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An enterprise resource planning (ERP) system is recognized as a necessary management information system to streamline business processes. Delivering an ERP that meets the functional needs of your organization with an acceptable level of quality, however, can be a challenge.
What is considered a world class ERP for small-to-medium sized companies?
There are many business management platforms in the market today that provide a level of control, a repository for company data, and the ability to report on data to make more informed decisions. However, many of these systems may simply be point solutions. This means they consist of a siloed database for a specific role or department working in conjunction with several other disparate systems; it leads to duplication of efforts and data entry, manual intervention, lack of visibility, and batch processing which then leads to dated information.
A world class ERP built specifically for small-to-medium sized companies is one that provides a fully integrated, enterprise-wide, and real-time software solution delivering a central repository for all lines of business and ultimately one version of the truth. World class ERP systems will typically include a core set of functions that an organization needs to manage day-to-day business activities such as accounting, a perpetual inventory management system, procurement, sales, CRM, production, project management and supply chain operations, along with robust reporting and analytical capabilities. Although the licensing of these modules may differ from one package to the next, they will offer a platform for growth where you can extend these core modules for enhanced capabilities or additional functionality for an additional cost, when necessary.
Understanding the difference between Configuration and Customization.
To configure a solution means selecting programmable options at a user interface level that make the program function to the user’s specific requirements. By using native tools in the system, you can change the behavior or features to accommodate the way you do business. None of these changes impact the underlying code base of the platform or require any technical programming and development efforts. To configure a solution, an effective blueprint is necessary to understand what the short term, medium term, and longer-term objectives are. It allows you to make sure the dependencies are being considered in the design, build and install processes to match the required logic, and internal business processes that will ultimately drive the operational efficiencies you hope to achieve.
World class ERP solutions are often widely adaptable across various industries, company profiles, and business operations. It is the opposite of a niche software solution that focuses predominantly on one market or organizational segment. Niche solutions tend to be highly customized for the requirements that are most important to their target group but often lacks the depth in functionality, breadth of capabilities and a robust roadmap to address the organizational-wide needs as a whole.
Configuring an ERP solution will involve various elements that ultimately differ from one customer to the next. Some examples include; the corporate structure of the company – how many legal entities exist; are there inter-company dealings between the multiple entities; what sort of reporting requirements are needed; how do you categorize your inventory items; what are your warehousing rules; what sort of pricing strategies do you have and many more.
Alternatively, customization refers to a feature or extension or modification of a software feature that requires custom coding (programming, scripts) and/or some form of implementation. By customizing your ERP solution, you are extending the systems native capabilities and creating attributes that are unique to your specific implementation. By definition, customization is much more invasive to the core application because it requires programmers to modify a program or write a program to do something that the software does not currently do. Customizations range from very basic (performing or automating a specific task) to changing the core application.
Moreover, if your ERP solution is deployed in a Public cloud where upgrades are automatic, then customizations can cause compatibility issues. Upgrades may overwrite or conflict with your custom code and thus causing you to recode the customizations with each new software upgrade. If it’s deployed on-premise, upgrades of customized software can still be challenging as well. Performing compatibility checks, and addressing undocumented issues must always be budgeted for.
Therefore, it is absolutely critical for you to focus on selecting an ERP solution that is highly configurable and one that does not rely heavily on the need for customization as it’s first or second implementation option. Moreover, it is important that your World Class ERP be configured to meet the critical requirements for your business processes, while leveraging as many best practices as possible that are relevant to your environment – and without relying on customization which will introduce more challenges and increased costs for you in the long run.
Why a World Class ERP should not be treated as a ‘one size fits all’ approach.
Many entry-level and batch-oriented software systems follow the one-size-fits-all approach whereby you are forced to follow the out-of-the-box processes and have very little flexibility to manage more complex business requirements. The more standard your requirements are, the better suited these platforms will be. The greatest example of this type of solution and perhaps the most successful is QuickBooks which is the most widely used software platform for any start-up or small business that follows standard business processes or those who haven’t reached a level of complexity that warrants a more robust business management system and ERP. As soon as your business processes start to become more complicated, QuickBooks representatives are usually the first ones to recommend moving on to a more robust platform.
A bigger issue that often arises is when a company selects an ERP solution, but the vendor promotes a one-size-fits-all approach with the sole objective to reduce the upfront costs as much as possible. You’re doing yourself a disservice by applying this approach when you decide to implement a ERP — this strategy will only lead to higher costs in the longer term and often times unexpected cost overruns in the short term. You are also accepting all of the standard capabilities that are reflected in the demo version of the software, you are ignoring many of the more advanced features or capabilities that need to be enabled to address more unique requirements, and you are disregarding the attributes that may differentiate your business, your industry, or give you a competitive advantage.
The biggest recommendation that I would extend to you, if you are considering implementing an ERP solution with a one-size-fits-all approach is to work with your vendor or implementation partner to clearly define and document, in contractual terms, the specific capabilities and requirements that will be addressed when you ultimately go-live with your new ERP. Spend the time to discuss, articulate, and review any definitions or technical jargon that can easily be misconstrued or mean something different to you versus your vendor or implementation partner. Furthermore, expect cost over-runs to occur, perhaps a contentious relationship with your partner, a lower impact on the process efficiencies that you are expecting it to deliver and no clear path to the return on investment you are seeking.
A few last words
An ERP used in the right manner can be seen as the central nervous system of your business and it has even been referred to as your best employee. It brings all lines of your business together, providing one version of the truth, and real-time data at your fingertips enabling you to make more informed decisions. However, without fine tuning the system to your specific business processes, you are leaving a significant gap that will hinder your ability to quantify tangible business benefits, cost reduction, productivity improvement and measurable bottom-line results. Grossly underestimating the level of effort needed, the required resources (both human and investment), and the importance around shaping your software applications around industry best practices—all while adhering to the unique needs of your business —are absolutely crucial for a successful ERP roll-out and user adoption.
Without carefully considering this perspective from the very beginning, it will undoubtedly lead to re-work, inefficient processes, underwhelming results, or potentially a costly re-implementation process in the future—it’s important to understand the fundamental processes or requirements and the core settings of the software platform from the start. So, please take careful consideration when selecting your ERP platform and the implementation strategy you deploy. The power you seek to attain in terms operational efficiencies, business process automation, going paperless, and a tangible return on investment will only truly be realized if your ERP is designed with your business in mind.
About the Author
Neal Johnie is the Sales Director at Illumiti representing its SAP Business One practice. Neal brings over 13 years of ERP software sales experience across various ERP application leaders. He has held positions as Business Development Consultant focusing on lead generation and Account Executive in an account management role before managing a sales team focusing on ERP applications. Neal is located in Toronto, Ontario.
Contact Neal on LinkedIn or via email at NJohnie@illumiti.com.