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Businesses of all sizes, including more than 90 percent of Fortune 100 companies, rely on Enterprise Resource Planning (ERP) systems. ERP is an integrated computer-based system used to manage internal and external resources, including tangible assets, financial resources, materials, and human resources. Its purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connection to the supply chain. Built on a centralized database and normally using a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise-wide system environment.
We are now more than 20 years into a business world driven, in good part, by ERP systems and the efficacies they enable. (The term “Enterprise Resource Planning” was first employed by the research and analysis firm Gartner Group in 1990 as an extension of MRP—first, Material Requirements Planning; later, Manufacturing Resource Planning—and Computer Integrated Manufacturing. While not supplanting these terms, ERP has come to represent a larger whole.)
A recent survey of CIOs indicated that ERPs were “essential to the core of their businesses, and that they could not live without them.” They also acknowledge that many of these systems are out of date technologically, or, in the case of those that have newer systems, troublingly expensive with customization and maintenance costs. It is time to consider the questions: is your business running as well as it should be? If not, why not? Your current ERP system may be the dynamo it was intended to be, but if it has become outdated or outrageously expensive to operate—a dinosaur or a devil in the making—chances are it is doing more harm than good in today’s increasingly contested global competition. Regardless of your business or industry, the time has come to examine your ERP system dispassionately.
• Should you continue with your current system?
• Is it time to upgrade?
• Is it time to change?
These are not easy questions to answer. In part one of a multi-part post, this article is designed to give you an overview of what needs to be considered as you go through this interrogative—and potentially invigorating—process.
Why Consider Change?
To survive and thrive in today’s marketplace, companies must improve and streamline their operations and business processes to increase productivity, drive down costs, and foster innovation. These were principal motivating factors in the original implementation of ERP systems. Even as those systems have changed and evolved, ERP’s importance to business vitality has increased as competition has expanded. In a period of upheaval, such as the one we are living in, change is the norm and should not be postponed but rather embraced.
While ERP systems were designed to improve business processes, they sometimes impose bad ones. As you gauge the effectiveness of your current ERP system, do so in light of your core business processes. Is the system facilitating efficiencies and greater productivity, or is it forcing action based on its own structure?
Initial ERP systems were often inflexible, forcing organizations to bend their business processes to the needs of the software rather than the needs of the business. Or the software required significant, expensive, and time-consuming customization to gain a little flexibility. When business processes evolve and software remains static, a chasm emerges between the original implementation and the changing requirements of the business. This may continue over time to the point where the ERP system becomes an impediment rather than an enabler—in other words, dysfunctional.
Many companies with older ERP systems have augmented them with other software to gain functionality that was lacking in the initial ERP System implementation but subsequently deemed necessary. The data from these newer systems must integrate into the existing ERP System, and in numerous instances this has proved costly, problematic, or both.
Integrating data to ERP systems from these reactionary systems can be challenging, as even before their addition, data migration to ERP was often given inadequate atttention due to its typical position in the production phase of implementations.
As ERP systems evolved, the problem of integration has been addressed by the expansion of functionality. The idea is to replace standalone systems—and eliminate siloes of information—with the capabilities inherent in the new ERP System. Independent software vendors have also developed industry-specific modules that are tightly integrated to the core ERP application. As companies have persisted in their need for third-party applications outside of core ERP, ERP vendors have developed application interface tools (APIs) designed to ease integration challenges.
Access to both resources and support personnel is also an issue that demands consideration. As you assess the technology of your ERP system, consider where the vendor will be ten years from now, and what kind of support will be available at that time. Ongoing support must be a given if you are to stay with your current ERP system technology, just as your own organization’s ability to change must be considered if new technology is to be implemented.
Remember that when you purchase an ERP system, that purchase is not static but dynamic: the product, the vendor, and their relationship with your organization must develop and support your goals through the years to come.
Your ERP system’s ability to provide the reports and information is another important aspect to consider in evaluating current system status:
Often a company will experience pain, or even failure, because during its planning, reporting tools and inquiries were not considered as important as other system components.
Many companies have no idea what the total costs are to operate their ERP system because only a handful of the costs are quantifiable. Hard costs (e.g., license fees, maintenance fees) can be easily expressed and are readily available, but soft costs are more difficult to grasp, and can be very costly in terms of labor, productivity, and time. In fact, if you were to just look at hard costs, a new ERP system will almost always appear to be a more expensive option than staying with the current one. But when total cost of ownership is evaluated, accounting for both hard and soft costs, a new system may be warranted because of the productivity gains, time savings, and increased revenue opportunities that a new system brings.
Weighing the costs and benefits of retaining an existing ERP system against the costs and benefits of changing to a new one is something that companies will do sooner or later. If your current business environment has you thinking sooner is the better of these options, then there is a methodology to follow that will inform the decision you must make—a decision that will have a shaping, and perhaps decisive, influence on the future course of your business.
Next Time/Part 2: The Process of Examination: Detailed Steps To Determine if You Should Keep Or Replace Your Existing Solution