Over the past decade, businesses generated an unprecedented quantity of patents, products, and profit models. This trend of consistent expansion is accelerating—these last few years have been the most innovative years in history. In order to thrive in this age of explosive growth and competition, businesses must maximize resource efficiency. And, to do this, they must have tools that are in line with the pace of the 21st-century marketplace.
Arguably the most important of these tools is an Enterprise Resource Planning (ERP) software package. Industry leaders consider ERP software the cornerstone of their company’s organizational and operational efficiency. Yet, some business owners and executives consider ERP software cost-prohibitive due to the oftentimes shocking cost of adopting and implementing an ERP package. However, businesses can avoid many unnecessary costs, and significantly reduce their bottom line, by following a series of steps.
We detailed these steps in a White Paper called “How to Cut Costs During Your ERP Implementation: A Step-By-Step Guide To Avoid Unnecessary Costs”. It will put in your hands all the tools you need to search, prepare and plan a successful ERP implementation in your company. We broke it down into a series of articles and in the first one below, you will find the best practices for companies to prepare their search for an ERP.
- Article 1 (Chapter 1): ERP Software Selection: Where Should I Start?
- Article 2 (Chapter 2): How to Create A Winning ERP Implementation Team
- Article 3 (Chapter 3-4): Do I Need to Customize my ERP?
- Article 4 (Chapter 5): How Can I Save Money on ERP Training?
- Article 5 (Chapter 6): How To Make Sure You Will Not Miss Your ERP Go-Live Date
- Article 6 (Chapter 7): What is the Executive’s Role in an ERP Implementation?
- Article 7 (Chapter 8): What is the Best Approach to ERP Implementation?
Chapter 1. Do your homework
ERP implementation is a capital investment, and when businesses make good capital investments, they realize returns that make the initial costs worthwhile. Just as a business would carefully consider and prepare for any other large capital investment, it is critical to understand and plan for the acquisition of a new ERP software.
Study and Analyze Your Business
Some businesses err by only considering the software’s features prior to making an investment in ERP software. While considering features is important, it is not the first or even the most important step. Before studying and analyzing the software packages, the company must study and analyze itself.
• What is the company’s volume of transactions?
• What are the customers’ biggest frustrations?
• What is the industry norm for floor production times?
• Is the company using the most optimal equipment?
• How can the company improve lead times?
• What compliance standards is the company required to meet?
• What is the organization’s turnover rate?
• Has the company conducted a detailed SWOT analysis?
• What is the timeline for the project?
• What is the budget?
These are just a few of the many questions that must be answered before starting the search for an ERP package. For instance, a company might have great sales, stellar production efficiency, and unmatched customer service, but they have no handle on their inventory, forecasting, or procurement. Without knowing these specific strengths and weaknesses, the company has no way of knowing specifically what they need out of an ERP platform. Likewise, if a company does not understand its competitor’s innovative competitive advantages, they may not be equipped to make a proper ERP selection (one with enough features and automation to keep up with industry trends and norms).
Often times, companies decide to implement an ERP software before considering the specific needs of the business. When companies do this, they are often confused at the differences between the half-dozen or so packages that they discover from a web search. Without a clear understanding of the specific needs, strengths, weaknesses, threats, and opportunities, the company risks making a poor investment that will not generate the desired returns, and may actually end up costing the company in the long term.
“In many cases, businesses can completely eliminate custom programming costs by performing adequate research”
When companies choose a software that is not ideally suited for their business operations, they end up paying to reprogram the software to accommodate their unique needs. Businesses are often dismayed at the costs of reprogramming an ERP software that does not have the necessary features ‘out of the box’. In many cases, businesses can completely eliminate custom programming costs by performing adequate research on their own business prior to adopting an ERP package. Often times, software and consulting firms offer a preliminary engagement package that involves an in-depth needs analysis of the operations and business practices. Although this comes at a cost, this step helps the customer and vendor ensure that the company’s operational needs are met, and the project is planned and implemented effectively the first time around, thus eliminating additional costs in the long run.
Define Your Budget
For any investment or purchase, it is always important to define the budget before initiating any purchases. When businesses keep the budget ambiguous, they risk ‘cost creep’ on implementation expenses or cost-features negotiations that often devolve into positional bargaining between parties. Both parties benefit when the budget is legitimately defined and expectations are clearly communicated. Imagine shopping at a grocery store without knowing how much money is in your pocket. Regardless of whether or not you or the grocery knows how much money is in your pocket, you will leave with only the amount of groceries for which you had money. The same logic applies in an ERP implementation. If you do not define the budget, you may leave the implementation with some features you don’t need while other legitimate needs may be missed because they were not prioritized.
Defining the budget must be connected to the businesses’ self-study. A properly defined budget and a keen awareness of the business’s needs will help to keep costs down by providing an ongoing line of accountability to the stakeholders of the project. For example, if an implementation were halfway completed, but the project budget is at 75% capacity, key stakeholders will likely pay much closer attention to project expenditures such as custom programming, meetings, or project management. As important as it is to define a budget internally, it is equally important to agree on that budget with your software provider/vendor. Most software and consulting firms track budget as a key performance indicator. By defining the number with the vendor, it helps to harness accountability—as they will likely determine their success in part based on not exceeding the budget of the project.
In the second article of this series, we will discuss the importance of forming an internal team to select and implement an ERP software in your company.