The ABC's of ERP
While enterprise resource planning software can pull your business units together to work more efficiently, the downside is time and cost.
Tackling an enterprise resource planning (ERP) project is tough. Period.
The basic idea behind ERP is efficiency. ERP software can streamline the inner workings of a business by letting each individual business unit share information in a common, standardized way. But the time it takes, the different approaches and the sometimes-colossal cost can leave some decision-makers befuddled when it comes to ERP.
To find out the pitfalls and paybacks associated with ERP, TechTarget spoke with an IT professional who has been in the trenches for more than 20 years and knows what it takes to successfully take an ERP project from start to finish.
Phillip Stathas, director of MIS for Tyco Electronics Corp. in Lowell, Mass., has personally led ERP and manufacturing execution system (MES) projects and knows the roadblocks and returns that ERP can offer.
TechTarget: What is ERP?
Stathas: ERP is the combination of software, hardware and business processes, optimized to define a common solution for all aspects of a company's business... from order entry to invoice and everything in between.
TechTarget: How can ERP benefit a company?
Stathas: There are three common ways that an ERP environment can be beneficial.
The next benefit is the global visibility of information across the company, such as available material or sales backlog. This benefit has dramatic implications to e-commerce and supply chain efforts. Customers can now operate in a "self-service" mode rather than deal with the supplier's customer service organization. This in turn allows the company to reduce or redeploy resources in customer service.
The third benefit is increased efficiency in the area of manufacturing. The process of determining existing business processes provides an opportunity to review how "things are being done today" and how better they can be done with an ERP solution. Usually limitations in existing legacy tools prohibit the introduction of new concepts. Efficiencies mean increase in inventory turns, reduction in backlog and a profitable operation.
TechTarget: What types of obstacles are involved when working on an ERP project?
Stathas: The surprises that seem to infect all ERP projects are "Scope Creep" and budgetary constraints based on business climate. In these days of acquisitions and consolidations, the original design you began the project with changes to accommodate the new business landscape. The duration of an ERP project is long enough that a company's structure can -- and often does -- change. Managing an ERP project through these times requires a focused effort and a design that accommodates these "bumps" along the way.
[Another] obstacle that you commonly run into is an immature consulting arm. Often, consulting resources assigned to a project have limited exposure to typical business processes. This can cause great delays in the project while translating business process to "ERP-speak" and worse, adversely impacts knowledge transfer when the project is over and the consultants are moved to their next assignment.
TechTarget: How long does an average ERP project take?
Stathas: This is a difficult question to answer as there are many variables (budget constrains, resource limitations, scope of effort, etc.) On average though, a project can take anywhere from 9 to 18 months. While projects have taken longer, typically the dynamics of a company may change throughout the project life. For example, organizational changes, scope creep and poor executive management support all are contributors to project delays. Keeping these obstacles in check can keep the project within 9 - 18 months.
TechTarget: Is it wise to outsource ERP?
Stathas: Outsourcing through an application service provider (ASP) is beneficial for companies with a small MIS staff and/or a limited budget. In most cases, though, the design presented by an outsourced solution has limited flexibility. On the other hand, common business solutions have been created for multiple industries, which meets a large percentage of smaller organizations. An internally supported ERP environment is the best fit for large-scale implementations where business is transacted in a global economy and manufacturing operations exist globally.
TechTarget: What are some major reasons to choose ERP?
- From an IT perspective, the cost associated with supporting multiple business systems (typically as part of an acquisition) can be eliminated or reduced with one common ERP solution.
- From a finance perspective, the ability to understand orders, sales, inventory and cash is critical to making business decisions for future revenue. A fully integrated ERP solution allows immediate access to this detail.
- From a manufacturing perspective, an ERP system can provide efficiencies in manufacturing. A properly implemented ERP system can introduce manufacturing concepts as just-in-time manufacturing, Kanban, master production scheduling (MPS) and materials resource planning (MRP) that in turn allow for reduced design and manufacturing cycle time.
- From a customer's perspective, confidence in a supplier's business systems infrastructure translates into a supplier that values IT as a means to gain future opportunities. TechTarget: What are the cost considerations of ERP? Stathas: Aside from the base costs of software licenses, hardware (server and client) and network infrastructure, the greatest cost incurred will be in consulting services, training and internal resources. Software, hardware and LAN/WAN costs can be quickly calculated based on the total number of ERP modules implemented and the number of end-users of the new system. Consulting costs could equate to 50% of the total project cost. Training of an entire organization can equate to 10% - 20% of the total project cost. The costs that seemed to be overlooked or underestimated are those resources from the Operations necessary to assist in the design and testing of an ERP solution. Also, an internally supported ERP organization requires a dedicated staff. TechTarget: How soon can businesses expect to see a return on an ERP implementation? Stathas: A properly implemented ERP system will see payback in 12 - 18 months, but many systems cannot accept change. An effective change management campaign can reduce this timeline. Many executives believe that payback should be seen in much less time. Unfortunately, many of these executives are not constant users of the old and the new business systems. Change takes time. The user community needs to embrace the new tool and offer suggestions for optimization. This sometimes requires a revisit of the design and changes in system configurations. Set real expectations for payback. Unrealistic expectations create budgetary constrains that adversely impact the optimization of an ERP solution. TechTarget: How does ERP fit with e-commerce? Stathas: E-commerce can be as simple as purchasing over the web or as complicated as bi-directional transfer of data to your customers and suppliers. The foundation of an e-commerce solution is data.... data that is accurate and readily available. An ERP solution provides a central repository for this data. This is not to say that e-commerce is dependent upon an ERP solution. As mentioned, it is dependent upon data and access to the systems that house this data. Many ERP vendors have developed these interfaces to there data via the web. In essence, e-commerce project can be completed in less time when an ERP system is the core for information. TechTarget: What's the hardest project you've ever had to tackle? Stathas: By far, managing the implementation of SAP for our company was the most difficult challenge. We had implemented all core modules in 9 months and then subsequently implemented the SAP HR/Payroll modules. The challenges for ensuring properly sized infrastructure paled in comparison to the change management challenge. We delayed our go-live by one month in order to train our resources. In hindsight, I would have allowed more time for testing and training. Regardless, we have been live with SAP for 1 year and have achieved efficiencies that have benefited the company.
This was first published in August 2001