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Posts Tagged ‘Enterprise Resource Planning’

hidden costsIt’s easy for buyers of ERP systems to overlook (and for sellers to undersell) some of the so-called ‘hidden costs’ of a system implementation.  A recent article from Compare Business Products reminds us of a few of those costs that buyers should be aware of – in both on-premise and cloud solutions.  We’ll reprise a few of their comments in our next two posts, beginning here with on-premise systems.

Training.  Most companies we find commit two mistakes here: first, they underestimate the implications of the changes they are making.  It’s not just learning the new software, it’s often about learning new was to do peoples’ jobs.  Secondly, companies too often think they can shave costs from a project by skimping on training.  The ensuing employee frustration, coupled with the additional errors that usually occur later – often requiring expensive correction and further training – make the case for ensuring that your employees themselves feel they were adequately trained.

Consulting.  It’s not just showing how to press a few keys to get the results you’re after.  Consultant costs are linked to training needs, the article notes.  The hard part comes from shoehorning the software into the way that you work.  But without that, you have exactly the opposite, and that’s usually a recipe for disaster.  It takes experienced and knowledgeable consultants to understand how your current processes flow, how they could flow better, and how to allow the software to help you get there.  Budget accordingly.

Customization.  Most companies, and good consultants, advise trying your best to use the software out-of-the-box, at least initially.  But the reality, studies show, is that a very high percentage of systems are ultimately modified or customized to match the user’s requirements – and that’s a good thing!  It ensures that the software works the way you do, and that you take advantage (by capturing in your process flows and your software) of the competitive advantages that make you better than your competitors and/or improve your operating margins.  But here again, plan carefully and budget accordingly.  Good consultants will step you through this carefully and thoughtfully, not prescribe numerous modifications haphazardly, and then help you design the right ‘user story’ to ensure you’re doing the right mod for the right reason at the right investment value.

Integration & Testing.  Systems usually need to be integrated with other systems to be fully effective.  And not only does the consultant need to test things like integration, new modifications and expected workflows, but you do too!  This takes time from your people, and reduces short-term productivity.  And it’s usually a two-steps-up-one-step-back process.

Data Cleansing.  If you’re integrating to legacy systems, or porting forward a lot of old data to the new system, this obviously increases costs (sometimes by a lot) and must be accounted for.  As the paper’s authors note, “Invariably, businesses will underestimate the costs of cleaning and managing their data before it can be used by the ERP.”  We would tend to agree based on experience.

These are a few of areas where businesses can underestimate the full costs of a successful (important word there) implementation.  But forewarned is forearmed, right?

In our next post, we’ll take a quick look at the corresponding hidden costs to be found in cloud implementations.  Stay tuned…

 

 

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When ERPAs we begin a brand new year it seems appropriate that a blog devoted to business, tech and ERP should “start with the end in mind” as we often say around here (stealing from Steven Covey).  When it comes to ERP, the key business question to ask of course is: Why?  And the answer should be: Money.  As in money saved, leveraged or otherwise brought to the advantage of the implementing firm.

So today we’ll take a look at some comments we came across lately in an article here entitled “When Will I See a Return on My Investment in ERP?” by Matt Lind of Archer Point.  We’ll highlight of a few of the areas where Matt believe companies can extract value and ROI from their ERP investment.

To begin with, Lind notes, pay attention during the early process of business analysis and workflow mapping.  During that process, companies frequently discover ways to improve inventory management.  While the goal during this time may be mapping your processes, Lind says that “scrutinizing procurement and warehousing can improve planning and control of inventory levels to reduce costs even before roll-out day.”

Sometime during rollout, or perhaps sooner, you should have a feel for how labor allocation is working within your organization.  This can help with labor forecasting, and in finding ways to reallocate or eliminate overtime, sometimes in the front office, sometimes in production.  For example, he notes that in manufacturing, it’s typical that indirect labor produces nearly half the cost savings because companies frequently don’t know how much indirect labor goes into their production.

A lot of features that are necessary but were previously expensive add-ons are now available immediately with today’s more modern ERP systems – another potential cost-saving source.  Web access, enhanced security, ad hoc inquiries and dashboards for making informed decisions (i.e., real-time data analysis) are fixtures of today’s systems that once would have added significantly to ERP costs.

Virtually always, companies find that the process of ERP implementation eliminates a lot of redundancy, repetitive entries and other forms of what we would call ‘administrative waste.’  Another area of potential savings can be in the reduced labor required for compliance efforts.  A CRM system integrated with your ERP will help manage pipelines, help with close ratios, increase salespeople’s efficiencies and improve your overall sales management – all leading to increasing top line opportunities.

With the more agile and extensive capabilities of today’s ERP systems, companies become more agile and less rigidly structured than what was required with previous, less robust systems.  As well, reduction of errors is a nearly universal benefit, along with the general sense of having more time to devote to the more important tasks, while the system manages the tedium that used to require more human input.

Lind also notes that Panorama Consulting recently estimated that the typical payback time for Microsoft Dynamics NAV is around two and a half years.  (SAP and Oracle tended to the 3+ year range.)  As Lind finally concludes in his article: “The large investment to purchase and implement an ERP system may seem daunting, but it is small compared to the return on investment that it will produce for years to come.”

And that, we find after 25 years of doing this, is why we continue to find new customers every year.

 

 

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5 mythsA great little article courtesy of our friends at Panorama Consulting reminds of what ERP can, and just as importantly, cannot do for a company.  In a December article found here, author Eric Kimberling points out “5 common – yet inaccurate – myths that you should be aware of before investing too much in your new ERP initiative.”  We reprise and note them here:

  1. ERP implementations can be quick and inexpensive. While ERP salespeople may wish it were true – and often tell prospective customers as much – the truth is, they’re not.  Everybody, customer and seller alike, is looking for the Easy button.  Stop looking.  There isn’t one.  Kimberling says it best when he notes: “Be leery of terms like ‘implementation accelerators,’ ‘out of the box functionality,’ and ‘pre-configured solutions.’ Things like these may have slight benefits, but they are typically not material enough to make a significant difference. The business transformation portion of your implementation will always be the most difficult aspect of your project, and no implementation tool can automate those activities.”
  2. No one is implementing on-premise ERP systems anymore. Industry analysts (often paid by SaaS (or “cloud”) vendors, as Kimberling notes) have been calling for the demise of on-premise systems for years.  Don’t believe it.  According to our experience, as well as Kimberling’s and others’ research, while SaaS or cloud solutions are gaining traction, a majority of new ERP implementations “still leverage the on-premise model.”
  3. Your ERP system will drive your business process improvements. Too many companies believe their new ERP system will “tell them” how to run their business.  That smacks too much of the Easy button noted earlier.  In fact, today’s systems are too robust, flexible and powerful to define your business processes for you.  Your workflows still need to be defined, your processes fit to the software and your software still needs to be configured.  You still – indeed, now more than ever – need to think critically about all your processes and workflows.  That’s the Business Process Analysis part that is so crucial at the outset of any ERP implementation.
  4. Organizational change management isn’t always necessary. Organizational change management is often side-stepped by management under the guise of comments like “we’re not that complicated” or “our employees are excited about the changes coming.”  Yet generally, the lack of OCM turns out to be the key driving force behind failed ERP implementations.  Understanding one another’s roles, implementing effective communications, defining each area’s process flows and responsibilities, and ending it all with good, solid, effective training is an absolutely necessary component of any ERP implementation.
  5. We can implement without any customization. Panorama’s 2015 ERP Report revealed that 91% of organizations end up doing some form of software customization during implementation.  Of the remaining 9%, most are very small “upstart organizations without much complexity or sophisticated business processes.”  So unless you’re very small or new, plan on customizing at least part of your software to ensure you gain maximum return while ensuring the software matches your processes and key business requirements.

As Kimberling concludes… “There are plenty of things you’ll need to know before embarking on your ERP implementation, but these five myths are the most likely to derail your efforts.  Sort through the fiction and stick to the facts to make sure your project is a success.”

We couldn’t have said it better.

 

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oopsA recent article from Panorama Consulting hits the nail of ERP implementations squarely on the head, confirming our own observations of many years.  They provide the advice we would urge all small businesses to heed carefully when tackling their own implementations.

As Panorama notes and we concur, small businesses are often not equipped to deal with the challenges and complexities of ERP implementations.  The lack of bandwidth, the already-too-busy staff, the often minimal or non-existent IT staffs… all conspire to make it a challenge.

All too often, clients (understandably) want to push the onus on the consultant or provider – and while that’s fine for the revenue stream of folks like us, it does a disservice to the customer, who really needs to be taking ownership of their new system.  So with that said, here are Panorama’s “5 Most Common Mistakes”…

  1. Mistakenly thinking that their ERP implementation will be simple and cheap. This is never the case, but it’s sadly underestimated during the sales phase – too often by both provider and customer (who wants to hear it will be cheap and painless) alike.  It’s often made worse if the business benefits don’t match the expense, or were not considered in the first place.
  2. Unrealistic implementation expectations. Clients often don’t realize the resources necessary to make their projects successful.  They often neglect to define and reengineer their business processes – when in fact, an implementation is the perfect time to do just that.  All in all, it is simply too important to match expectations to reality, to safely ignore.  If your provider or consultant isn’t cautioning you in this regard, you should caution yourself (and perhaps have a longer conversation with that provider).
  3. Failing to focus on the future state of the business. The first two items lead to this third one, notes Panorama.  Since the point of ERP is to aid a company in its growth, it is critical to “adequately define business processes and requirements that will take them into the future, rather than simply ‘paving the cowpaths’ and automating things as they are today.”
  4. Neglecting organizational change management. Related to the item above… change is hard even for the best, most nimble businesses, regardless of size.  Training, communications and organizational readiness – done well – are at the heart of every successful ERP implementation.  This is even truer for the smaller business, where these traits are often not already in place.
  5. Outsourcing the ERP implementation to ERP consultants. Every small business we’ve ever seen runs lean already.  Think about it: does your company have too many people around?    So it can be tempting to let your ERP consultant do pretty much everything.  Tempting, but dangerous and decidedly not in your own firm’s best interests.  While it’s good for the provider’s short-term cash flow, notes Panorama: “your project will not succeed without a minimum level of involvement and commitment from your own executives and team members.”

We concur fully with Panorama’s list, and would urge every small business to take these lessons of common mistakes to heart – before they being their ERP implementation project.  ERP can be a lifesaver to the growing company – but only if tips like those above are heeded and taken to heart.

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the bottom line“A business operates best as a coordinated unit, not as a mere collection of individual departments.” 

So says Jonathan Gross, Vice President of Pemeco Consulting in a white paper we came across recently.  His point is well taken, but too often not honored.

Gross made his comments in a concluding section of the paper that rang especially true: that businesses that carry on operations with unintegrated departments and systems will eventually hit a wall in their development.  He notes, as have others before, that “manually entering and reentering data in multiple locations is time consuming, error prone, and inefficient.”

We see too many cases of it.  As Gross says, “The path forward is one that requires business transformation – transformation into an integrated enterprise… Efficiency is achieved because focus is placed on processing transactions and information throughout the enterprise.   In other words, an integrated enterprise focuses [on] processing transactions within and between functions.  An ERP system is a prerequisite to the achievement of enterprise integration.”

He goes on to point out that through the combination of “process automation and common data storage” a business has the opportunity to significantly reduce mistakes, operating costs, redundant entry (i.e., time waste) and to substantially improve its efficiencies – and thus ultimately its profits – all up and down the line.

It’s also worth pointing out that a key benefit to that newly centralized repository of data is an additional opportunity: improved Business Intelligence.  Companies can use today’s newer ERP reporting tools, drill-downs and dashboards to gain near real-time insights about how they’re doing, where they’re doing well, and where they’re not.  And with training, they can do it for themselves, and they can know that the results will reflect not just a single department or area, but even the company as a whole.

Of course, as Gross, concludes, the path there – which is to say, the path to ERP success – can be risky if not well managed.  It takes coordination between and among requirements gathering and assessment, system selection, and the various phases of implementation, all the way through training and Go-Live.  It takes an experienced hand to guide you, but the destination is worth the sometimes painful steps in the journey.

And that’s the bottom line with ERP.

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big bang phasedClients often ask us our preferred method for rolling out their ERP implementation, otherwise known as ‘going live.’  While the answer varies by circumstance and client, our general response is: In phases, and as slowly as possible.

While this isn’t always possible, it’s often at least partly doable.  For instance, you can roll out a rather ‘general’ General Ledger (chart of accounts, basic financials, structural setups) and perhaps do Purchasing and Payables together at one predetermined Go Live date.  Then, you might later roll out, say, Receivables, including invoicing and shipping, along with Sales Orders.  Of course, that usually means a basic Inventory setup must be in place as well.

The point is, there are ways to do a phased rollout.  Still, arguments ensue as to whether Big Bang (rollout everything all at the same time) versus Phased is the way to go.  A recent article at the ERP blog site erpvar.com highlights this discussion, noting some Pros and Cons to each approach, which include:

 

Big Bang:

Pros
·      No one has to operate their business in two different computer systems

·      Everyone in the company moves forward on the same day.

·      Cuts out the ability for people to say, “Oh we’ll fix that issue after we convert fully”

·      Shorter implementation time

·      Pain and frustrations are condensed into one time period, not drawn out

Cons

·      High risk – a number of things can go wrong

·      More pronounced problems

·      Small details or issues can be overlooked in the rush

·      Sink or swim for employees when it comes to learning the new system

·      Testing can be tough prior to the implementation

·      Failures in one part of the system can cause problems and failures in others

·      Fall back plans do not always work out

·      Performance can decline after initial implementation as employees adjust to new system

 

Phased:

Pros…

·      Less risk

·      Employees learn as they go, there is no dip in performance after

·      More time for users to adapt to the new system

·      Not a sink or swim environment

·      Small details and issues can be fixed as you go

·      Skills and experience are gained with each step/phase; smoothes the process further along

Cons…

·      Takes longer to be fully converted

·      Not as focused as the big bang

·      A state of continuous change can sometimes be disruptive

·      Can have missing information because each module relies on info from others, so in a transitional period there may be some gaps

·      Temporary bridges need to be made from old to new

 

Frankly, and having done both over 25 years, we’re strongly in the “Phased” camp, where the Pros we believe far outweigh the Cons.  Just ask us…

 (Illustration found at BSM.com and credited to lightbulbcartoon.com)

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erp failure keyboard on fireRecently,  a site called Proformative.com published a brief article from someone who said they lost their job over a failed ERP implementation.  (The original post can be found here.)

The article’s author, who posted anonymously, provided a list of “what I learned from this experience” which we are compelled to reprise here.  All ERP projects have “issues.”  They’re almost always late (largely unavoidable) and usually over-budget (mostly avoidable) in our real-world experience of many years.  That being said, here’s what the poster claimed he/she learned from the experience:

  • Consider more options earlier
  • Define the expected benefits earlier and more clearly and then use as a compass going forward and a benchmark of success at the end.
  • Assume it will cost more and take longer. If it doesn’t, you’re a hero and if it does you’re realistic.
  • Rigorously avoid project creep… the scope always expanding. Avoid unnecessary customization.
  • Take in more information from others without a vested interest who have been there and done that before spending any money.
  • Admit and move on from mistakes faster.
  • Have a good/committed in-house technology partner before proceeding.
  • Review the project on a regular basis and often.
  • Plan on more testing.
  • Plan on more staff education.
  • Delegate and verify more.

 

The author notes and accepts his/her varying degrees of responsibility for some of these elements, and provides a happy ending.  After noting that s/he “learned a great deal from this experience… I was offered an assignment helping another company that is embarking on their own ERP implementation.”

 

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