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Posts Tagged ‘ERP’

8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

 

More on ERP Costs (How Much, Part Two)

We earlier noted an entry point price of about $20-30,000 for a complete financial and rather modest manufacturing (or distribution) software suite.  That’s for about 5 users.  Figure roughly $4,000 for each additional user, and you’ll have a pretty valid estimate of software costs.  Thus, at 10 users, figure about $50,000.  At 20, you’re in the $75,000+ range.  Pricing diverges as user counts increase, so it’s not a straight line calculation, but these will get you in the ball park.  Again, that’s for software, and frankly, your cost depends on too many individual details to parse perfectly here.  Much depends on the extensive of functionality, and the number of users, you choose to buy.

In the short run, cloud purchases cost you less; in the long run, compared to on-premise software installed at your site, the price differential can narrow considerably.  You need to investigate the pros and cons of both with a trusted partner, and look at five-year TCO (total cost of ownership) scenarios going both ways.

With this rough estimate of software costs, the other shoe now drops: services.

We’re prejudiced, admittedly, but our view is that the best software in the world is fairly useless unless it’s properly, carefully and methodically deployed.  The truth is, ERP deployment is complex, difficult, time consuming, labor intensive, and generally not fun.  (Although we once had a client tell us “You guys make ERP fun!”  That’s the first time we’d heard that one.)

Deployment costs (i.e., services) are more difficult to estimate, as truly, no two clients or deployments are the same.  Very broadly speaking, a fair range of cost estimates runs from one to two times software costs – but it can run a lot more.  There’s a lot of analysis, setup, configuration, data transfer and planning time required in all system deployments.  These are more or less ‘fixed’ costs, so when they’re spread over fewer users, their actual dollar value forces the estimate to closer to two times software; whereas when spread across more users, these costs represent a smaller percent of the overall deployment costs, and thus a final figure closer to one or maybe 1.5 times software costs.  Again, all estimates are just that: estimates.  Your mileage may vary.  Software customizations will add additional cost – sometimes by a lot.

And for sure, we always say this: We cannot quote what we do not know.  We live and die by those words.  Any experienced ERP implementer will tell you the same.

So, to wrap up: If you’re looking to implement ERP – properly – for about 5 or so users, complete with financials and some very basic inventory control, manufacturing or distribution functionality, you’re looking at a project that will probably run about $75,000, spread over several months, again depending on any number of factors.  At 10 users, you won’t be double that range, but you’ll probably be over $100,000, give or take.  Less complex deployments will cost less; more complexity, and other functionality not listed here (which you can often add later) will increase costs.  To be fair, it’s not unusual for costs to go double the above estimates.  The important thing is to know what it’s going to be before you even get started.  At the least, you can build your planning budgets around these figures, and in turn, use those figures to determine just how big a bite of the apple you’re willing to take.

Which brings us back around to one of our long-time, key implementation tenets: Whenever possible, start small and discrete.  We’ll have more to say about that next.  Stay tuned…

 

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8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

 

How Much?

Previously, in order to discuss pricing, we defined our so-called typical client as a firm in the $10 to $100 million (revenues) range.  Most are engaged in either manufacturing, distribution or both.  Of course, ERP can benefit anyone.  Manufacturing and distribution just happen to be our particular areas of greatest expertise.  Given our baseline, let’s take a look at typical costs.

Whenever we’re asked ‘What’s it cost?’ I’m always inclined to give an answer along the lines of ‘How many trees are there in a forest?’  Not to be facetious, but really, cost varies according to many factors, including the obvious (How many users?  How many areas of the company do you want to tackle?  How complex is your manufacturing process?)… as well as the less obvious (How many of the necessary implementation steps do you want your team to tackle instead of ours?  How experienced or tech-savvy is your staff?  How committed is the top management?)

Let’s take a stab at it anyways.

We’ve sold $50,000 systems and we’ve sold $500,000+ systems.  The difference, generally, had to do with… the number of users; the scope of the initial phases of the project; the computer and business literacy levels of the users; the amount of customization required; and the depth of planning groundwork required to reformulate or re-design business processes.  One other factor: How heavily will engineering be involved, with all its cascading layers of staff, resources, projects and plans?  Add to that, how many people across how many different departments require training?

The list is longer than that, but the conclusion we’ve come to after many years is pretty simple: start small and discrete.  We like to start with the base software and one or two key departmental deployment objectives.  These are typically the areas of greatest pain or urgency.  They usually become pretty self-evident during the discovery process at most companies.  Mind you, it’s not always possible to go ‘small and discrete.’ Companies replacing an existing full-scale system may have little choice but to go Big Bang.  It requires communication, planning and consensus between you and your provider.

It may surprise you to learn that today, within a certain range of dollars, pricing on most ERP systems for the SMB market is remarkably close from product to product.  We know this because we represent several different systems, and are familiar with many others.

For a typical starting point, say 5 users, and a commitment to deploy ERP across one or two functional areas initially (say, financials and order fulfillment as examples), the cost difference across multiple different ERP choices might be only about 25%.  Typically, a ‘basic’ 5-user ERP system with most of the expected accounting functionality (financial reporting, receivables, payables, order entry, purchasing and inventory control) and maybe some basic ‘kitting’ manufacturing capability (BOMs, Orders, Routes) might run around $20-30,000, give or take.  That’s for the software.

With today’s ‘in the cloud’ solutions, configurations can be priced by user, by month, making the costs, at least initially, appear much lower.  That decreases barriers to entry, though in the long run, it’s pretty much a marketing game that the big-name publishers feel destined to win.  They sometimes lure in prospects with exceedingly low cost-per-user entry fees, but generally, the full functionality you want, spread over years, adds up either way.

Except of course, with cloud, the data often resides on “their” servers (or at least somewhere other than your own), thus increasing the cost and complexity of ever moving off that system – a fact publishers know and relish.

At any rate, all software publishers today add an annual maintenance plan fee for on premise software which typically runs about 16% to 20% additional.  Cloud users have it built into their pricing, and so it’s basically amortized over time.  These maintenance plans are usually ‘required’ by the vendor for the first year.  They do not entitle users to free support or training or other services; rather they entitle you to all software upgrades (and maintenance releases, or ‘bug fixes’) released by the vendor during that year.  They are renewable, optionally, on an annual basis.

 

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8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

 

Who Benefits?

So far, we’ve attempted to lay out the fundamental purpose of ERP, the problems it addresses, the motivators to deploy it, and several implementation success stories.

We’ve seen returns on investment of ten to one, sometimes better.  We’ve shown how ERP is clearly a launch pad for growth.  It enables success.  We’ve illuminated how ERP eliminates waste and redundancy, and reduces the need for added staff.  In short, we’ve talked about the challenges and the returns.

Next, a few words on the ‘typical’ customer.  This is the “Who Benefits” part.

Let’s start with a baseline.  Our firm’s experience over 30 years is generally in the SMB or Small to Mid-size Business market space.  Our customers typically do anywhere from a few million to a hundred million or so in annual sales.  The sweet spot for ERP in the SMB space, at least by our slightly unscientific observation, appears to be companies with sales starting in that $10 to $30 million dollar range and up, but growing.

Frankly, the math with respect to benefits is pretty simple.  If you reduce your expenses or costs or waste by a certain percent, then the bigger the company, generally, the greater the overall gain (or cost reduction) in pure dollars.  A 1% gross margin improvement is $1 million in a $100M company, and only $100,000 in a $10M company.

Yet we often find that the savings are more meaningful, and often more revolutionary, in the smaller firm.  Plus, with costs in line due to improved processes, procedures and automation, they’ve set the groundwork for rapid growth, not to mention competitive advantage.  They become larger companies.

Most of the companies we work with closely have a few other common characteristics: They are usually growing.  They have forward thinking managers who understand that there is great value buried in the data.  They are willing to admit they have redundancies and waste, and want to correct them.  They believe in continuous improvement.  They understand the business value of being ‘lean.’  They are mostly in solid businesses with a solid future (even during the previous great recession).  And they won’t spend money unless they see a clear path to an ROI that warrants doing so.

This so-called ‘typical’ customer in our SMB market usually has anywhere from 5 to about 75 users.  10-50 is roughly the sweet spot there.

And most of them grew their systems over time.  As we tell people, ERP is a process, not an event.  The case studies we referenced earlier took anywhere from about a year to as many as five years to fully realize the benefits of their investment.  It comes slowly, just like continuous improvement is supposed to do.

OK, so that’s the client profile – at least in our experience over many years in the SMB space.  Next up, we’ll look at some typical costs to implement.

 

We’ll take a break from this series as our next post will fall on Thanksgiving, and nobody wants to talk about software on Thanksgiving! 

We’re at the halfway point now anyway.  We’ll pick up from here next Tuesday after the Holiday weekend.  Stay tuned…  Happy Thanksgiving everyone!

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8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

 

To a manufacturer, few things are more important than knowing your costs.  So our third success story involves a Midwestern manufacturer and distributor of paints, who proudly noted how after implementing their ERP system they were able to capture the true costs for every single transaction associated with a production item.  The result was a gross margin improvement within a little over a year of one to two percent – yielding a near-term bottom line improvement of over $200,000 each year over prior best performance.  Why?  Because for the first time they knew, tracked and could therefore manage and control their production costs, and thus regulate their selling prices more profitably.

The fact that this firm’s CFO could also get a snapshot within seconds of what the month’s overall performance looked like, at any time, was simply icing on the cake.

ERP is a tool, as much as anything else.  Smart managers use it to modulate and control production and performance.  ERP allows a company to know its costs and associated details, so that it can simply make better decisions, armed as it is now with better information.

After all, the point is not better data, or more data, or even better information (information being the byproduct of data).  The point is to convert that data and information into more informed decisionsAnd that’s what ERP is built to do.  That’s why companies use ERP as a key growth strategy.  They use ERP’s reporting capabilities to drive better decision-making, pure and simple.  Our paint manufacturer did just that, and it led to long-term gross margin improvement, thus returning their initial investment many times over.

One final example from our Case Studies merits mentioning.

This manufacturer of construction products to a variety of markets including manufactured housing, marine, roofing and housing has locations across the U.S.  The discipline driven by their use of ERP has given them the flexibility to expand markets both geographically and functionally.  In turn, their increased sales drove a demand for better warehousing and the ability to accurately, rapidly and easily ship more products to more customers in more places than previously possible.

Using handheld barcode scanners in the warehouse, staff was quickly and easily trained to pick orders accurately, the first time, every time.  This dramatically improved accuracy of fill-rates and sped up shipping.  Mistakes were caught before they happened.  This resulted in fewer customer returns and complaints, even as they improved ship rates by over 25% (the customer’s own numbers).  Without the software, this client noted, they could never have kept up with their increase in orders.  Even the auditors were impressed by their year-end inventory accuracy and improved turns, they told us.

These are just two more examples of the overriding principle: that a strategic investment in improving your automation results in dramatically improved bottom line results – in multiple areas, on a continuously improving basis.  Real world results, from real world clients, applying the principles and technology of ERP.

In our next post we’ll look at “who benefits,” and how.  Stay tuned…

Read Full Post »

8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

 

Success Stories

If an ERP system is a “strategic investment” in one’s long-term business improvement strategy, it is helpful first to look at a few examples of the benefits that investment yields.  Such success stories serve to validate the investment.  We’ll reveal some here though because of the public nature of a white paper and a blog, we won’t name names; however, our examples are all culled from our own actual Case Studies.

The examples are cited not to hoist our own flag but simply to relate real-world success stories that demonstrate how ERP pays for itself – usually, many times over.  It’s an effective way to convey actual results – and what better way than from firsthand experience?

These success stories serve to reinforce some of the principles we’ve outlined earlier: that as a strategic investment, ERP returns its costs many times over, by eliminating waste and redundancy, streamlining operations while providing more actionable information, and preparing the foundation for growth.

On the smaller business side of things, one client spoke of the number of new people she did not have to hire.  This Chicago-based manufacturer of small electronic components uses ERP to handle all purchasing, payables, receivables and invoicing, not to mention quoting, planning and generating work orders – all utilizing pretty much just one person.  She stays on top of bills of material and order flow, generating the reports she wants, when she wants them.  On the shop floor, automated bar-coding creates labels for parts and bins and makes work order tracking not only foolproof, but totally accurate and simple.  The right material gets issued to the right job, every time.  Paperless invoicing completes the cycle.  The firm has eliminated hundreds of thousands of dollars of labor cost, materials and waste, by its own reckoning.  And that’s a typical outcome.  Given this company’s relatively modest system costs, the ROI is probably at least ten to one, if not better.

Another example: A Midwestern manufacturer of rubber gaskets and seals shared some of their business results with us after implementing ERP software to greatly streamline distribution, warehousing, manufacturing and accounting.  The firm was able to consolidate all production formerly done in two (and sometimes three) shifts into one.  Sales, given greater sales capacity, increased by 35%.  They were able to reduce staff count by 40%.  These are their numbers.  Moreover, they say they can put out more quotes with fewer reps, in half the previous time… with a 75% improvement in accuracy.  They ship with 99.9% on-time fulfillment.  Again, all these are the customer’s own numbers and words.

The common denominator: a well planned, budgeted investment in improving processes to eliminate waste, streamline procedures, remove redundancy, consolidate functions, and improve shop floor workflow and final product delivery.  A plan which, the customer notes, was executed on-time and on-budget.

In other words: aligning business strategy with effective technology solutions.

Before moving off case studies entirely, in our next post we’ll look at two more, from the manufacturing sector of small business.  After that, we’ll look at a typical customer profile and “who benefits.”  Stay tuned…

 

 

S

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8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

 

Motivators

Noting our earlier tenet that ERP is, above all, a strategic investment, let’s take a look at what typically motivates companies to look for a new ERP system.

First off, let’s face it: nearly everybody has some kind of automated system today.

It might be old.  It might be entry-level, or outdated.  It probably made it over the Y2K hump, and perhaps was purchased around that time.  It probably has grown some tentacles over the years.  A packaged solution perhaps for accounting or basic bookkeeping.  Maybe a service for payroll.  A home-made application for tracking jobs, work in process, or inventory.  Maybe another program for CAD, with a large repository of drawings often unrelated to and inaccessible by anything else.  And spreadsheets.  Lots and lots of spreadsheets.  Word documents, too.  And some nifty FileMaker applications that you probably couldn’t run the business without.

And none of it, all too often… talks to anything else.

So, Motivation Number One for a new ERP system for most companies is simple: information is scattered, hard to find, unrelated to its counterparts, highly unmanageable, not readily accessible to all, widely dispersed and captured at best in ‘older’ systems.  Some of it is in a computer, and maybe some of it is not.

Motivation Number Two is related to Number One.  With information so scattered across different systems, or only on paper, there is a natural inclination towards redundancy – sometimes massively so.  How often for instance must the same information be re-keyed in one form or another?  Do you re-key quotes once they become orders?  Do you create sales orders that are recreated for work orders that are recreated for travelers, and so on?

Maybe you’re afraid to know the answer.  If most business owners added up all the time spent re-keying, searching, storing, retrieving, assimilating, reporting, sequencing, organizing and otherwise following up on all this data, they would probably be stunned by the amount of waste.

And as we all know, wasted time is wasted money.

Motivator Number Three is rapid or even sometimes uncontrolled growth.  Ironically, it’s the byproduct of success, which breeds more success — provided your systems can keep up.  Most growing companies, rather than change systems, find it easier to work with what they have, stretch its limits, even overload people.  They’re too busy growing, and afraid to make changes now.  It’s like blowing more air into an already inflated balloon.  You can keep doing that – up to a point.  But eventually, your balloon bursts.

A related motivator: a desire to grow.  We’ve often observed that companies who plan to grow… who wish to grow… simply don’t have the software infrastructure to allow it.

Any or all of our three motivators – scattered information systems, redundancy and waste, and fast growth – are usually the key factors in any decision to “get serious” about upgrading to a modern-day ERP system.  The goal: dramatically improved operational efficiencies… reduced expenses that yield strong ROI… improved customer contact leading to an improved customer experience… less waste… the list goes on.

In our next post, we’ll look at a few small business ERP success stories — motivators in themselves you might say.  Stay tuned…

 

 

Read Full Post »

8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

  

Asking Why On The WAY To A Better Answer

Starting with the premise that ERP is, above all, a strategic investment, the point is to create long-term strategic business advantage by being able to deliver your company’s products or services better than your competitors.

That strategic advantage might be faster fulfillment, or orders shipped more completely, or services delivered less expensively, or perhaps a level of service or product customization competitors can’t match.  In virtually all cases, it is best accomplished by creating and managing business processes that are optimized to deliver the greatest possible value to a customer at the lowest cost.

How do you do this?

Well, for one, you find ways of doing things cheaper, faster, better.  That’s where the ERP edge begins.

Utilizing computers and software as a competitive edge usually starts with eliminating human redundancy, eliminating tasks that have to be done more often than necessary, making tasks easier or more foolproof, eliminating or reducing errors, and improving and streamlining your processes through automation.

In virtually every company we work with, we see redundancy and waste.  It’s not the plan, it’s just the way things developed over time.  This is where the power of WHY comes into play… and how it leads to ERP.

One of the lessons we’ve learned over the years – and can never apply enough – is to ask clients Why?  Why do you print that report every week?  Why do you keep so much safety stock?  Why does your staff spend so much time ‘following up’ on (or “expediting”) orders?  Why do you have thousands of redundant bills of material?  And so on…

The answers almost always lead to further Why’s as we drill down to the core, underlying issue(s) – issues that often are actually pretty far removed from the initial inquiry.  More often than not, things are done the way they are because, well, we’ve always done them this way.  It used to make sense.

So to close the circle: with today’s technology, with today’s newer ERP systems, with an intelligent look at your business’ processes and procedures, it is possible to identify and correct or eliminate the wasted steps, the redundant processes, the disorganized data and disconnected systems.  And today, it’s possible to streamline, tighten up and tie together much of an organization’s information under one umbrella — or at least, fewer umbrellas than ever before.

That umbrella of unified and consistent information, available to all who need it, becomes the foundation for your management team’s ability to make the right decisions about the right issues and products at the right time.

And that is the essence of ERP.

In our next post, we’ll look at the key motivators behind most ERP decisions.  Stay tuned…

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