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Posts Tagged ‘Inside ERP’

ERP is expensive, and the cost can vary greatly depending on the organization.

Obvious factors range from company size to number of users, from depth of desired functionality to what services a particular organization requires and, frankly, how savvy their users are.

According to an Aberdeen survey called “The Total Cost of Ownership of ERP in Mid-Size Companies” over half of the nearly 650 companies surveyed cited TCO as – not surprisingly – their number one concern.

TCO covers a broad range of expenses well beyond just the ERP software.  For example it includes hardware, services to implement, license costs and maintenance on all software modules.   Some companies may rightly choose to include certain staff costs in their TCO assessments as well.

The survey found that the cost for a $50 to $100 million company that included an average of 92 users totaled just over one million dollars of total investment.  In a company of $100 to $250 million revenues and just under 200 users, the figured rose to $1.7 million.  Of course, for larger companies, TCO rose accordingly.

In the Aberdeen survey, only Microsoft was willing to share cost information, and those included $2,250 per user for the Business Essentials version of its software, and $3,980 for its Advanced Management suite. 

[PSSI can confirm those remain the exact prices still being charged today for the Dynamics NAV solution.  Moreover, our analysis has been that the Advanced Management functionality is typically what’s required in the manufacturing and distribution environments.]

Our own experience teaches us that the $4K per user for license costs, plus an allowance of 16% for annual maintenance provides an appropriate cost estimate.  Greater functionality beyond the core software often requires additional investment in added functionality, or sometimes, third-party add-on applications. 

To the pure software license costs (est. $4K per user) we then advise clients to add one to one and a half times those software costs, on average, for deployment.  The cost varies depending on the number of users to be trained, as well as depth of training, experience of the users, and modifications required to processes or software.  Generally, the more users the lower the ratio of service costs to software license costs, as the costs of training and deployment are spread over more users.

Our deployments actually tend to cost considerably less than the Aberdeen assessments above, but they also don’t necessarily include their 92 user average either.  We’ve found for the small to midsize firm, say 25 users, that a budget of around $200,000 to $300,000 will get you the user licenses, annual maintenance and necessary training on a basic, full system.  Hardware will add to that, but if your hardware is fairly current, those expenses can be minimized.  Modifications would be quoted separately, where your needs diverge from base software functionality.  Associated costs for appropriate SQL licenses and servers can add to your costs, as can additional (third-party) functionality. 

Still, even at half a million dollars at the very high end, a company in the $20M to $50M revenues range, with say 25 to 50 users can be up and running in a few months, and expect to recoup those costs surprisingly quickly — IF they’ve put sufficient thought and effort into the planning stage upfront in conjunction with their ERP consultant 0r reseller.

So there you have it: our five-part latest wrap-up on the mechanics, benefits and costs of ERP.  Over twenty years, we’ve learned that the costs to clients in money, time and, yes, some short-term anguish, are mollified greatly over the ensuing years by the benefits of reduced business costs, greatly increased capacity with similar staff size, and the ability to compete effectively while you grow in your chosen marketplace.  As always, to those who persevere, i.e., the winners… go the spoils.

To aid you in system selection, we’ll present a “Mid-Market ERP Solutions Checklist” from InsideERP’s Buyer’s Guide, in our next post.

Meanwhile, the complete edition of the Inside ERP Market Buyer’s Guide is available here.

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InsideERP’s Buyer’s Guide  [available here] made special mention of three of what it called ‘advanced’ features of today’s ERP systems:

Lean Manufacturing Support – While “lean” is not so much a software module as it is a philosophy and an attitude, the fact is, with the information yielded by today’s better ERP systems, company managers can focus on analyzing more carefully the waste and redundant procedures inherent in their processes… and then set to work leaning them out. 

The best time to do this is before you deploy: a properly performed needs analysis (or gap analysis, or business process analysis) will allow you to flowchart your current processes, then map these to your new system, eliminating the duplications, waste and needless steps you may have built into your systems over the years for what may have been, in their time, perfectly good reasons, but which no longer suit today’s streamlined methods. 

This is often known as value stream mapping, and it’s a critical first step, before you even begin to deploy ERP.  Doing this early on will effectively help you ‘lean out’ your business processes in theory, before you even get started on actual deployment. 

The second advanced feature noted in the report is SOA (Services Oriented Architecture, or simply ‘web services’).  Web services deals in the notion that software should talk, up and down the chain, to other software.  It allows for software interconnectedness and reuse, especially in today’s object-oriented programming environment, where code objects (i.e., little bits of software functionality) possess traits like inheritance — commonalities that lets users exploit the code they have into further functionality. 

With SOA, businesses can adapt their processes to changes in their business, or even supplier components outside their business.  In many cases, the software doesn’t care whether it’s talking to another component of its own, or to an outside business process.  It’s simply passing relevant information, say about the completion of a work order, to another entity (or program set up to understand it via SOA), whether that be related to inventory or sales or order processing over the web. 

Microsoft leverages it’s “dot net” environment to support SOA, as do Java and other application environments that allow line of business application to connect in many ways to many other components.

The third advanced feature noted was called On-Demand Delivery.  This is more commonly known as SaaS (Software as a Service) – or thanks to all those irritating Microsoft commercials – the cloud.  The cloud is simply using the Internet as the repository for your software applications.  We’ve been doing it for years to store our pictures or backup our data or manage our sales force (see: Salesforce CRM for example).   This blog, in fact, is a perfect example of using the cloud — and perhaps an ideal application in which to use cloud resources.

Cloud application hosting simply provides another way to serve up and access our data, this one promising a reduction in on-premise hardware and infrastructure costs, and delivering on more of a rental model, as opposed to buying and hosting software on one’s own premises.

The landscape is constantly changing, but what’s remained truer than ever is that companies who utilize and leverage their ERP investments become more competitive, more able to think strategically and to grow, and more apt to reduce expenses in a competitive environment by having the right information, at the right time, and knowing how to use it.

In our final thread in this series up next, we’ll talk finally about costs.

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In this third post of our five part series, we look at the basic features common to most good ERP systems – the features that help make the cost savings demonstrated in our previous post a reality.

[The complete edition of the Inside ERP Market Buyer’s Guide is available here]

Most midmarket ERP suites encompass several common types of business functionality.  The can include:

– BI, or Business Intelligence: i.e., quick peaks at key business data; KPIs, or Key Performance Indicators, as well as ‘dashboards’, ‘drilldowns’ and other methods for quickly reading and assessing key business metrics.  These are the tools that are at the core of ERP’s purpose: to provide actionable data for managers to use to analyze and improve their business performance.

– CRM, or Customer Relationship Management: Just as accounting functionality via a PC or terminal was the lifeblood of many a firm the past few decades, today’s CRM systems are often the heartbeat, providing a repository for a wide range of critical data regarding customers, suppliers and the contacts we have with them.  From sales force automation to full-fledged, life-cycle management of all the intricacies of “knowing” our customers, these systems provide the ability for everyone in the firm to have a common knowledge base regarding our clients, and our various interactions with them. 

– Financial Management: i.e., the accounting modules, and not just accounting (i.e., General Ledger) but also receivables, payables, orders, quotes, invoicing, POs, inventory control… and often, a whole lot more.  This is where the core reporting for your firm is found, and where all transactions are entered, tracked, controlled and analyzed for business performance improvement.

– Manufacturing Operations: the ability to track the order on the floor, or more broadly speaking, production tracking “from quote to cash.”  Today’s ERP systems not only manage inventory flow and improve returns, but also provide work orders, routing, bills of material, shop floor scheduling, bar coding, and a host of other production functionality – and done right, it all flows back to the financial statements, quickly or, sometimes (but be careful what you wish for!)… in real time.  Want to take real cost out of your manufacturing?  This is where you start.

– SCM, or Supply Chain Management: Improving the flow of materials through your supply chain by managing, scheduling, procuring, and fulfilling optimum service levels for maximum profitability.  SCM is often a byproduct or subset of the Manufacturing pieces noted earlier.  Regardless of software configuration, the result is streamlined procurement and fulfillment, thus lowering costs and improving service and delivery times to your clients – and thus providing the competitive edge for manufacturers to secure even more business from their clients in the future.

The major midmarket ERP vendors offer some, most or even all of these five key areas of business functionality.  As we saw in our previous post, the savings can amount to a significant percentage of your overall operating costs – oftentimes, ten percent or more overall.  The extended savings that amount to, at least, hundreds of thousands of dollars per year (not to mention in many cases the mere ability to “stay in the game”) ensure that ERP investments will continue to pay dividends down the road – despite the often demanding and complex nature of their deployments.

Having here looked at some basic functionality, we’ll look at some of the more advanced ERP functionality to be found in some packages these days in our next post, and then follow it up with some final comments about costs in our fifth and final post of this series.

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In our previous post we noted the consolidation of ERP systems providers under big names like Sage and Microsoft, and how such consolidation has served to bring down the costs for those in the mid-market space looking to move into ERP.

[The complete edition of the Inside ERP Market Buyer’s Guide is available here]

Firms doing this have found benefits, after usually initial tough-sledding getting everything implemented.  According to Aberdeen Research’s report “2007 in the ERP Midmarket” companies reduce their expenses in three significant areas when they implement an ERP system:

– Inventory costs, where Aberdeen’s “best of class” companies saw an average decline in inventory carrying costs of 21 percent

– Manufacturing operations costs, which on average declined by 17 percent

– And administrative costs, which declined by 16 percent

Those were the “best of class” companies, as noted.  But even on average, companies saw cost declines attributable to ERP across the above three sectors by 11 percent, 8 percent and 9 percent respectively.

When you’re talking about reducing costs across the board by an average of ten percent, it’s easy to see why companies invest in ERP: while the cost to do so may run in the tens or hundreds of thousands, the cost-saving benefits from doing so extend can into the hundreds of thousands and even millions.

And as the InsideERP Buyer’s Guide explains…

  • Because an ERP solution has its fingers in all aspects of running a business, its benefits are myriad and go beyond tangible cost reductions. 
  • It can improve an organization’s customer service and response time when solving issues. 
  • It can solve issues of interoperability among multiple manufacturing locations. 
  • It can standardize and accelerate manufacturing processes in all of a company’s manufacturing sites. 
  • It can streamline a company’s order fulfillment processes. 
  • It can facilitate connecting with partners’ and suppliers’ enterprise systems. 
  • It can even help companies maintain compliance with government regulations.”       

In our third installment looking at the ERP Buyer’s Guide, we’ll take a look at which key features factored into some of these improvements in business efficiency and cost reduction.  That’s up next…

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A new month, and a return for a bit to our focus on ERP — Enterprise Resource Planning, the software that keeps business running.  As ERP is what we do, we publish frequent articles about it, and about related topics like warehouse management, manufacturing, accounting and the like.  Dry stuff — unless you live it.  Or rely on being competitive in business.  Then, well… you gotta’ have it.

This month we get off to a running start with six consecutive articles on our Dear Topic.  The first five give you a nice (well, we think…) overview of a study by Inside ERP that presents a Buyer’s Guide to ERP for the mid-size (i.e., $50M to $1B) business.  Our clients tend to run in the lower tier of that group, and that’s our sweet spot.  The Buyer’s Guide, augmented by our own comments and experience, are a good place to get started with your own firm’s search for an effective ERP solution.  After the five articles, we’ll wrap up with A Good ERP Checklist in post 6, due to run on March 17th.

So… welcome to March.  Spring is coming… and here we go.

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According to an ERP Market Buyer’s Guide published a couple years ago by InsideERP, most of the interest and action in ERP systems is occurring in the “mid-market,” broadly defined as companies with revenues between $50 million and $1 billion, where most are looking either to replace outdated systems or jump into the technology of ERP for the first time.

[The complete edition of the Inside ERP Market Buyer’s Guide is available here]

According to a study by AMR Research covering projections for the years 2006-2011, companies do this “in response to customer requirements and the desire to participate in the global market.”  They are driven by a variety of concerns ranging from regulations and reporting requirements to maintaining customer loyalty.  As they deal with complex environments, today’s organizations are driven by aging technology, outdated ERP systems, new supplier requirements, EDI priorities, proliferating software tentacles within their companies (management by spreadsheet, anyone?) and of course, the need to grow revenues.

And according to Aberdeen Group, even five years ago, just 6% of companies from its survey of over 500 didn’t already have an ERP or MRP system.  For these firms, the pressure to move into ERP comes chiefly from the availability of today’s lower cost systems, pressure from a parent company, from ‘explosive growth,’ or from suppliers and customers.  At the same time, over one-third had systems that were older than ten years and another third had systems that were five to ten years old.  25% of all firms plan a replacement of their current system within three years or less.  Nearly half of all companies bemoan the fact that their systems simply do not have the required functionality for their needs.

Meanwhile, hardware, infrastructure and software costs have all decreased the past five years – thus putting what were once ‘epic’ business management packages within reach of any mid-size company.

The “Buyer’s Guide” from Inside ERP mentions the top names in ERP today for the mid-market, including Sage, Microsoft, SAP, Infor and others.  Most of these companies feature offerings with not just a national (U.S.) reach, but a global one.  Several, like Sage and Microsoft, offer multiple ERP solutions.  In both those cases, the companies did now grow their own systems, but rather, did acquisitions in past years that led to their developing a ‘stable’ of ERP products. 

Sage’s offerings include Sage ACCPAC, Sage Pro, Sage MAS 200, Sage MAS 500 and most recently, X3.  Every one of them was the result of the acquisition of previously independent companies (of, respectively: Accpac, SBT, State-of-the-Art, Acuity, and Adonix).  In Microsoft’s case, they “bought the company” for each of their four current solutions in their Dynamics Family: SL from Solomon, GP from Great Plains, AX from Axapta, and NAV from Navision – the latter two of which were a pair of Danish firms who themselves linked up only shortly before their (combined) acquisition by Microsoft.

These very large companies, Sage and Microsoft, have in turn brought economies of scale and pricing to the ERP mid-market space, to the benefit of those firms that may have previously found ERP solutions completely out of their financial reach.

We’ll follow this thread further in our next post.  Stay tuned…

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