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Posts Tagged ‘Enterprise Resouce Planning software’

Deciding finally to upgrade your old accounting system into a modern ERP system is never an easy decision.  All too often, we’ve seen that nebulous fear cause many a client to wait too long.  Usually, it takes the sunsetting (i.e., discontinuation) and total loss of support for their current product – with maybe a touch of hardware obsolescence and crumbling network infrastructure thrown in – before they’ll finally bite the bullet.

We think that’s because it’s hard to quantify the cost savings and efficiencies that will be gained against the much more plainly understood “cost” of the system.

All too often our constant reiterating wail to clients that ERP is a strategic investment in your business – just like a machine on the plant floor – falls on deaf ears much like the baying of the coyotes outside my windows on an Indiana night.

Just this week a client told us that they are not spending any more money on software for the rest of this year.  That’s like saying I’m not spending any more on oil and maintenance for our equipment.  The difference?  Most businesses have difficulty appreciating that – done right – the improvements to processes and business alike that result from a strategically used ERP system can save five, ten or even 100 times their costs in wasted or redundant labor and other inefficiencies.

Except of course: We’ve always done it this way…

You can’t blame them really.  Most folks are coming off “accounting” systems built in the 80s or 90s that mostly documented business ‘transactions’ and not much more when it comes to process improvement.  It’s a stretch for them to appreciate that ERP is just the tool we use to codify and standardize business process improvements.  It’s not about the software, per se, it’s about the improvements to processes and the reduction in costs that ultimately flow through it, once processes have been realigned and the software is configured to accept them.

It’s hard for clients to wrap their heads around this, when all they know is what’s worked in the past: build better widgets, and increasingly more of them, as cheaply as possible, and all good blessings will flow.

The idea that wide swaths of a business might be “leaned out” through the implementation of improved processes woven into an extensive enterprise management system that makes those changes ‘stick’ takes some education and some getting used to.  And it takes an investment in the foundation (like working a little compost into the garden dirt) before the changes can begin to grow and bear fruit.  In other words, it can be a leap of faith.

So in the post that follows, we’ll take a high-level look at three steps to weighing the costs of implementation against the cost of continued inefficiency.  Stay tuned…

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Each year Panorama Consulting of Colorado releases the results of its annual ERP survey.  This year they analyzed the findings from ERP implementation at 342 firms across the U.S. and a variety of industries.

From those surveys, the authors saw five of what they called ‘important headlines’ emerge.  A couple of their real-world findings run strongly counter to today’s conventional wisdom.

  1. Project cost and duration have decreased since last year. We always take this one with a grain of salt because the devil is truly in the details in terms of project sizes, scope, industry, etc.  Panorama notes that projects this year were notably smaller than in years past, and that money spent on implementation “does not necessarily mean that long-term costs and overall return on investment improved in parallel. We see many organizations that are willing to step over a dollar to pick up a dime, so to speak, by cutting implementation costs without realizing that it creates more problems later on.”
  2. A counterintuitive trend is emerging. A year ago, cloud implementations appear to have plateaued according to Panorama.  In the past year, the survey showed a 21% decrease in cloud-based ERP adoptions.   Meanwhile, on-premise implementations increased by 11%.  “Perceived risk of data loss” was the concern cited by over 70% of respondents.  And among cloud-only adoptions, the overwhelming majority expressed preference for private or “single-tenant” solutions over multi-tenant solutions.
  3. 88% of survey respondents reported some level of customization of their systems. The vast majority still make changes to source code in order to customize their ERP experience.  They make efforts to manage these efforts closely for cost overruns, but in the end… what’s the point of an ERP system if you can’t have “your way”?
  4. The respondents who reported “being satisfied” with their ERP implementations, a somewhat subjective measure, increased from 13% to a whopping 70%. Actual ‘benefits realization’ also improved, with more firms realizing benefits within six months, and fewer taking more than two years to recoup some benefit.  Says Panorama: “more organizations are realizing a positive return on investment compared to years past.”
  5. Organizations are investing more in organizational change management and business process reengineering. Lack of business process reengineering is often cited as the number one reason for ERP failure.  Companies appear to be learning the lesson.  This year, 84% expressed “moderate or intense focus” on organizational change management and 93% said they “they improved some or all of their business processes,” a significant increase.  We’ve long considered that the first priority in any roadmap to an ERP system – so we’re happy to see the advice taking hold in so many more firms, and the lessons being learned.

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We see clients wrestle every day with a number of common complaints, obstacles and productivity-wasters when they talk to us about upgrading their business management systems.  These issues seem to be common across many companies, so don’t feel too badly if they just so happen to describe your office too.  We’re talking about things like…

  • Spreadsheets.  They’re everywhere.  They’re disconnected.  They’re not available to everyone.  They can be difficult and costly to maintain and keep current.  And worst of all, they represent double- or even triple-entry effort across disparate platforms.  A lot of waste, redundancy and mistakes.
  • Information that’s all in one person’s head. Years ago, we had a client with a production scheduler who had all the magic formulas for How-To-Produce-What-On-Which-Machine (in what order) lodged inside his head, and his alone.  Job security, right?  I thought so too.  Until the company President told me that this fellow had already had two heart attacks!  They could joke about it among themselves (I mostly just kept my head down, and eventually developed a scheduler for them based on some of his knowledge). We have had many clients over the years where the institutional knowledge of certain critical functions was stored in the head of one person – often an owner.  Not exactly conducive to a happy exit strategy, is it?
  • Lack of inter-departmental communication. The classic “left hand doesn’t know what the right hand is doing” syndrome.  Usually it’s front office vs. back office, or production vs. shipping.  Sometimes, it’s like you’re working in two different companies – mostly because the information that needs to be shared simply isn’t in the right place at the right time.  The result is lots of trips out back (or front)… lots of intercom calls… lots of emails… and a whole lot of inefficiency, wasted steps, misspent energy, and “expedited” orders that become the norm.
  • Gut instinct and guesswork as stand-ins for accurate reporting and real business intelligence. When you don’t have the data, you guess — sometimes correctly, sometimes not so much.  Or you ask a person who really doesn’t know the answer.  Or you do it the way you’ve always done it because, hey… that’s the way we’ve always done it.

If some or all of these sound familiar – and they’re usually only the tip of the iceberg – you’re not alone.  That doesn’t mean you shouldn’t do something about it.  The sad truth is, companies lose tens of thousands, even hundreds of thousands of dollars each year to these sorts of inefficiencies – and they don’t even realize it!

What could it do your bottom line, your company’s value and your ability to serve the customer… if only you did realize it – and did something about it?

In the end, you may not be alone.  Misery loves company, right?  But is that really the competitive position you want to be in?  For now, just be glad you don’t know what it’s really costing you. And when you’re finally ready to do something about it, you’ll be taking the first step on the road to a better company.

 

 

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digital-transformA recent post by our friends at Panorama suggests there are some myths about “digital transformation” – the process of transforming a company into a 21st century digital enterprise worthy of a quick recap today.  They make 4 points of distinction that companies should heed in the process of their continuous improvement and digital initiatives.

  1. Myth: digital transformation is the same thing as an ERP implementation. Their first point is that digital transformation is not ERP – at least, not ERP alone.  They do not assume a single off-the-shelf ERP solution.  Rather, they are open to best-of-breed, or sometimes hybrid, solutions.  Rarely is one company’s base ERP offering sufficient to serve the complete needs of a company.  We ourselves have found that with any of the variety of ERP solutions we’ve sold over the years, it’s still necessary and useful to utilize that software’s companion, third-party options to extend the reach and capabilities of the core system into areas often better handled by vertical subject matter experts.  Moreover, notes Panorama, ERP solutions are often about incremental improvements.  A digital transformation often requires “a more revolutionary approach to operational and organizational change.”
  1. Myth: your digital transformation software needs to be provided by one ERP vendor. As implied above, a digital transformation opens doors to all manner of new thoughts, processes, ideas and technologies.  So ERP may come from one source, your e-commerce from a second and your warehouse management from a third.  There’s no harm in that if all can be well-integrated.  And that requires people and process analysis, before anyone touches much software or hardware, we might add.
  2. Myth: digital transformations should be run by the IT department. Most enterprise software initiatives must be viewed first as a business project, and then as a “computer” or “IT” project.  We always remind prospective clients: ERP (and by extension, digital transformation, is first and foremost a strategic business investment.  Business and executive involvement here are more important than ever.
  3. Myth: digital transformations are best for every organization. Not always, Panorama points out.  Sometimes, incremental, slow change is best.  They note that… “The key is to identify what type of project you want this to be, and then ensure that you have alignment in how you allocated resources, focus and measures of success for the project.”

Whether yours is an ERP project, a true digital transformation, or something in between, begin with a clear definition of the what the project is, and the pace of change the organization believes it can support.  These will often dictate the steps that should – or should not – be taken after.

 

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tipsERP blogger Eric Kimberling of Panorama Consulting recently posted some advice about selecting an ERP system, along with a few comments about specific systems, which we thought we’d share today (while adding a couple of our own).

We know that most clients think (or hope) an implementation can be accomplished in a few short months.  We usually try to let them down gently when we will tell them that a year or more is the norm – with large and comprehensive systems often taking considerably longer.

Kimberling, who owns an ERP consulting firm on Colorado, notes that his firm’s experience is indeed the same: about 18-24 months for the “average implementation.”  And that’s regardless of whether the system chosen was SAP, Infor, Oracle or Microsoft Dynamics.

Among those particular choices (SAP, Infor, Dynamics, Oracle, Dynamics), his firm’s experience showed that Microsoft Dynamics was the lowest cost on average to implement, but generally took longer too.

Some of Kimberling’s advice to shoppers includes:

  • Define and prioritize your highest priority business requirements to quickly arrive at a short-list
  • Leverage independent experts who can help you quickly narrow the field
  • Don’t forget to consider implementation while evaluating ERP systems (Don’t just focus on the software: understand how it will be implemented.)

And we would add one that’s maybe a bit of a surprise: the software is not what matters, at least not entirely.  There’s lots of good software: it’s the team you work with, and their understanding of how to apply the software to your business processes, that will yield the most superior results in the end.  We know it from years of experience.

He reminds us that 50-70% of all the implementations his firm sees experience significant operational disruption.  The industry average, he notes, has hovered just above 50% for many years.  So… expect some disruption.  Just emember, ERP is a strategic investment.  It takes time, and it’s not turn-key.  Work with your consultants and providers as a team – and we can assure you, you’ll get there.  Patience on both sides goes a long, long ways.

According to some statistics Kimberling shares at his website, payback tends to come in greatest at years 3 and 4 after purchase.  But we would add: after that, the ROI and savings are permanent.

Finally, Kimberling advises that you can quickly narrow the field down to the top ten or twenty percent by prioritizing those that meet two key requirements:

1) they are critical to your business, and

2) they are differentiating functions of various ERP systems in the market

Only those that meet both criteria should be used to narrow down your short-list.

 

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erp-upgrade-pic_2Our prior post attempts to answer the question captioned in our title by suggesting the first three, commonly accepted steps in the process: Preparation; Process Review; Fit/Gap Analysis.  Today we’ll conclude with the last three steps.

Step Four: Architecture.  In this step, which may be a part of one of the next steps, you identify the hardware foundation for your solution.  It could be cloud based for certain well-defined verticals and for more generic (i.e., pure accounting) solutions, or it may consist of hardware, either on-premise or off, that will serve as the underlying architecture for your solution.  The hardware however is always a byproduct of – and dependent on — the desired software solution.  This step is the natural follow-on to any potential solution identified in the earlier fit/gap analysis.

If you’ve decided on standing pat or upgrading your current solution, you still need to ensure that the hardware it runs on is up to the task and offering you the speed, functionality and scalability you require today.  If you’re considering new technology, new or upgraded hardware will be a part of that overall consideration.

Step Five: Scope definition.  Just as it’s important to define what your choices will do, it’s important to define what they won’t – at least initially.  Here you determine the bounds of your new implementation.  This is the place to look at where you potentially will, and will not, modify the workings or code of the proposed new solution.  We often advise clients to work as much as possible with their new software “out-of-the-box” and to forego all but the most critical, business-necessary modifications until they’re up and running and have had time to truly understand the capabilities of their new system.

We find most companies are a bit overwhelmed initially with what their new system can do for them.  It’s almost too much to wrap your head around all at once.  So initially, take it one step at a time.  There’s plenty of time later to decide where you want to fine tune your system (assuming your selection can be fine-tuned and modified – some systems are better at this than others).

Finally as to scope, remember, this is where you can best identify and control costs.  A good, tight scope definition helps your software partner quote more accurately, and helps you ensure the budget is both realistic and achievable – in both dollars and time to implement.

Step Six: Proof of concept.  Once you’ve reviewed your processes, identified gaps and potential solutions, defined requirements, hardware, scope and acceptance criteria, you need some assurance that the proposed solution will work.  If you’re already familiar with a trusted adviser and software partner, they can step you through this process with either basic PoC demonstrations, or a combination of referrals, conversations and software high-level reviews.

This is not user training and does not involve porting over of existing data (aside from perhaps a few sample records for demo purposes).  It’s not a full prototype or a complete system test.  Proof of concept simply means a general acceptance that the overall processes you have identified as key to your flow can be accommodated in the proposed solution.  There may be some cost associated with this step, depending on the depth of your requirements for proof.  The key thing is to have established trust between your firm and your implementation partner for the long road ahead.

 

There are any number of variations on the steps and flow of your selection process, but the outline we’ve provided covers the fundamentals of an accepted method for determining your requirements, and whether your current solution will get you through, or a look at new technology is in order.

In all cases, keep an open mind… be honest and open about your expectations and your budget… and remember that ERP is, above all, a strategic investment in business improvement.  We may be biased after 30 years of doing it, but the relationship with your provider – and their business and technical capabilities and understanding of the business environment in which you operate – are the keys to success.  Remain honest and open with one another throughout the process, keep the expectations realistic and the lines of communication open, and you will ultimately be one of the success stories.

 

 

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erp-upgrade-picIn this brief, two-part post, we’ll look at the commonly accepted process steps for answering the question in our title.  While there are many formats and variations on this process, there are essentially about six key steps a company can take to gain clarity on whether to upgrade, purchase new, or stand pat.

The first step is preparation: This is the information gathering phase where you define the internal skills and staff required to staff the process.  You’re doing this, presumably, because you question the utility or capabilities or robustness of whatever system you’re using today.  So you’re about to engage, possibly, in some real transformation.  Therefore, you want to look for a few thought leaders in the company who can help you map out what you’ll need in the future – and whether that will come from what you have, or require something new.

Here you want to identify the purpose of your assessment, and try to gather your subject matter experts.  How well can you identify and map your current business processes, in each department?  Do the participants have some ideas about what the future processes might look like?  Once you have an internal team established, and you’ve asked some of these questions, then consider bringing in the external subject matter experts.  These are typically folks who do this kind of thing for a living.  Fellow business people (owners, managers and grizzled veterans) are good referral sources.

Be sure you investigate and document your KPIs (key performance indicators) – those few key business benchmarks that you rely upon to determine the overall health of your business.  Try to begin to map your business processes at least at a high level, to share with the consultant you later engage.

Step two: Review your processes and requirements.  You want to identify, at least at a high level, the key requirements you require of a business management system, regardless of whether you’re inclined to keep or replace.  The business process review will largely define the scope of your ERP requirements, and serves as a tool in your selection process.

(At our firm, we use the term Business Process Analysis, or BPA, to describe a process for identifying workflows, mapping processes, identifying key technology touch-points, mapping current and possible future process flows, and ultimately creating a written Summary of Recommendations that serves as the “roadmap” for most of what comes after.)

Step Three: Perform a fit/gap analysis.  Just like it sounds, in this step you identify the gaps in your current methods or system between your business requirements and what you have today.  Reporting is often one key area.  Often, entire swaths of the business are untouched by the current system if the required technology simply wasn’t available when the system was implemented.  We often find this in the manufacturing/shop floor and warehousing/distribution realm.  Technology exists today that was uncommon ten or twenty years ago that allows companies to better manage product configuration, production and movement within the plant.  These technologies open up vast areas for process improvements and cost reductions across the board – and they simply didn’t exist (at least in economical form) a decade or two ago.  The fit/gap analysis is intended to identify all these shortcomings, and offer suggestions (including possible software selections) for how to fill them.

In our concluding (next) post, we’ll take a look at the final three steps.  Stay tuned…

 

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