What are the fundamentals to understand about ERP implementation?

I would like to take issue with a small part of Richard's comments. (no offense, Richard!)

I don't think you can make ROI a 'deliverable' any more than you can guarantee a certain level of 'net profit' when accepting a customer's order. ROI is a subjective calculation. Sure, you can crunch the financial numbers. But the significant benefits of a successful implementation are often more valuable than the calculated ROI.
1) Streamlined order flow;
2) Estimating Accuracy;
3) Avoidance of Purchasing Errors;
4) Avoiding over production;
5) Improved communication

These are just a few intangible, but significantly REAL benefits to a good ERP implementation. However, measuring these is quite difficult. Eli Goldratt (The Goal, TOC) expressed it a good way, "When the proposed results becomes so great that even a few of them make it worthwhile, how can you NOT go ahead?" Unfortunately, most software salesmen promise everything short of 'world peace' - and often, people blindly buy it.

If more customers would pre-determine their critical operational problems and the constraint that it is putting on their business, they would have greater insight in making software selection AND the implementation process.

This would go a long way to minimizing vapor-ware sales and both software and companies would be better focused on getting practical, tangible, useful results.

Sorry for the lengthy rant, ...just wanted to extend the good discussion...

Hope this helps!
JIm

Wow, Stephen, that is a very broad question. Could you narrow it down a bit? From a technology perspective? From a functional perspective? From the perspective of a business executive trying to find ROI and strategic alignment from IT resources?

Check out http://GeeWhiz2ROI.com for dozens of articles on a broad range of topics that might answer some questions.

Otherwise, narrow the topic and I'll be happy to respond.

Thanks.

My company is going to implement an ERP system this year - Sage I believe. I am on the IT staff, but I am not an ERP specialist, and have never experienced an implementation in any of my previous positions.

For my own personal edification, I was hoping to find some resources that could give me a high-level overview of what a standard ERP implementation entails, so I can get an idea of what to expect the coming year to look like. We are debating on bringing on an ERP consultant to help with the implementation, so I wanted to know whether or not people found them helpful during the implementation process. ROI is not in my interest.

Thank you for your help.

Stephen -
From the limited information shared, several alarms are going off in my mind saying, 'Danger!, Danger!'.

While ROI is often subjective, there MUST be some motivation to make the tremendous investment of time and money to implement a new ERP system.

Different software companies have different methods for implementation. Due diligence is needed in this area. How it gets implemented is MORE important than the features-and-functions that are used to close the sale.

You will need to install a Chart of Accounts, but if the software company needs to get the Financial module implemented first, before any operational modules - RUN AWAY FROM THEM - FAST! This company is focused on getting you to do things 'their way' rather than supporting your core business operations.

There are systems that can be fully implemented in 60 days. (I have been part of 2 of those implementations.) However, it requires a very intelligent and insightful team of people who 'know their stuff'.

That said, I would strongly recommend hiring someone who knows the software and understands your operations to guide your implementation.

Hope this helps!
Jim

ERP implementation is a HUGE undertaking, for any company. IT can and has destroyed companies when not managed and implemented correctly. Implementation of a ERP is going to need a consultant if no one on your team has any experience. I would start with reading documentation to familiarize yourself with the process, but your going to need a guide. Imagine doing an African safari without a guide? if you are a survivalist you may make it... otherwise find a native and hope he steers you clear of the lions... I speak from experience, I have worked with Great plains and the company i am currently at is going live with SAP this July. 1 year behind schedule... The poor economy put a dent in rolling it out about a year ago... as of now it is nearly a 3 year process.

Stephen,
The fundamentals of an ERP implementation are that it is going to touch every department in your company and that it will end up with links into almost all of your applications. You definitely need to get a consultant to help with this! One other consideration is if you already have a PLM system in place, I would look at the vendor that provided it to see if they have ERP available to minimize integration needs.

Stephen,
I am a consultant that helps companies through ERP implementations. I think that Mark Oldfield's advice is right on - ask for previous project plans from your implementation vendor. Using these a guide, ask the vendor questions about what is expected from the vendor and from your company at each stage of the project, i.e., what are the deliverables that they owe you and that you owe them?

From your side, the most critical of these deliverables will include data and system training for your users. These are both potential areas for serious project delays and must be managed with appropriate care. Testing means proving that your company's users can use the new system to accomplish the company's business before you go live. This is not classroom training about how the application works, but real manager-to-staff training about how YOUR company will be using the software to support YOUR business. Use real company data for this testing and thoroughly track results to the results that you expect to produce.

I am happy to answer any other specific questions that you have. Good luck to you and your company!

I'm not trying to be smart or obnoxious, but while you're asking them for "deliverable," how about asking them to deliver ROI as part of the written agreement and "project plan"?

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I will watch this space to see if you get an afirmative answer on this last question.
I believe this is usually done internally at the review/procurement stage, there would be too many variables for a vendor to agree to meeting ROI. You would be on a winner if it can be done. As a consultant, Jeff might be able to help here.

Jim:

You have made my point precisely! The reason ERP ROI is so fungible is because traditional ERP - Everything Replacement Project - touches too many things. They are usually undertaken more out of HOPE that things will get better than out of any real strategic or tactical forethought.

However, I advocate the New ERP - Extended Readiness for Profit - in which the organization has determined the FEW THINGS that need to change in order to start making MORE MONEY tomorrow than they are making today. They know the precise metrics, also, of what needs to change. And, they have sought out technology vendors on the basis of the precise elements of change required and the technology that will support the precise changes required.

To your other point about NOT making 'ROI' a deliverable. I could NOT disagree more. Why is the IT vendor or reseller enabled to make CLAIMS of ROI in order to induce the ERP buyer to buy, but then NOT willing to stand by the DELIVERY of the ROI they claimed during the sales cycle? Why is that rational?

Okay? So we can't calculate a precise value for the ROI. Fair enough. Then simply make some significant portion of the vendor/reseller's COMPENSATION dependent upon some ROI metric. The more ROI they deliver, the more they get paid. That sounds fair to both parties, doesn't it?

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Richard -
Despite re-defining ERP, ROI is still 'RETURN on Investment'. It is an 'after-the-fact' calculation that measures the results of the time money and effort that was committed. You can ESTIMATE an expectation of ROI, you can feel there is minimal RISK to achieving ROI, but you cannot guarantee it a a deliverable.

Many (most?) vendors are confident that many (most?) customers will get significant value from their software -IF USED EFFECTIVELY,

However, they are like MPG ratings on vehicles - your mileage will vary.

Is that because the cars (vendors) are different than tested? No, it is because of the habits and performance of the driver (customer). Just as the car maker cannot promise your mileage, a vendor cannot promise a predicted, profitable return.

Software vendors can offer calculated numbers to justify your expenditures, but they cannot assure a customer's buy-in and adoption of the system. As I mentioned before, the best justifications for changing any system is what it eliminates or prevents.

No one needs a software system to determine what is 'good' or 'best', those are already intuitively known within an organization. What is needed from the software is the ability to avoid the waste and distraction of doing things that are NOT needed.

I would be very skeptical of any supplier who could accurately predict the final results of implementing an ERP system. In every implementation that I have salvaged or completed, the new tools available to the company were 'game changers' - they dramatically altered the way the company performed - so that prior measurements and estimates were no longer valid.

However, it was clearly demonstrable that specific processes with value-streams worked faster and with fewer errors and delays. We accomplished the primary goal: Planning the use of the Resources of the Enterprise more effectively.

Those practical, tangible process improvements provided a greater ROI than anyone would have ever committed to within an agreement.

Eli Goldratt (previously a software vendor) advocates your same proposal - that software should strictly be a fixed expense and companies should pay vendors a fixed percentage of their revenue.

Interesting concept, but I don't there there are many vendors and customers who would trust each other enough for that to catch on soon...

- Jim

I believe, and state i numerous ways in my blog at http://www.GeeWhiz2ROI.com, that software vendors should NOT calculate ROI for their prospects or clients. However, the vendors/VARs should be equipped with real TOOLS (not "rules of thumb") that will help their prospects or clients (since you reference Goldratt) determine:

1. WHAT needs to change (precisely) in order to start making MORE MONEY tomorrow than they are making today,

2. WHAT that change should look like (including the role an required technology will play), and

3. HOW to EFFECT that change (including the specific role of any new technologies).

I won't rewrite the whole thing here, but I've covered it pretty thoroughly -- and continue to expand on it -- in my writings at http;//www.GeeWhiz2ROI.com. The series The New ERP - Extended Readiness for Profit is a good place to start (begins Oct 2009 and contains 40 parts, so far).

Otherwise, vendors/VARs continue to make their sales predicated on "rule of thumb" benefit predictions and leave a wake of companies behind them -- many of whom are no better off than if they had not purchased a new ERP system and some of whom are actually worse off than before. This is bad for the ERP industry and it is bad for the economy, in general -- not to mention that is bad for many companies that suffer the consequences of such free-wheeling "promise-making" by the vendors and VARs.

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Back when I sold ERP and CRM software, I used to put together a spreadsheet that listed specific business functions where improvements could be made. I would be careful to break down those functions into definable steps that involved a definable cost, such as employee time or returned postage. Then I would compare the potential savings to be gained from improving those functions by implementing an integrated ERP system to the 5 year cost of the system. If we could not prove the ROI over the 5 year time frame, we walked away - unless the ERP purchase was for reasons beyond just pure financial gain: regulatory compliance, auditability, etc. We were always careful to not overpromise on the financial benefits as we were more concerned with developing a long-term relationship with the customer over the short-term gain we would see from the software sale and initial consulting engagement.

I'm not sure I agree on the need for an outside consultant to get involved. I do think it's a good idea to appoint an internal project manager and make sure the software vendor has a project manager and a good project management process in place.

1. Understand your (internal) customers. Take them into confidence and ask them what they want and how they want it. What are their process flows and what are the problems that they are facing in the current system. How are these processes (between two different departments) linked. Draw based on the above, a process map of the system as it is. Draw a process map of the improvements that you(r customers) want and get it approved by them. This is the baseline to start .

2. Use thus to float the RFQs to ERP vendors. No ERP system will exactly match your requirements. There has to be some tailoring by them. More important, there has to be some "watering down" of your stated requirements. No vendor will make a drastic change in his process flows for any customer as it will make updates difficult. Have a list of the compromises that you can tolerate.

3. Look at the life-cycle costs from the vendor:-what the annual licencing fees are, what type of support that they will give etc.

4. All this is best done by an internal team - cross0functional that has a very clear appreciation of the enterprise and its requirements.

5. Ciao !

Jeff Dix makes some very good points. To follow Jeff's line of thought, I assume your company has selected the ERP application and is preparing for the implementation. Please perform some specific due diligence on the software provider/implementer. This would entail contacting some reference accounts where the provider implemented the specific ERP application your company has chosen. Granted the reference account will be one that the vendor believes was a successful implementation, but you will get some direct feedback on performance. Ask some of these questions of the reference account.

How well did "vendor" adhere to the delivery schedule or meet contract implementation milestones?

Did "vendor" ever present an invoice to you for goods or services that you thought were part of the proposed price?

How well did "vendor's" goods or services meet your quality and technical expectations?

Have you experienced any problems with software errors and/or bugs?

How smooth was the implementation? Did the system easily integrate with your existing technology environment?

How long did it take to fully train your staff to use the solution?

These are just some of the questions I would ask if I were in your shoes (which I have been on a number of occasions).

If executive management looks at ERP and the potential ROI it delivers only in terms of "savings" in cost or expense, then they are probably short-sighted about other aspects of the business, as well. Businesses may continue to exist on the basis of "savings," but businesses grow and increase market share through finding ways to INCREASE THROUGHPUT (Throughput being revenues less truly variable costs).

If THROUGHPUT calculations are not part of your ROI for ERP - or any investment in improvement - then it is likely your company is, at best, a competing company, and not a leading company. However, it is equally likely that your company is at risk of failing in the long term. Most companies that are not focused on growth -- and leveraging every investment for that purpose -- will find their market share shrinking over time as new competition emerges in their markets.

ERP implementations are among the most complicated software deployments in which a typical company can engage. Therefore, it is essential to take active steps to ensure success and avoid a late or over-budget project. Even worse, some companies invest lots of resources and then the system does not meet needs.

I suggest taking a look at my blog on ZDNet, called IT Project Failures, which discusses precisely these issues:

http://blogs.zdnet.com/projectfailures

Take a look and then I'm happy to discuss any issues here in this thread.

Stephen, you/ your team (including ALL departments) have to do a lot of home work, because unless you do a careful analysis of the whole company and its processes, and have a clear understanding of what you want to achieve with the new ERP implementation, you will not achieve the desired results. Consultants will have to do their own analysis and will come up with their own suggestions which may not fully fit your company's needs not to mention your costs will go up.

Another issue is while data is being transfered, you got to spend countless hours figuring out if the data is being correctly transfered and into the right places and then you also have to (if possible at all) to run the old and new system concurrently to see if everything is working according to plan. You have to leave a lot of room for error corrections or for things that would/ could go wrong during the implementation and would require extra time.

In addition, you have to be very careful in choosing the right consultant, looking at both their expertise, implementation experience and pricing. Get references from consultants of successful implementations and talk to those clients on how the implementation process was for them and their experience with the consultants.

I am sure there must be some resources on the net or even published books if you search using various key words. By simply typing "implementation of ERP" you get some useful information.

Hope this helps.

Mr. Weitzman,

Hold the presses, I am now a SAP Consultant for an ERP software the biggest in the world. However, my background is an IT Manager for large companies. I've been in your shoes. Any implementation will be painful, unless you have the buy in from the management team.
You will need to know what does the company really want? are they wanting a quick fix, or do they really want a fully integrated ERP system that will tell them "we are or are not profitable" and where the problems are? I have a finance background and let me tell you, if management is not ready to face the music, it's painful.
Out of all the software (35 years of experience) SAP in my mind is the best, that is why I'm in the field. However you have to have the right implementation team. They have to know and understand your company, your needs and requirements. Now, that is the tricky part, because the only way they will know that is if YOUR employees can convey that information. DO they know, how and why. The next step is making sure you have money in the budget for training, most companies do not include money for training, they spend millions implementing and setting up these ERP software systems, and no training for the employees... then you end up with Garbage in and Garbage out. Simple because you have a disconnect. If you really want the skinny on an ERP system and the straight truth, contact me from an IT perspective. I can give you the PLUS and MINUS, from plan to go live. I'm not a saleman!

Yup. You'd better listen to one of those guys hyping a specific software solution. It's likely they are unbiased. Besides, it's probably not a good idea for companies that might be considering investments of a million dollars or more in technology to think about ROI. Just use one of the "rules of thumb" bandied about by an ERP vendor or reseller and I'm sure you'll come out fine.

Or, at a minimum you'll have so much money invested in a project that is failing or of questionable value that no C-level executive is willing to call it "failure" and everyone will just spend their days ignoring the elephant in the room.

Tom Wallace wrote the book "MRPII Making It Happen" (maybe he was being humorous and the it meant actually IT), which was the "bible" MRPII Project Managers like me at Beatrice in Australia used to successfully achieve a total business transformation and the resulting benefits. We were awarded Class A ultimately. He has also recently published an update to the book called "ERP Making it Happen. This books has updated material including examples from P&G and their journy to Class A in the early 90s. I was lucky enough to be their external coach in many of the ten divisions throughout Asia, particularly China, Korea and The Philippines. Why more companies don't use his approach I have no idea. I've been using it since 1988 to help companies that were already fantastic, Mars, ICI, and all have achieved improvements. www,heenan.com.au for articles on their success and links to even more experienced people like: www.partnersforexcellence.com, www.tfwallce.com, www.billbeltexcellence.com, www.delos.com.uk. These guys are located in USA, France and UK. Cheers Phil Heenan

Which of Sage's 31 flavors (like Baskin Robbins ice cream) will your firm be implementing, do you think?

Did you read much at http://www.GeeWhiz2ROI.com? Especially, "The New ERP - Extended Readiness for Profit" series?

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I second that, Mark. You've got a great blog and well worth reading. I'd encourage readers also to consider mine at http://www.GeeWhiz2ROI.com, which provides lots of hands-on, practical advice about how to get to an ROI calculation in almost any scenario -- as well as some methods that are down-to-earth for product and vendor selection, for example.

The warnings you are hearing are related to what I have dubbed "traditional ERP - Everything Replacement Projects." Consider "the New ERP - Extended Readiness for Profit." Read "The New ERP - Extended Readiness for Profit" at http://www.GeeWhiz2ROI.com.

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