high level, what does a road map for a digital transformation based on an ERP system look like? What are some of the key components, key things that…? If I’m a small manufacturer, what do I need to look at, and consider, and put on my road map?
Pandora Ovanessian [00:34:46] For the road map of doing the transformation, what I would say is your number one thing is identifying your requirements. A lot of companies want to go straight into the vendor and look at vendor B, or C, or D and look at their solutions. Gartner did a study on this. People who start with identifying their requirements versus the vendor have a 60% greater chance of success. We want to stress on them that one of the key things is what are your requirements because your solution should be working with your requirements. The other thing is the team approach and the insight that the team could bring in, not only the current state but then using the consulting services that we provide, to be able to identify based on your strategic vision, your growth pattern, what are the things that you should be looking for in the future because we’re not looking for a solution that’s just going to meet your needs today. As you grow and sustain your organization and also improve your organization, we want to identify those requirements for the future state. That is evidence-based. We say, “What are the dots that you’re able to connect that identify and say, ‘This is the solution for us’”? It’s very similar to you’re looking at your long-term, short-term improvements or you’re looking at buying capital equipment or a facility. You’re looking at the cost/benefit analysis, what the benefits would be short-term, long-term. In the same way that you would be making those capital investment decisions, you want to look at the capital investment decision within an ERP system or any solution that you pick.
Gregg Profozich [00:36:41] I think the key point there is start with requirements. The key is what is your real need, and then think about from there making sure you have the right team assembled to define those requirements fully and completely and understand all the nuance of it, and then start looking at solutions, and solution vendors, and those things…
Pandora Ovanessian [00:37:03] Actually, if I could interrupt, it’s not just starting with your requirements because your requirements should be built on your strategic goals. It is starting with strategy. We want to know what your strategy is today, and where you’re seeing yourself in the next couple of years, and where you want to take the business. If most people look at their strategic plan, generally, there’s something there that the tool needs to do. It’s looking at where you want to take the business—What’s your business strategy?—and then aligning your requirements and your future state with your future state strategies in regards to requirements. It’s twofold. First, it’s strategy, then the requirements.
Gregg Profozich [00:37:46] Once we have the strategy and requirements understood, then it’s a matter of having that team assembled to define those, to understand those, and then also to participate in the implementation. Looking at the short term as well as long term. Having that longer-term view, making sure this is going to be the tool that you’re going to be able to evolve into and is going to evolve with your business and be able to serve your business over the long term. Then from there, the cost/benefit to make sure that it’s going to meet the short-term and long-term goals and help execute that strategy.
Pandora Ovanessian [00:38:19] Mhmm.
Gregg Profozich [00:38:20] Pandora, a minute ago, you mentioned level one, level two, and then level three and above. Those were in reference to what, exactly?
Pandora Ovanessian [00:38:28] In the cyber world we have what we call CMMC. That’s the Cyber Maturity Model Certification. There are five levels. When we’re looking at being secure, and we’re in a regulatory environment, certain regulatory requirements. Depending on the company, you may need level one through two. If you have been defined to meet those requirements for CMMC, Cyber Maturity Model, level one through two, when you’re making a decision on whether you’re going to have on-prem or on-cloud, you are able to go onto what we call a government cloud. If you don’t have any of those regulatory requirements, you can easily go on a commercial cloud. Why would I look at one or the other? It’s important for me because one is, obviously, to keep compliant. The other is a cost factor. The higher the security on a cloud environment, the higher the cost. Don’t want to buy too much, and don’t want to underestimate what my requirements are. This is important because when you’re making a decision in selecting an ERP system, you want to look at all factors of your cost. I generally like to look at 1 through 10 years to do a cost estimate for budgeting purposes. I’ll do 1 through 5 and then 5 through 10. Having that big-picture understanding. We’ve done this with a lot of clients, where they go on level one through two. If I’m sitting here on the cloud, it’s going to cost me X. We do a cost comparison of what it costs on the cloud versus on-prem to make that decision. The next level up is CMMC level three to five—We say three and above—for those folks that need that high cybersecurity compliance. That is what we call GCC High. GCC is the government cloud, but it’s what we call a high-level three and above. For companies that are in a very top security—they do work with the Department of Defense; they have high cyber requirements—they’ll want to be on that cloud version of it. Some companies the same thing. We’ll work with them and show them the cost factors for 1 to 5, and then we’ll break out the cost factors to 5 and 10 years and then do an evaluation of what is the cost if we were to be on the cloud for level three and above versus on-prem. We’ll do the cost differential and see where that lies if we were to do on-prem and also what it takes to support that. Then based on the cost differential, companies will decide whether they’ll do it on-prem or continue going forward with on the cloud with GCC High.
Gregg Profozich [00:41:23] Essentially, the levels are levels of cybersecurity, maturity, and security. If I’m a manufacturer of some consumer good, I may not need the same level of security as I do if I’m doing top-secret defense work. That’s what those stratified levels… Where you sit in there will make sense based on your business and on the cost-benefit of do I need to be in the cloud and pay those expenses for those levels, or is it better to be on-prem and have the security levels that I need?
Pandora Ovanessian [00:41:56] Correct. It doesn’t necessarily have to be government. It could be other things that you’re doing that need that top security. Could be medical device, and depends on the type of medical device. Not likely to be on the GCC High for that, but it may be something that you’re doing that is going to be used in another industry. We’ve seen that, actually, where a device was developed and then utilized in other areas and other markets. It turned out that they were providing for the government, and that changed their whole model.
Gregg Profozich [00:42:30] We’ve covered an awful lot of ground today. Is there anything else related to ERPs and small manufacturers that you think is important to discuss?
Pandora Ovanessian [00:42:40] I would just say that taking a look and doing that evaluation for your organization will end up… I know folks will say that this is a cost impact, but those little inefficiencies add up every day and throughout the year. That is the delta of paying for those inefficiencies per employee versus making that decision to become more automated, integrated. Then being able to make those improvements within your organization will make a big difference. I think that one of the key areas is stay competitive. If we stay where we are and we’re not upgrading, or we’re going to just continue doing what we were doing always… We’re living in a technology-based economy. To stay competitive, we really do need to think about making these transitions and improvements.
Gregg Profozich [00:43:33] Very well put. Thank you so much. Pandora, thank you for joining me today and for sharing your perspectives and insights with me and with our listeners.
Pandora Ovanessian [00:43:40] Thank you very much, Gregg.
Gregg Profozich [00:43:41] To our listeners, thank you for joining us for this conversation with Pandora Ovanessian on enterprise resource planning in small and midsize manufacturers. Thank you so much. Have a great day. Stay safe and healthy. Thank you for listening to Shifting Gears, a podcast from CMTC. If you enjoyed this episode, please share it with others and post it on your social media platforms. You can subscribe to our podcasts on Apple Podcasts, Spotify, or your preferred podcast directory. For more information on our topic, please visit www.cmtc.com/shiftinggears. CMTC is a private nonprofit organization that provides technical assistance, workforce development, and consulting services to small and medium-sized manufacturers throughout the state of California. CMTC’s mission is to serve as a trusted adviser providing solutions that increase the productivity and competitiveness of California’s manufacturers. CMTC operates under a cooperative agreement for the state of California with the Hollings Manufacturing Extension Partnership Program, MEP, at the National Institute of Standards and Technology within the Department of Commerce. For more information about CMTC, please visit www.cmtc.com. For more information about the MEP National Network or to find your local MEP center, visit www.nist.gov/mep.