ERP Implementation: Simplify Decision — Making to Grow Your Business

As businesses grow, they often struggle with managing expanding operations that have increased in complexity. In many cases, Enterprise Resource Planning software (ERP Software) provides a foundation for the organization to more effectively execute on its objectives.

There comes a time when most successful small and medium-sized enterprises (SMEs) need to make some hard decisions. If they want to continue to grow and maintain a competitive edge, they can no longer rely on small-scale IT platforms or disconnected software applications to handle their increasingly complex business processes.

Brisbane-based dried fruit and nut producer Trumps is one such company. Having grown rapidly in a short space of time, Trumps was struggling to keep track of its warehouse stock.

The manufacturer decided to implement an enterprise resource planning (ERP) system to manage its growing requirements.

ERP software integrates a company’s departments and functions — from account management, inventory and sales, to warehousing, manufacturing and customer relationship management — in a single system.

Using an ERP system, Trumps gained a better view of its inventory and streamlined its decision-making processes. This in turn reduced costs and improved efficiencies for the company.

In the past, ERP systems were expensive and reserved for large corporations and government departments. However, advances in online business, hosting and pricing models have made ERP applications more affordable for many SMEs.

Any company turning over more than $10 million a year should at least think about implementing an ERP solution.

Does your business need an ERP solution?

An ERP system can significantly improve your ability to manage financials, inventory and other transactional data. It will uncover ways for you to reduce costs and increase profits, and provide you with moments of clarity regarding your business processes.

Before committing to an ERP solution there are several points you should consider:

• What business problem are you trying to solve?
• Can you grow the business using existing tools and methods?
• Will the business be more effective with an ERP solution in place?
• Can the company do more for less?
• What are your competitors doing?

It is critical to understand the challenges facing your business. ERP vendors can’t help you implement an effective solution if you’re not sure what needs to be done.

There’s no doubt you know your business best, but vendors can play a key role in helping you understand your problems. It’s important to choose a vendor that has firsthand experience and an intimate knowledge of your industry. The vendor’s pre-sales staff should take time to listen to and understand the issues that specifically affect your business.

Vendors usually conduct an initial investigation without charge because it’s a valuable first step towards implementing an integrated ERP system. By speaking to staff across the company, vendors can quickly identify where their ERP solution can add significant value to the business.

Which solution is best?

Large corporate ERP systems typically take several years to implement and require an enormous team of experts. SMEs don’t have the time or money for projects of this scale.

However, several off-the-shelf, modular ERP systems are available, and can be adapted to suit the needs of each customer. Using a pre-configured solution takes substantially less time to install and helps SMEs avoid significant costs.

Depending on your organisation’s needs and budget, you may want to start with the core modules and add further functions over time.

The core of an ERP system typically includes an accounting framework with industry-specific modules, such as inventory management for distributors; point of sale for retailers; material requirements planning for manufacturers; and project costing for professional services.

By implementing these core ERP modules first, you’ll start to see some of the benefits of a fully integrated solution, while discovering how to best adapt the system to your needs.

No single solution works for all companies and there is no silver bullet. But by working with a vendor to uncover your business requirements, you can develop a system that works best for you.

When selecting an ERP system that’s right for your business, there are several questions you should consider.

Functionality — what do you need the ERP system to do?

This is the most important point to consider when choosing an ERP solution. An ERP system must be able to tackle your specific and immediate business needs, as well as any foreseeable future requirements.

Choosing an ERP system that fulfils these criteria will help you maximise your competitive advantage and operate your business more efficiently and profitably.

Lighting supplier Telbix discovered the benefits of an ERP system when it needed to provide a more personalised service and respond faster to customer inquiries.

The integrated system gave the company powerful insights into its sales activities, allowing it to almost double the number of orders it could turn around in a day.

An ERP system’s functions should adapt to your needs. However, try to avoid customising more than 30 per cent of these functions. Customisation can add complexity and cost, which makes the system more difficult to upgrade.

Value — How to make intelligent use of your ERP data?

It is also worth considering at the onset how you can better make sense of the important business data you would have as a result of having an ERP system.

For example, a seamlessly integrated Business Intelligence and ERP system can provide powerful insights into your company, turning information into knowledge and empowering staff to make decisions based on the best available data, rather than on intuition alone.

Just ask Retail Prodigy Group. The company has a master franchise agreement with Nike in Australia, and implemented a system that integrated ERP and BI functions to support its aggressive growth strategy.

By ensuring it has access to good quality information and analysis, Retail Prodigy Group is well placed to beat its competitors in the fickle and fast-changing retail sector

It is particularly useful if the ERP also includes an enterprise alert system (EAS) that monitors changes within the business. An EAS can handle a range of exceptions automatically.

It can warn of delays, send email reminders and alerts, and notify users of pick-ups. It can also help you quickly identify problems and recommend corrective action so you can stay on top of managing them.

For companies like Kathmandu, these features are an invaluable way of ensuring customer satisfaction. If Kathmandu runs out of a particular stock item, its Warehouse Manager will be alerted immediately by email.

Its ERP system will also notify staff members if a customer is about to qualify for a reward on his or her next purchase. It’s moments like these that make all the difference for a growing SME.

Flexibility — and integration How can ERP be adapted to meet your requirements?

An integrated, modular solution allows you to build an ERP system over time to meet your changing requirements, while ensuring all modules still communicate in real time.

A modular approach is the best way to streamline processes and deliver faster access to business information without requiring changes to underlying functionalities.

Be wary of large ERP vendors trying to sell cheaper ‘industry template’ versions of their software. These are usually scaled-down versions of systems more suited to large enterprises.

Believe it or not, the needs of medium-sized companies tend to be more complex and demanding than those of large organisations. There’s also little benefit in adopting a new business model — even if the vendor champions it as industry best practice — if your company is already more innovative than its competitors.

Single source — Is it a properly integrated solution?

Ideally, one vendor should handle the entire ERP implementation. It’s important for the vendor to have a proven track record and for ERP to be a core part of the services and solutions it provides.

Many SME ERP systems are presented as ‘integrated’, but in reality they consist of modules from a range of third parties that have to be bolted together by the service provider.

Stand-alone retail point-of-sale systems are often sold this way, with third-party core finance and inventory management systems connected. This kind of solution can cause ongoing support troubles if numerous suppliers are involved.

Vendor credentials — Is the vendor right for you?

Choose an ERP specialist that is familiar with companies like yours. Don’t worry if the vendor is not a household name. Talk to your peers and industry associates.

The ideal vendor is a local company with extensive industry expertise and a track record of servicing SMEs; bigger doesn’t mean better as the software vendor may not have the personal attention you need, especially if operating from overseas.

Most importantly, a vendor should be willing to listen to your needs and show you how it is ready to meet them.

The ERP market has undergone considerable consolidation in recent years. When two companies merge, they may offer a choice of ERP suites but not be equally committed to them. This could leave customers with ERP systems that become obsolete or are expensive to upgrade.

Vendors should be able to provide firsthand insights they’ve gained from helping customers similar to you.

Ask prospective vendors for at least three customer referrals, preferably from companies that have used the system you’re planning to install for more than two years.

Use the web to find some customers the vendor didn’t tell you about, and contact them

It also pays to check a vendor’s history. Ask the vendor for financial information and if the company has any outstanding legal actions against it. If you have access, use firms such as Dun and Bradstreet to check the vendor’s credit rating.

Support — What backup does the vendor provide?

The vendor’s professional services team should be keen to provide hands-on support. Its consultants should work with your team so you are clear about how to get the most out of the ERP software.

It should also provide training and help fix the system if things go wrong. Telephone, email and web support for general queries is commonly bundled into a support contract.

It’s likely you’ll have to nominate a select group of staff members who can call the vendor for help.

Don’t be surprised if the contract limits the number of incidents per month or the hours of telephone support.

Don’t try to use the vendor help desk for ‘free’ training. Vendors will push back if they feel your employees are taking advantage of the support team to wangle free consulting.

Finally, ask the vendor how much it can change the software to better reflect your business needs. You’re unlikely to convince an international vendor to update its core code, but local vendors are more flexible, and will be more willing to listen to your requirements and tailor their solution accordingly

Implementation expertise Who’s looking after your business?

Large implementations sometimes rely on a few experienced and expensive team leaders managing a large group of significantly less experienced junior staff members. These junior employees are often not much cheaper but they carry out a large part of the work.

Don’t pay vendors to train their staff members on the job. Use the sales process with prospective vendors to look carefully at the skills and experience of the people who will be doing the job.

Ask to see their CVs if you need to. If you have doubts about the skills of the people doing the work, talk to the vendor immediately

Investment cost — How much will you spend overall?

As a ballpark figure, a successful ERP implementation takes up at least one per cent of your revenue in total project costs. Software maintenance and ongoing support are typically separate line items.

When you receive a proposal, make sure it covers all the items you discussed with the sales team. If the vendor deletes an item to save on costs, such as using your staff to migrate data from your existing system, ensure you get a written project impact statement so you can fully understand the implications of the action.

Return on investment (ROI) figures are hard to calculate. You’re better off asking other customers how the ERP system changed their business practices than studying vendor produced ROI papers

Solution type — Which one meets your business needs?

Choosing between best-of-breed and fully integrated systems is a recurring dilemma. With a best-of-breed solution, you buy specialist products for each business function and bolt them together.

Fully integrated products are typically not as featurerich, but they cost less to buy and support because they come from a single vendor. SMEs should approach best-of-breed projects critically.

Many smaller businesses simply don’t have the skills, time and money required to connect the products and manage a complex, interconnected system in the face of changing business processes, industry requirements and customer demands.

Upgrade — path Is it really necessary?

Before you pay for software maintenance, talk to other customers about their experiences upgrading the product. Few upgrades are painless. It’s important to find out whether the vendor provides value for the maintenance charge.

Does the new functionality add value to your business? Do you need to enlist an expensive team of consultants to handle the upgrade? Does the vendor have your best interests at heart, or is it just chasing the extra sale regardless of your business requirements?

Technology — What do you really need?

There is no doubt technology can streamline your business processes, help retain customers and improve profitability. It can provide you with defining moments for your business. But investing in technology for its own sake is a waste of money.

Vendors use a range of tricks to hide unnecessary, unproductive product features or to promote the next release as vital for your business.

Make sure the vendor is not offering you a product that needs to be upgraded to a different system in the future.

One international ERP company has four versions of a product under the same brand, but in reality they are four entirely separate applications from different acquisitions.

In this situation, if your business grows you’ll likely need to ‘upgrade’ to another product, essentially requiring a completely new, and expensive, implementation.

Also beware of vendor plans to upgrade to ‘new technology’ in the future. While access to this new technology may be included in your maintenance agreement, it is basically considered a new implementation with additional features to pay for, at least in the first release.

Software as a Service — How can you get more out of your ERP solution?

ERP isn’t just about buying and implementing a sophisticated software package. An ERP system needs to be properly managed and maintained.

Some vendors offer hosted or managed services to look after your ERP system and maximise its effectiveness, leaving you to focus on building your business and maintaining a competitive edge.

A hosted solution requires less in-house technical expertise, reduces the cost of managing infrastructure and provides guaranteed levels of security, availability and resilience. It also offers a single point of contact, so you can rest assured any issues can be quickly and easily resolved.

A final word of advice

An ERP system is a major investment for any business, particularly a smaller one. A well-planned and implemented ERP system can change the way you do business and significantly improve profitability. But there are pitfalls if you have not prepared properly.

Make sure you do your homework, have clear objectives from the outset and priorities your expected outcomes and solutions. Research potential vendors carefully and ask plenty of questions. It may take a little longer, but a tailored and effective ERP system is worth waiting for.

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