By: Lori Adams
Many ERP systems were implemented almost twenty years ago in an attempt to beat the Y2K bubble. As the date drew nearer, the buzz was to implement an ERP that would automate some basic tasks for a standard business practice. Fast forward almost twenty years…is your ERP system today still providing the benefits expected from the implementation? Or, has your ERP run its life cycle and it’s time for you to change?
If you implemented your ERP solution between 10 and 15 years ago, the value of that system has most likely has run its course. The gains 10+ years ago due to automation are no longer creating the value and productivity improvements they once did.
A standard ERP implementation goes through the following stages. As noted, the total life cycle of an implementation is between 10-20 years.
The stages are as follows: (MSG, 2016)
1. ERP Roll Out:
The initial roll out of an ERP system consists of various phases, commencing with Request for Proposal (RFP) and vendor selection and ending with go live and hand holding phase. Some important matters concerning this phase will have direct bearing on subsequent phases of ERP lifecycle:
- Degree of matching of vanilla ERP product to current business need and extent of customization done, particularly source code customization.
- Commitment of the vendor for future development and their financial health
- Support issues including License fees and escalation thereof.
After the system is live and rolled out, there will be a period of turmoil. Due to lack of understanding, a lot of confusion will prevail amongst users. Some software bugs will invariably appear. With retraining, some tweaking of the system and assistance from a responsive help desk, this phase should be over within six months to one year and the system should start stabilizing.
This is the longest period of life cycle, when the organization start realizing value of their investment. Users will get familiar and start owning the system. Some changes will be continuing such as new reports, different workflows, some localization. Maintenance will be covered by service level agreement, entailing payment of license fee to the vendor. For a complicated system, there may be a third party vendor, helping with maintenance on site. The license fee, due to provision of escalation, gets escalated at regular intervals and after some years, adversely effects Total Cost of Ownership (TCO).
4. Extending Values:
This phase overlaps with the phase of maintenance. New or changed business processes necessitate minor or moderate changes in the system. There may be extensive changes with the addition of third party product add-ons such as a shipping integration, warehouse management system, or Customer Relationship Management and Business Intelligence (BI). Sometime the cost changes may be prohibitive, particularly for systems where a lot of customization has been done during implementation phase.
Parallel to business changes, technological changes also occur. New release and versions appear for technology platforms like Operating System and Data Base. ERP vendors release patches and versions of their products at regular intervals which needed to be incorporated in the existing system. This usually involves minor or moderate efforts. But, problem arises where many software objects were customized during implementation. Retrofitting these objects for making them compatible with later versions, may turn out to be a major migration exercise involving exorbitant cost and effort.
5. Decaying Performance:
For an enterprise, business needs and technological requirements continue to evolve. Costs, complexities and difficulties modifying and updating the existing system mount. Fixing the existing system is no longer a viable option and the system provides diminishing return. Alternatives are investigated and decision of reimplementation is taken.
Similar to Roll Out phase mentioned above. However, the organizations are better organized now. Initial process will be carried out more professionally. It is likely that they will adopt more of a vanilla version with minimum need of customization, so that the next cycle gives a better Return on Investment (ROI).
A Cloud-Based solution allows for minimal up-front investment with fixed monthly pricing based on the number of users. Different from the on-premise – cloud-based solutions solve many of the maintenance issues on premise solutions had. By eliminating the need for a server on-site, the technological issues for obsolete operating systems, database tuning, disaster recovery, and upgrades no longer exist.
Additionally, it is necessary to evaluate the total cost of ownership for the ERP and introduce ways to lower the short and long terms costs. These changes include moving to a Cloud-Based, Software as a Subscription model (SaaS). This model allows for maximum return on investment (ROI) with lower up-front capital investment, lower costs of implementation, and streamlined standard processes.
So, if your ERP system is ranging between 10-20 years, it is time for change. A new system implementation is an opportunity to challenge the processes for the business. It allows simplification of the process and interjects energy into the enterprise. It allows you to change, just as the business has changed over the past 10+ years.
All these changes mean one thing – greater cash and working capital savings, thus maximizing the value of the ERP.
So, why wait any longer to implement a new ERP and begin capturing new value?
For questions, please contact Lori.Adams@cloudsuitemfgllc.com. Thanks.