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Posts Tagged ‘Panorama Consulting ERP Survey’

panorama 2014 blog 3 picIn this final post in our three part series on how Panorama Consulting finds ERP being used in manufacturing today, based on client surveys, we come to the topics of benefits realization and levels of customization.  (Our earlier posts discussed the reasons companies implement ERP with a slant on manufacturing, as well as project durations and typical reasons for cost overruns; those two posts begin with part 1 here.)

The realization of projected business benefits is a good benchmark for ERP success.  According to Panorama’s surveys – of large firms, mind you – about 40% of implementations had a 30% or less realization of their anticipated benefits.  The rest of the responses split fairly evenly among achieving 31-50% or 51-80%, or 81-100%.  Only about 1 firm in 7 scored at the high range. 

The most common benefit manufacturers realized was an increase in response time due to better availability of information (about 1 in 3 cited this) and “increased interaction across the enterprise,” cited about 1 in 4.

Among other benefits cited were “improved interaction with customers” with most of the rest split across reduced expenses (IT or maintenance in general) and improved inventory levels and interactions with suppliers.

The improved interactions enable manufacturers to determine whether and where they are losing production efficiencies and to make appropriate adjustments to eliminate quality defects and delayed shipments.

Finally, Panorama reports on levels of customization, which they show take one of three approaches:

1)      Change business processes to accommodate ERP functionality, or

2)      Customer ERP functionality to accommodate current business processes, or

3)      Change business processes independent of ERP, then select or configure software to align with new processes.

About 90% of customers overall, including manufacturers reported modifying some part of their system, with a mean somewhere in the range of what they denoted as “some” customization, which was defined as 11-25% of code modified.

The relatively high degree of customization common to manufacturing is attributed to the high degree of specialization and complexity inherent in manufacturing.  Most ERP systems do not meet the exact requirements of every operation.  Common areas for modification include supplier lists, report formatting, and document exchange among trading partners, to name just a few (of many).

Panorama concludes its 2014 report with the same sentiment our own firm tries to convey to all prospective clients, one so critical we’ll simply quote it directly below…

The first step to achieving ERP success in the manufacturing industry is to develop a business case that includes goals and objectives from which your organization can benchmark actual outcomes. From here, your organization can tackle the unique challenges that come with implementing and integrating the specific modules that support your manufacturing processes.

We hope you’ve found the general conclusions of this three part series helpful.  We think the lessons can be applied to all companies’ ERP efforts.  And again, you can find Panorama’s original 2014 report here.

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2014In our first post of this three-part post, we looked briefly at the conclusions drawn in Panorama Consulting’s 2014 Manufacturing ERP Report, noting the reasons large companies implement new systems, how they compare to the reasons we see for our smaller (SMB) clients, and how project timeframes met their expectations and realities.

Moving forward, let’s look at project costs.  While Panorama’s clients tend to implement systems in the $5 to $15 million range, if we look at “cost as percent of annual revenue” we can draw inferences for the small manufacturing firm.  For instance, among “all industries” the cost as a percent of annual revenues for the typical project is around 5%, while it’s about 10% higher (about 5.5%) for manufacturers.

Panorama’s survey found that only about one-third or projects overall (in both “all industries” and specifically for “manufacturers) came in on, or under, budget.  About two-thirds were over budget, often significantly so (like by more than 25% over budget).  This appears to be true in spades in manufacturing where Panorama’s figures indicate that about one-third of all projects were over budget by 26% to more than 50%.

The key reason (cited by 44%): increase in scope.

We too find that invariably this is the greatest single cause of project cost overruns when compared to initial estimates.  And in our many years of observations, it stands to reason for two key reasons:

  • First, any firm that does not first complete a project roadmap or business process analysis is fatally doomed to an unrealistic expectation (vendors cannot quote what they do not know)…
  • Second, even with a decent BPA, there are still deep levels of complexity – particularly for manufacturers – that not even an excellent BPA will necessarily uncover.  These are simply the nature of implementations.  But with a good BPA and a realistic factor for cost overruns, they can be greatly mitigated.

The number two reason for cost overruns: a failure to adequately staff the project.  Rounding out the key budget overage reasons were “unrealistic project budgets” and “additional technology needed to be purchased to meet project goals.”

And finally, we come to Panorama’s survey results regarding Payback Periods: Fully half say they “have not yet recouped costs.”  The other half saw payback in one year (12%), 2 to 4 years (31%), or 5 years or more (6%).

Why have 50% failed to earn their payback?  We’ll leave you with an exact quote from their report:

“When organizations do not set a baseline to know where they are before implementation, it is impossible for them to know whether or not they received payback or positive return on investment.  A business case takes into account the expected labor efficiency gains and non-labor benefits to calculate an accurate payback period.”

In our final post in this series, we’ll look at Panorama’s conclusions about the types of benefits manufacturers did receive from their ERP deployments and their levels of customization.  Stay tuned for that final post…

 

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panorama chartPanorama Consulting has released its 2014 Manufacturing ERP Report. 

And as ERP is at the heart of most manufacturing facilities today, we thought we’d take a little time to reprise some of their key findings on the state of ERP today.

Manufacturing imposes unique and deeper ERP requirements on companies due to the complexity of the way manufacturing processes interact.  ERP in manufacturing also, as a rule, costs significantly more than some of the ‘vanilla’ (i.e., mostly accounting/inventory based) implementations typical of non-manufacturers.

So, while Panorama usually works in the environment of large-scale ERP implementations (SAP, Oracle, etc.) costing $5 to $15 million or so, many of the survey findings hold value for smaller businesses too.

We’ll skip the “top vendors” portion since vendors of multi-million dollar solutions are beyond the budgets of the small to midsize market.  But a look at the reasons for implementing ERP software shows they share traits with most smaller businesses, such as:

  • 22% implement in order to “better integrate systems across multiple locations” and in similar numbers, “to standardize global business operations”
  • Another 18% do it to “replace an old ERP or legacy system”
  • Interestingly, a mere 11% do it “to make employees jobs better”
  • 10% deploy new systems “to ensure reporting/regulatory compliance” and
  • 9% do it “to position the company for growth”

We found that last item interesting, because in the SMB market, this is – or we believe should be – the number one motivator for ERP.  You want to grow?  Do you have the business infrastructure to allow it?  Or will you stretch every resource in the building by trying to do more volume in the same old way?  If anyone needs ERP, it’s the growing company!

After “reasons”, Panorama draws some conclusions about implementation times for projects.

They conclude that while the duration for most ERP implementations in industry overall go about according to plan (around 18 months or so), in the manufacturing sector unrealistic expectations tend to make the gap between expected and actual deployment times several months longer.  No one should be surprised.

Panorama concluded that “organizational issues and project scope issues” were the most common reasons for extended durations.  Also cited were training issues, data migration complexities, and unrealistic timelines.

We see this all the time: the reality of deployment involving real humans and real process change chasing the ‘optimistic’ expectations of people who mean well, strive for the best and, in the end, find that they too are only human.

In this three-part post, we’ll look in our next post at current trends and realities in ERP project costs and budgets.  Stay tuned…

 

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Panorama Consulting surveyed businesses that had implemented ERP systems (large companies for the most part, but we note that the lessons for the small to midsize business are largely the same).  In our previous six posts we detailed many of their findings.  Today we’ll wrap up this series of posts with some of their final conclusions.

First, it was heartening to note that about 80% of surveyed companies reported satisfactory results with their systems.  Now, like all surveys, we take this with just a grain of salt.  For any survey reporting a high level of success, there are probably three more that will speak to high failure rates.  We recommend you take the 80% satisfaction rate with a large grain of salt.

Second, we can safely extrapolate that: those who planned well, and laid out the business case, largely succeeded.  They knew where they were trying to go.  Those who didn’t, failed.

Third, satisfaction levels drop quickly once the nitty-gritty process of implementation is begun.  Factors including under-staffing, poor understanding of the processes involved and lack of executive buy-in are major factors here.  Often, companies were forced to change their business processes (to fit the software), rather than the other way around (which is usually, in our experience, far more successful).

Fourth, two-thirds of companies had difficulty in addressing process and organizational changes.  These changes must be managed slowly, with insight, sensitivity and creativity – a point often missed my management.

One key tenet of Panorama (and firmly held by our firm as well we might add) is that software must be changed to fit the company in those areas where such differentiation provides strategic or competitive advantage.  In fact, such differentiation, we’ve found, is often the key driver in a company’s overall margins.  It cannot be ignored.  The logical solution is to make sure the software fits into the business – and not the other way around.

Business processes should be mapped – at the outset of the project – so as to move from “as is” to “should be.”  We often call this value stream mapping, or some derivative, and it’s important that such thinking be an early stage in any ERP project.  It’s important for companies working with consultants to determine which processes can and should stay – and which should (and can) go… that’s your roadmap!

And then, finally, work with a partner (a key word here) you can trust.  After all, you’re likely to be working with them closely, for a long time.

** END NOTE: We at PSSI wrote our own white paper called “Software That Matters” in which we detail (in what were originally 11 blog posts) most of what a small to midsize business owner needs to know about selecting an appropriate ERP system, including objectives, costs and key purchase considerations.  You can get the white paper from us at our website here, or see the original posts here.

 

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We’ll do a quick recap of the key conclusions in Panorama Consulting’s survey of large firms that implemented ERP systems.  Even though their client base is large companies, we’ve noted frequently how closely the lessons and principles of those larger installations apply to our own clients in the Small to Midsize Business (SMB) market space.

We noted in our prior post that while some projects came in on-budget (or in a few cases even, under budget), many were significantly over.  Panorama had a few key conclusions about the comparison between planned vs. actual costs.

Among their key findings:

  • 29% of companies had not yet recouped their costs.  This goes back to business planning at stage one, we believe.  You can’t identify how much or when you’ll recoup costs if you don’t identify them at the beginning of the project.
  • The other 71% had recouped their costs.  Fully 50% had recouped their implementation costs within just three years.  In fact, 40% had done it in two!
  • On average, ERP projects took about 16 months to complete.  (This is fuzzy however, because much depends on how you define the project.)  38% were completed on schedule… 54% went long.
  • The majority of companies deployed on-premise solutions (about 60%)
  • About 40% of companies used software add-ons.  Remember, this is in large and expensive deployments, where 3rd party add-ins are less prevalent.  In the SMB market space, the vast majority of companies end up needing to use one or more add-ins or third party enhancements.
  • Fully 90% of companies employed some level (from light to extensive) of customizations to their ERP software.
  • Top modules implemented were: Financials; Sales distribution; Order processing; Materials management; and Human Resources.  It’s all about gaining competitive advantage by planning for, and then deploying, the right software functionality that will most enhance your company’s competitive advantage.

In our next and final post on Panorama Consulting’s survey of ERP deployments, we’ll look at their final conclusions.

 

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As we continue our review of Panorama Consulting’s survey of ERP implementations, we come to the critical component of Cost.

As their summary states:

“There are many considerations that factor into total cost of ownership. Many companies underestimate these costs and ultimately go over budget as a result. Understanding all of the items that make up total cost of ownership will help guide organizations into making better financial projections.”

There are several cost categories implicit in an ERP implementation, and we’ve seen ranges of estimates that are all over the map.  But from experience, we can certainly capture the key ‘categories’ which include:

  • Software licenses and their annual publisher maintenance fees
  • Implementation costs (and / or upgrade costs) to go-live and support
  • Staff costs and displacement
  • Hardware costs
  • Planning and consulting (pre-implementation) costs
  • Software customization, integration and add-in enhancement costs
  • Travel and miscellaneous costs
  • Management time, oversight costs, organizational change costs, etc.

In Panorama’s survey of companies who had implemented ERP, the results are telling:

One-third of projects came in “on budget” (another 10% came in under budget)

56% went over budget (!)

Of these, 35% were 0-25% over budget

15% were 25% to 50% over budget

6% were more than 50% over budget

It’s important to note here that these were large company, high dollar implementations.  The cost overruns averaged two million dollars.  To put that into better perspective, in the SMB market space, entire projects are completed for far less than that amount.  Here, project costs ran on average over ten million dollars.

The key takeaway?  While the scale of Panorama’s survey projects was larger than the typical SMB ERP deployment by a factor of ten or more to one, still, the lessons and the cautions and the project success factors are largely the same.  In other words, what the big guys learned is of equal value to the little guys.

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We’ve been reporting the past few posts on the 2012 survey findings of Panorama Consulting, a firm specializing in ERP implementations for larger companies.  Many of the lessons they’ve learned we’ve found applicable to the small to midsize (or SMB) market, based on our own 25 years of experience in the arena.  Today, we’ll look at their comments about the benefits realized from ERP, and how to make sure you get them.

Achieving ERP benefit requires time and expense – lots of it, if you’re going to do it right, do it (only) once, and be satisfied with the results.  Thus, it’s important to identify costs and potential savings early on.  These enable you to capture and recognize the benefits later.

Panorama recommends putting together a Business Case which captures the potential cost savings over time.  It’s a baseline against which you can measure your results.  You can even timeline the costs and benefits, to get at least a rough sense of when the breakeven point will be reached.  Savings beyond the ‘timelined’ breakeven represent pure ERP profit (less associated costs) from that day forward.

According to Panorama’s survey results, following are the proportions of key benefits their clients claim to have realized:

  • 75% reported improvements in “availability of information”
  • 60% reported “increased interaction”
  • Between 30% and 40% reported… “improved lead time”, “improved customer interaction”, “reduced operating expense” and “reduced IT costs”
  • And finally, only 6% reported “no benefits achieved” – thus reinforcing the case for doing a business case first, and identifying and quantifying costs and improvements across the course of the project.

When asked about percent of benefits realized, one-third of companies reported that they had received 50% to 80% of the project’s projected benefits.  Another 27% reported achieving 30% to 50%.  About one in five companies reported receiving 80% to 100% of projected benefits.

The key takeaway is this: you need to plan your projects… build the business case… then track results along your implementation timeline, with an eye toward identifying key project objectives and their associated costs, and identifying ROI benchmarks along the way.

And speaking of ERP “costs”… we’ll look at survey results on that topic in our next post.  Stay tuned…

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