KFA CONNECT MANAGEMENT REPORT - “ERP FOR SMALL & MEDIUM ENTERPRISES”
KFA CONNECT MANAGEMENT REPORT - “ERP FOR SMALL & MEDIUM ENTERPRISES”
No one disputes that Enterprise Resource Planning (ERP) software provides a solid foundation upon which organisations can not only grow, but also thrive. It is fully recognised that the centralisation of key business data and applications is a critical requirement for any business.
ERP also helps to alleviate pressures on the enterprise by integrating all data and processes into a unified system. This unity allows decision makers to understand, from the warehouse floor to the call centre, exactly how the company functions and what is needed to keep operations running smoothly.
With most modern systems, it is possible for management to view important sales data in real time to immediately identify profitable and unprofitable items. Pre-configured dashboards can help gain immediate visibility into sales, monitor revenues and make sure targets are hit. You can provide command of purchasing functions by automating the purchase planning and ordering process.
With the appropriate built-in tools and dashboards, a good enterprise system will provide a bird’s eye view of the company, helping management to maximise the company’s productivity and profitability across-the-board.
However, the business world is littered with failed IT projects. In the UK alone, the NHS project and the recent Surrey Police project immediately spring to mind. The consequences can be severe; millions lost in costs, damaging legal disputes, negative impacts on day to day business, not to mention the damage to people, careers and morale.
But failure in business is not always so dramatic and ‘public’. There will be huge numbers of IT projects which ‘work’ and deliver required function, but will not meet the planned objectives on time, within budget and with a good return on investment. When it comes to ERP projects, the impacts on a business will always be significant, so let’s consider what’s important when deciding to upgrade existing systems to a comprehensive ERP business software application package.
What’s important and things to look out for…
While all the ERP providers claim ‘ease of use’ and/or ‘intuitive product’, the software behind them is complex to develop and implement and to change or modify. The varieties of offerings fall into three main business categories:
Typically, small companies with up to 10 employees and a limited budget. There are many options and a plethora of offerings for companies of this size and type. These range from simple accounting packages complemented by in-house spreadsheets, to off-the-shelf packages that fulfil the majority of business processes undertaken by most small companies. Each package has its own strengths and weaknesses which will quickly be exposed once serious discussions with the vendor start.
The so called mid-market Enterprise sector caters for the small to medium business enterprise where typically, there will be upward of 10 concurrent users increasing to 500 across multiple sites. There may be many facets to the company’s operations including manufacturing, warehouse & distribution, retail management (including e-Commerce), sales & marketing (requiring a comprehensive CRM module) and of course, financial management. Some organisations require all the above functions, others only selected modules.
This would cover the very large organisations we are familiar with in the banking & financial sector, major high street and on-line retailers, major manufacturers, pharmaceutical industry, mining corporations, etc., etc.
This document is mainly concerned with the SME sector for which there is a fair choice of offerings in the UK, from large and not so large vendors.
Having an ‘out-of-the-box’ ERP product match to any organisation’s requirements is very rare. From the client’s perspective, all the vendors will no doubt claim ‘tailorable’ and/or ‘flexible’ solutions. However, they will often advise the customer to adapt their tried and tested business and people processes to suit the way the software works.
This disruption to the business can heavily impact the cost, timescales and ongoing return on investment. Endeavour to make sure there is a fit of 80%+ functionality matched to requirements before pursuing too far. It is also important to understand any costs and ongoing charges there may be for modifying the software to accommodate that last 20% of requirements, or other specialised function that is not included in the main package, but is critical to the performance and growth of the company.
Whichever sector of the market your company resides in and whatever systems or vendors’ products are under consideration, there are some very simple questions that should be asked at the outset:
- Does the business need it now and longer term?
- Will it help me beat the competition?
- Will it work for my company?
- What is the real cost and can we afford it?
- What are the financial and business risks and how do we mitigate them?
In the case of all ERP solutions, getting the plan right is very important. Even with hosted PaaS (Platform as a Service), SaaS (Software as a Service) and Cloud based solutions, ERP is not cheap. The larger suppliers who tend to dominate the large business sector have this dominance reflected in their premium license pricing.
To be fair and balanced, many ERP projects help companies to succeed. Many large multinationals have based their core processes around SAP and Oracle solutions. The software, implementation and licence costs of such projects is staggering, but so are the ongoing revenues and profits of these companies. Whether the two are linked is not always in question. Stake holders tend to ask difficult questions only when times get tougher, when true costs get measured against true returns.
Many high-end suppliers do not implement their own product, but with their dominance in large business and the significant technology and process changes required, they attract all the premium services and consultancy companies to their banner, with all the premium consultancy rates that accompany such partnerships.
In the mid-range enterprise market, there are many other software and services companies that provide adequate or enriched ‘required’ functionality and changes, at significantly lower license and implementation costs. But often these companies are not considered in the same light as the better-known offerings, especially by IT departments, which is understandable. If you were an aspiring IT or line of business manager, having a well-known ERP implementation on your CV can be viewed as high collateral.
Notwithstanding the above, many senior managers and executives in the SME sector actively hand the initial product selection and evaluation task to their IT department or IT ‘guru’. When faced with the task of selecting and implementing such an important acquisition, many managers and even Board members convince each other they don’t really understand computers or technology at the required level and therefore, cannot add any value to the project.
In our opinion, this is the wrong approach as selecting an ERP solution is a business project – not an IT or technical project. However, it is recognised that inevitably, there will be significant involvement by IT personnel whether in-house, or contracted in consultancy expertise to ensure successful implementation of new solutions.
Nevertheless, this doesn’t alter the fact that there should always be significant involvement by senior management and business section leaders, to ensure all the business areas and processes are being addressed and improved by the introduction of a new ERP system.
The message to management is get involved from the start and concentrate on what’s right for the business and the ERP project will be successful.
What are the main risks when implementing ERP?
- Business Requirements not captured in sufficient detail. This will lead to poor system design; critical business needs not being met and benefits not being realised.
- Customer business input not represented fully throughout project, causing delays and issues in deliverables and user acceptance. This input should be provided by the customer and not the consultant or systems integrator.
- End-users do not accept or ‘buy in’ to delivered function, often requiring costly modifications and re-training programs. Projects often under-estimate the need for user input and acceptance testing at all phases of implementation.
- Lack of skilled resources, often leading to frequent delays in completed deliverables. Successful projects require subject matter experts to cover all key aspects of the implementation.
- Standard ERP solutions not up to required business ‘fit’, resulting in much higher than planned modifications. On paper, most ERP systems typically meet between 60% and 90% of most business sector needs. It is essential that projects have the expertise to perform accurate gap analysis so that appropriate resources are allocated to ensure the gaps are filled.
- Not all aspects of ERP projects are planned and resourced, leading to delays and cost overruns. As well as the business and functional aspects, projects are often under resourced in areas such as hardware setup, network design and setup, security and administration.
There are many other risks to consider and they apply to all ERP systems. But the financial impact can vary considerably for reasons explained earlier. Once a client embarks on an ERP ‘journey’, there’s rarely any turning back. So, make sure it’s planned and resourced accordingly. But before that journey, ensure you really need it and commit yourself and your suppliers to a return on the investment.
As businesses continually search for solutions to streamline operations, manage more effectively, improve the bottom-line and prepare for the next challenge, ERP software can provide the solid foundation from which company success is built. With the help of a good ERP system, companies can significantly improve business processes, enhance customer service, and reduce operating costs. Companies should ask themselves if they have grown beyond the current operating structure and decide if the time to take the ERP plunge is now.
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