Why do ERP Projects Fail?

Posted on December 10, 2010 by Site Administrator

Part 4 of “What is ERP Really”
At its simplest level, ERP is a set of best practices for performing different duties in your company, including finance, HR, manufacturing and the warehouse. To get the most from the software, you have to get people inside your company to adopt the work methods outlined in the software. If the people in the different departments that will use ERP don’t agree that the work methods embedded in the software are better than the ones they currently use, they will resist using the software or will want IT to change the software to match the ways they currently do things. This is where ERP projects break down. Political fights break out over how—or even whether—the software will be installed. IT gets bogged down in long, expensive customization efforts to modify the ERP software to fit with powerful business barons’ wishes. Customizations make the software more unstable and harder to maintain when it finally does come to life. The horror stories you hear in the press about ERP can usually be traced to the changes the company made in the core ERP software to fit its own work methods. Because ERP covers so much of what a business does, a failure in the software can bring a company to a halt, literally.

But IT can fix the bugs pretty quickly in most cases, and besides, few big companies can avoid customizing ERP in some fashion—every business is different and is bound to have unique work methods that a vendor cannot account for when developing its software. The mistake companies make is assuming that changing people’s habits will be easier than customizing the software. It’s not. Getting people inside your company to use the software to improve the ways they do their jobs is by far the harder challenge. If your company is resistant to change, then your ERP project is more likely to fail.

One cautionary tale that came to light in 2008 illustrates that sometimes there is a big difference between what an ERP vendor promises to deliver in its software and what actually is ready for prime-time enterprise use. Trash-disposal company Waste Management announced in March 2008 that it was suing SAP, seeking the recovery of $100 million in project expenses that related to a failed ERP implementation that had started in 2005. In the complaint, Waste Management alleges that SAP executives participated in a fraudulent sales scheme and that SAP’s Waste and Recycling ERP product was actually “fake software” that was still not ready for Waste Management’s use by spring 2008.

How do I configure ERP software?

Even if a company installs on-premise ERP software for the so-called right reasons and everyone can agree on the optimal definition of a customer, the inherent difficulties of implementing something as complex as ERP is like, well, teaching an elephant to do the hootchy-kootchy. The packages are built from database tables, thousands of them, that IS programmers and end users must set to match their business processes; each table has a decision “switch” that leads the software down one decision path or another. By presenting only one way for the company to do each task—say, run the payroll or close the books—a company’s individual operating units and far-flung divisions are integrated under one system. But figuring out precisely how to set all the switches in the tables requires a deep understanding of the existing processes being used to operate the business. As the table settings are decided, these business processes are reengineered, ERP’s way. Most ERP systems are not shipped as a shell system in which customers must determine at the minutia level how all the functional procedures should be set, making thousands of decisions that affect how their system behaves in line with their own business activities. Most ERP systems are preconfigured, allowing just hundreds—rather than thousands—of procedural settings to be made by the customer.

Even the new on-demand or software-as-a-service (SaaS) ERP offerings necessitate some system configuration and customization to each company’s individual requirements. This process, however, generally takes less time and resources than with an ERP application that’s installed on-premise.

How do companies organize their ERP projects?

Based on our observations, there are three commonly used ways of installing ERP.

The Big Bang—In this, the most ambitious and difficult of approaches to ERP implementation, companies cast off all their legacy systems at once and install a single ERP system across the entire company. Though this method dominated early ERP implementations, few companies dare to attempt it anymore because it calls for the entire company to mobilize and change at once. Most of the ERP implementation horror stories from the late ’90s warn us about companies that used this strategy. Getting everyone to cooperate and accept a new software system at the same time is a tremendous effort, largely because the new system will not have any advocates. No one within the company has any experience using it, so no one is sure whether it will work. Also, ERP inevitably involves compromises. Many departments have computer systems that have been honed to match the ways they work. In most cases, ERP offers neither the range of functionality nor the comfort of familiarity that a custom legacy system can offer. In many cases, the speed of the new system may suffer because it is serving the entire company rather than a single department. ERP implementation requires a direct mandate from the CEO.

Franchising strategy—This approach suits large or diverse companies that do not share many common processes across business units. Independent ERP systems are installed in each unit, while linking common processes, such as financial bookkeeping, across the enterprise. This has emerged as the most common way of implementing ERP. In most cases, the business units each have their own “instances” of ERP—that is, a separate system and database. The systems link together only to share the information necessary for the corporation to get a performance big picture across all the business units (business unit revenues, for example), or for processes that don’t vary much from business unit to business unit (perhaps HR benefits). Usually, these implementations begin with a demonstration or pilot installation in a particularly open-minded and patient business unit where the core business of the corporation will not be disrupted if something goes wrong. Once the project team gets the system up and running and works out all the bugs, the team begins selling other units on ERP, using the first implementation as a kind of in-house customer reference. Plan for this strategy to take a long time.

Slam dunk—ERP dictates the process design in this method, where the focus is on just a few key processes, such as those contained in an ERP system’s financial module. The slam dunk is generally for smaller companies expecting to grow into ERP. The goal here is to get ERP up and running quickly and to ditch the fancy reengineering in favor of the ERP system’s “canned” processes. Few companies that have approached ERP this way can claim much payback from the new system. Most use it as an infrastructure to support more diligent installation efforts down the road. Yet many discover that a slammed-in ERP system is little better than a legacy system because it doesn’t force employees to change any of their old habits. In fact, doing the hard work of process reengineering after the system is in can be more challenging than if there had been no system at all because at that point few people in the company will have felt much benefit.

The On-Demand Nibble—You’re most likely to see this approach in a small or midsize business that’s lost its patience for Excel spreadsheets and the fax machine, and in large companies that either have massive operations and will never be able to standardize on one system or have been burned by costly and not-so-satisfying ERP rollouts in the past. In this instance, companies turn to a small but growing number of on-demand or software-as-a-service (SaaS) ERP vendors that can offer:

  • faster implementation times (there’s no software to install on-premise, and that literally shaves months off installation periods);
  • easier and more frequent upgrades (they can happen automatically because the vendor manages the applications and can roll out patches and bug fixes more regularly); and
  • cheaper up-front costs (the software price tag can be much cheaper than traditional on-premise applications because of subscription pricing that is on a “per user, per month” basis as well as big reductions in integration and consulting fees).

Why companies are just “dipping their toes” in the on-demand and SaaS waters right now is because those companies (and their vigilant IT departments) still have concerns about housing their mission-critical and highly sensitive ERP data (such as HR and financial) on a third party’s servers and not their own.

Posted in Customer Relations Management (CRM), December 2010, Enterprise Resource Planning (ERP), Newsletter | Tagged , , , | Leave a comment

Tips, Tricks, & Tutorials

Posted on December 10, 2010 by Site Administrator

This month’s Video Learning, available now on our website, will help you learn new features and become more productive with your Sage Accpac ERP and SageCRM systems. We hope you enjoy them and find them useful. As always, your feedback is encouraged.

ERP – Bank Transfers
There are several ways that you can transfer money between your bank accounts and it’s important that these transactions be recorded correctly in your accounting system.  In this tutorial, we walk through three example transfers to show you how it’s done in Sage ERP Accpac.

CRM – Outlook 2010 Integration
Since its introduction, SageCRM has featured tight integration with Microsoft Outlook.  This integration has relied on Outlook’s web browser support for its functionality. With the release of Outlook 2010, Microsoft dropped web browser support.  This in turn has required some modifications to the integration with SageCRM.  In this tutorial, we walk you through the changes.

Posted in December 2010, Newsletter | Tagged , , , , , , , | Leave a comment

We love feedback

Posted on December 10, 2010 by Site Administrator

We value your feedback, comments and ideas. Please let us know what you think about these articles and the newsletter.  Is there additional content you’d like to see?  Let us know… send an e-mail to news@axisgp.com.

Posted in December 2010, Newsletter | Leave a comment

In The News

Posted on November 16, 2010 by Site Administrator

Year End Payroll and Accounting Processes
With Year End approaching for anyone on a January – December fiscal calendar, you’ll need to start planning to close out 2010 in your Sage Accpac system, and open a new year for 2011. Regardless of your fiscal year, you’ll need to close out Payroll. Because of this, December is typically one of our busiest months supporting our clients through this process. If you think you might need our assistance with year-end, now is the time to book your appointment. Every year, we get a rush of last minute requests, which ultimately leads to delays for the companies who ask for help last. Beat the rush and stay on schedule – contact your local office today.

New 1099 Rules Affect 2012 Reporting
An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork. Section 9006 of the health care bill — just a few lines buried in the 2,409-page document — mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year. Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire. But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they’ll have to send Apple a 1099. A Laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.

The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations. Taken together, the two seemingly small changes will require millions of additional forms to be sent out.

This could add up to a pretty heavy administrative burden particularly for small businesses without large in-house accounting staffs. Eliminating the goods exemption could launch an avalanche of paperwork.  For example, if you cater a lunch for other businesses once per week,  that’s a lot of information to keep track of throughout the year.

The new rules could drastically alter the tax-reporting landscape by spotlighting payments that previously went unreported. Freelancers and other independent operators typically write off stacks of business expenses; having to issue tax paperwork documenting each of them could cut down on fraudulent deductions.

More significantly, the 1099 trail would expose payments to small operators that might now be going unreported. If you buy a computer for your business from a major chain retailer, the seller almost certainly documents the revenue. But if you buy it from Tim’s Computer Shack down the street, Tim might not report and pay taxes on his income from the sale. The IRS estimates that the federal government loses more than $300 billion each year in tax revenue on income that goes unreported. Using 1099s to document millions of transactions that now go untracked is one way to begin to close the gap.

The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that’s not the worst of it, tax experts say. the bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.

The final impact of the law won’t be known until the IRS issues its regulations on the new law, which aren’t expected to arrive until sometime next year. The IRS has not yet commented on when it will release regulations or schedule public hearings, and an agency spokesman was unsure when it will do so. The new requirements kick in January 1, 2012.

he bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations. Taken together, the two seemingly small changes will require millions of additional forms to be sent out.

 

This could add up to a pretty heavy administrative burden particularly for small businesses without large in-house accounting staffs. Eliminating the goods exemption could launch an avalanche of paperwork. For example, if you cater a lunch for other businesses once per week,  that’s a lot of information to keep track of throughout the year.

 

The new rules could drastically alter the tax-reporting landscape by spotlighting payments that previously went unreported. Freelancers and other independent operators typically write off stacks of business expenses; having to issue tax paperwork documenting each of them could cut down on fraudulent deductions.

 

More significantly, the 1099 trail would expose payments to small operators that might now be going unreported. If you buy a computer for your business from a major chain retailer, the seller almost certainly documents the revenue. But if you buy it from Tim’s Computer Shack down the street, Tim might not report and pay taxes on his income from the sale. The IRS estimates that the federal government loses more than $300 billion each year in tax revenue on income that goes unreported. Using 1099s to document millions of transactions that now go untracked is one way to begin to close the gap.

 

The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that’s not the worst of it, tax experts say. the bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.

 

The final impact of the law won’t be known until the IRS issues its regulations on the new law, which aren’t expected to arrive until sometime next year. The IRS has not yet commented on when it will release regulations or schedule public hearings, and an agency spokesman was unsure when it will do so. The new requirements kick in January 1, 2012.

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Posted in Enterprise Resource Planning (ERP), Human Resources (HR), Newsletter, November 2010 | Tagged , , , , , , , , | Leave a comment

CRM and Business Intelligence Get Smarter with Analytics

Posted on November 16, 2010 by Site Administrator

Business analytics used to be a very geeky endeavor practiced by hard-core IT people skilled in the arcane arts of data access, data mining, data analysis, and, of course, data warehousing. Those days are largely gone — and so are the reams of lovely spreadsheets they spawned. While the goals of business analytics (BA) remain the same — to gather and interpret data to make better business decisions, optimize processes and pursue new opportunities — the tools are now far more user-friendly, useful and plentiful than they were 10 years ago.

Many of today’s BA tools deliver information online rather than in static reports, typically providing executive dashboards that show high-level measurements of corporate performance with a few mouse clicks. Dashboards allow senior executives, as well as sales and marketing people, to drill down to details by, for example, clicking on a chart to see the numbers behind it.

Sure, businesses are still gathering and interpreting historical data, but now they can do so instantly online — mixing and matching various corporate data, blending in external data and creating reports and snapshots of market trends, customer buying patterns and so on … all in the pursuit of information that can be turned into growth and profitability. In the process, business analytics and intelligence are moving beyond analyzing what happened in the past to trying to predict and influence the future.

CRM, Business Intelligence Get Smarter
In the Web-driven age, businesses want information that is instantaneous, more useful, more convenient, and more user-friendly. A recent report shows that a growing range of customer relationship management (CRM) vendors have incorporated deep analytics features into their customer service capabilities.  It reveals that most of the vendors provide embedded, out-of-the-box business intelligence (BI) features such as reporting, query, online analytical processing, dash-boarding, score-carding, and key performance indicators (KPI) prebuilt to support their customer service applications.

That’s no surprise, as these core BI features enable enterprises everywhere to keep track of how well they’re providing customer service across diverse CRM interaction channels and to identify opportunities to improve satisfaction, retention, upsell, agent productivity and other key metrics. Vendors now offer embedded predictive models to drive real-time ‘next-best-offer’ recommendations in call centers and portal-based customer service scenarios.

Open Source Business Intelligence
A good Business Intelligence (BI) tool or suite makes the difference between acting on facts and assumptions, which can drastically influence sales and profitability. The most pervasive use of a BI toolkit is KPI reporting and dash-boarding.  Every report or dashboard includes a KPI or other metrics to compare performance to targets — and that keeps the focus on accountability.  Analytics can be used to uncover opportunities, validate assumptions and solve problems associated with its sales, marketing and customer service performance.  In one example, a company was able to identify ways to make their e-commerce purchasing process more effective using data analytics.  The result was a 25 to 35 percent improvement in Web-based credit card approvals on their website.  That improvement has translated into increased sales and ultimately more satisfied customers.

Another key area for analytics is targeted marketing. BI tools can identify customer groups that are likely to be interested in new products or services allowing for targeted marketing campaigns and promotional offers exclusive to the customers identified. Such data analytics also allows tracking and analytics on the effectiveness of the campaigns and then implement what the company has learned in future campaigns.

Continuous improvement process enables companies to better tailor promotional offers with specific customer groups, thus increasing profitability. The major bottom-line is that BI analytics can give a company information that was not previously available by tracking sales trends at a level that was impossible without BI software. Information can be accessed in near real-time across all sales channels allowing sales and marketing teams to more quickly respond to competitive threats and measure the effectiveness of new product introductions.

Posted in Business Intelligence (BI), Customer Relations Management (CRM), Newsletter, November 2010 | Tagged , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Warehousing: Maximizing Distributor Profitability Part 2

Posted on November 16, 2010 by Site Administrator

The warehouse is where most distributors make it or lose it. Sales is responsible for the top line, but if the warehouse (including inventory management) does not meet the six critical measures of success, all of the sales in the world will not help because you will lose customers quickly. Last month, part 1 covered Metrics and Management, and can be read on our blog.  This month we’ll cover the cost of mistakes.

Cost of Mistakes
Given all of this information, it is also important to be able to determine the cost of a mistake. As indicated, the cost is variable depending on when it is caught. For example, a shipping error caught before the packing box is sealed is significantly less costly than one found at the customer’s location when a package is opened to get an individual part for immediate use. Plus, this type of discovery incurs additional soft costs for lost customer satisfaction on top of all expenses related to the return and replacement of the incorrect part.

Some of the costs associated with warehouse errors (even the ones caused by incorrect sales documents or influenced by others) include:

  1. Extra processing to eliminate errors (this occurs when there are a large number of errors and extra steps are implemented to check and even recheck picks to make sure the right number of the right product are pulled for packing and shipping).
  2. The cost of shipping both ways if incorrectly sent mate­rial has to be returned. Where replacement parts have to be shipped overnight or even same day, the extra cost is rarely recoverable.
  3. The lost margin if a significantly more expensive item is shipped and billed at the price of the expected item (the other scenario rarely happens where a customer is charged for a more expansive item, but a cheaper one was sent—customers find and complain about those quickly).
  4. There is the cost of extra handling of material, paper, invoicing, credit memos, and customer service time to correct the error and placate the customer.
  5. The soft cost of damage to the firm’s reputation is much more difficult to determine, but it can be a relatively large number.
  6. There is potential damage to parts or equipment that makes it impossible to return the wrong items to the shelf for a future sale.
  7. There is the potential cost of having to purchase the correct product on an emergency basis at a much higher cost than was used to calculate the selling price.
  8. There are long term costs associated with reduced customer retention due to ongoing problems with erroneous shipments.
  9. There are long term costs associated with reduced cus­tomer retention due to late shipments, wrong quantities, and lack of quality.

The cost of lost loyalty is one of the most difficult to quantify. It is proven that a disgruntled customer will tell many more prospects than a satisfied customer. Measuring lost opportuni­ties due to bad reputation is almost impossible to do accurately. Distributors who hire outside firms to measure such data are often surprised to learn what the marketplace thinks of them.  Surveys and the metrics they can create are often valuable management tools, but outside the scope of this paper. Surveys require specialists who know how to word questions, select par­ticipants, and report data to be useful. They need to be done on a regular basis and the results must be compared and reported to be of the greatest benefit to the organization.

Adding up all of the potential charges will put the cost of errors into perspective. Industry experts have published numer­ous papers showing individual costs (such as $45 to $70 for an invoice and $10 to $25 for a credit memo), but there is no accepted total for a warehouse error. For the purposes of this article, it would be easy to defend a conservative estimate of $200 per error.

Assume one only does 100 ship­ments per day and achieves 99% accuracy (one error per day). In a year of 220 working days, that generates 220 errors. At $200 per error there is an annual cost of $44,000. This could require $2.2 million of additional sales to cover the cost of those errors. These are significant numbers.

In addition to the cost of any specific error is the cumulative effect of poor customer service. Over time, it may force some customers to stop dealing with their current supplier and buy from another source. What is the charge or value associated with the loss of a customer?  There are two types of costs that should be considered. The first is the value of the lost customer. What profitability would they have added to the bottom line over the next period?

Research by Paul Wang at Northwestern University uses the concept of Customer Lifetime Value (CLV) to quantify the cost of losing customers. CLV uses revenue, margin, and customer retention rates to compute the current value of a customer during a projected lifecycle. In simple terms, this means we can estimate the total value that a customer (usually by some combination of demographic data like size, type, age, etc,) will provide in any give year.

If we assume warehouse errors can be directly blamed for the loss of some number of customers and multiply that times the projected net revenue that would be generated from that cat­egory of customer, we can estimate an impact number. Keeping the numbers simple, we might guess that our average customer purchases $10,000 annually at a 25% gross margin. That means that each lost customer reduces the annual gross margin by $2500. If only 10 customers are lost in a year, the reduction in gross margin is $25,000. Lose eight customers per month and almost a quarter of a million dollars is lost every year. That is a major impact for most distributors.

Understanding these costs helps us realize the significant impact that warehouse errors can have on the profitability of the business.

The second type of cost to consider is the cost of acquisition of a new customer to take the place of the lost customer. This has to include sales time, administration to set up the customer in the system and perform a credit check (assuming you actually do a credit check and establish a credit limit). It also should consider any extra effort that is required learning the new customer’s requirements during the first few sales.

An easy way to look at the cost of acquisition is to take the total budget spent on marketing and sales and divide by the number of new customers added in a given period. Of course, much of the expenditure is necessary to encourage current customers to keep buying or to encourage purchases of specific items. Estimates of anywhere from $500 to $2500 per new customer can be reasonable.

Then there is the absolute cost of a lost sale (even if it does not lead to the loss of a customer) when a product cannot be found for immediate delivery (whether or not it was put away wrong, accidentally shipped due to a picking error, or on the receiving dock, but no one knew it was there). On top of the lost gross margin, there may be higher levels of customer dissatisfac­tion and a negative impact on internal personnel when manage­ment attempts to assess blame for the mistakes.

© Brown Smith Wallace Consulting Group 2010

Posted in Newsletter, November 2010, Warehouse Management Systems (WMS) | Tagged , , , , , , , , , , , , | Leave a comment

What Does ERP Really Cost?

Posted on November 16, 2010 by Site Administrator

Part 3 of “What is ERP Really”

In part 1 and 2 of this article series, we covered what ERP really means, that ERP is here to stay, and the impact it can have on a business, your company’s performance, and how it fit in.  Now we’ll talk about what it really costs.

One of the most often-cited studies of the total cost of ownership (TCO) of ERP was completed by Meta Group in 2002. (Gartner acquired Meta Group in 2005.) This TCO study accounted for hardware, software, professional services and internal staff costs. Costs included initial installation and the two year period that followed, which is when the real costs of maintaining, upgrading and optimizing the system for your business are felt. Among the 63 companies surveyed—including small, medium and large companies in a range of industries—the average TCO was $15 million (the highest was $300 million and lowest was $400,000). While it’s hard to draw a solid number from that kind of range of companies and ERP efforts, Meta came up with one statistic that proves that ERP is expensive no matter what kind of company is using it. The TCO for a “heads-down” user over that period was a staggering $53,320.

Results from a 2007 Aberdeen Group survey of more than 1,680 manufacturing companies of all sizes found a correlation between the size of an ERP deployment and the total costs. Therefore, “as a company grows, the number of users go up, along with the total cost of software and services,” states the Aberdeen report. For example, a company with less than $50 million in revenue should expect to pay an average of $384,295 in total ERP costs, according to the survey results. A mid-market company with $50 million to $100 million in revenues can expect to pay (on average) just over a $1 million in total costs; a much bigger mid-market company, with $500 million to $1 billion in revenues, should expect to pay just over $3 million in total costs. And those companies with more than $1 billion in revenues can expect to pay, on average, nearly $6 million in total ERP costs.

When will I get payback from ERP—and how much will it be?
Don’t expect to revolutionize your business with ERP. It is a navel-gazing exercise that focuses on optimizing the way things are done internally rather than with customers, suppliers or partners. Yet the navel gazing has a pretty good payback if you’re willing to wait for it—a 2002 Meta Group study of 63 companies found that it took eight months after the new system was in (31 months total) to see any benefits. But the median annual savings from the new ERP system were $1.6 million.

What’s interesting to note is that according to a the results of a 2007 Aberdeen Group survey of more than 1,680 manufacturing companies of all sizes, those companies that pay the closest attention to return on investment (ROI) at the outset of an ERP engagement “reap far more rewards” than those companies that don’t. The companies that Aberdeen Group identified as “best performing” were able to produce, on average, 93 percent more improvement with their ERP systems across a variety of metrics such as cost reductions, schedule performance, headcount reduction or redeployment, and quality improvements, states the Aberdeen Group survey results.

What are the hidden costs of ERP?
Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Armed with insights from across the business, ERP pros vote the following areas as most likely to result in budget overrun.

  1. Training—Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface. Worse, outside training companies may not be able to help you. They are focused on telling people how to use software, not on educating people about the particular ways you do business. Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system. One enterprising CIO hired staff from a local business school to help him develop and teach the ERP business-training course to employees. Remember that with ERP, finance people will be using the same software as warehouse people and they will both be entering information that affects the other. To do this accurately, they have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along. Ultimately, it will be up to your IT and businesspeople to provide that training. So take whatever you have budgeted for ERP training and double or triple it up front. It will be the best ERP investment you ever make.
  2. Integration and testing—Testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis is another often-underestimated cost. A typical manufacturing company may have add-on applications from the major—e-commerce and supply chain—to the minor—sales tax computation and bar coding. All require integration links to ERP. If you can buy add-ons from the ERP vendor that are pre-integrated, you’re better off. If you need to build the links yourself, expect things to get ugly. As with training, testing ERP integration has to be done from a process-oriented perspective. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next, run a real purchase order through the system, from order entry through shipping and receipt of payment—the whole order-to-cash banana—preferably with the participation of the employees who will eventually do those jobs.
  3. Customization—Add-ons are only the beginning of the integration costs of ERP. Much more costly, and something to be avoided if at all possible, is actual customization of the core ERP software itself. This happens when the ERP software can’t handle one of your business processes and you decide to mess with the software to make it do what you want. You’re playing with fire. The customizations can affect every module of the ERP system because they are all so tightly linked together. Upgrading the ERP package—no walk in the park under the best of circumstances—becomes a nightmare because you’ll have to do the customization all over again in the new version. Maybe it will work, maybe it won’t. No matter what, the vendor will not be there to support you. You will have to hire extra staffers to do the customization work, and keep them on for good to maintain it.
  4. Data conversion—It costs money to move corporate information, such as customer and supplier records, product design data and the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated—or inspired—by the ERP implementation.
  5. Data analysis—Often, the data from the ERP system must be combined with data from external systems for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget—and they should expect to do quite a bit of work to make it run smoothly. Users are in a pickle here: Refreshing all the ERP data every day in a big corporate data warehouse is difficult, and ERP systems do a poor job of indicating which information has changed from day to day, making selective warehouse updates tough. One expensive solution is custom programming. The upshot is that the wise will check all their data analysis needs before signing off on the budget.
  6. Consultants ad infinitum—When users fail to plan for disengagement, consulting fees run wild. To avoid this, companies should identify objectives for which its consulting partners must aim when training internal staff. Include metrics in the consultants’ contract; for example, a specific number of the user company’s staff should be able to pass a project-management leadership test—similar to what Big Five consultants have to pass to lead an ERP engagement.
  7. Replacing your best and brightest—It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business and IS divisions. The software is too complex and the business changes too dramatic to trust the project to just anyone. The bad news is a company must be prepared to replace many of those people when the project is over. Though the ERP market is not as hot as it once was, consultancies and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford—or that your HR policies permit. Huddle with HR early on to develop a retention bonus program and create new salary strata for ERP veterans. If you let them go, you’ll wind up hiring them—or someone like them—back as consultants for twice what you paid them in salaries.
  8. Implementation teams can never stop—Most companies intend to treat their ERP implementation as they would any other software project. Once the software is installed, they figure the team will be scuttled and everyone will go back to his or her day job. But after ERP, you can’t go home again. The implementers are too valuable. Because they have worked intimately with ERP, they know more about the sales process than the salespeople and more about the manufacturing process than the manufacturing people. Companies can’t afford to send their project people back into the business because there’s so much to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. And it is in analysis—and, one hopes, insight—that companies make their money back on an ERP implementation. Unfortunately, few IS departments plan for the frenzy of post-ERP installation activity, and fewer still build it into their budgets when they start their ERP projects. Many are forced to beg for more money and staff immediately after the go-live date, long before the ERP project has demonstrated any benefit.
  9. Waiting for ROI—One of the most misleading legacies of traditional software project management is that the company expects to gain value from the application as soon as it is installed, while the project team expects a break and maybe a pat on the back. Neither expectation applies to ERP. Most of the systems don’t reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. And the project team is not going to be rewarded until their efforts pay off.
  10. Post-ERP depression—ERP systems often wreak cause havoc in the companies that install them. In a Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live. The true percentage is undoubtedly much higher. The most common reason for the performance problems is that everything looks and works differently from the way it did before. When people can’t do their jobs in the familiar way and haven’t yet mastered the new way, they panic, and the business goes into spasms.

Stay tuned for part 4 in this series which covers why ERP projects fail – and how to prevent failure.

Posted in Enterprise Resource Planning (ERP), Newsletter, November 2010 | Tagged , , , , , , , , , , , , , , , , , , , , | Leave a comment

Tips, Tricks & Tutorials

Posted on November 16, 2010 by Site Administrator

This month’s Video Learning, available now on our website, will help you learn new features and become more productive with your Sage Accpac ERP and SageCRM systems. We hope you enjoy them and find them useful. As always, your feedback is encouraged.

Posted in Customer Relations Management (CRM), Enterprise Resource Planning (ERP), Newsletter, November 2010 | Tagged , , , , , , , , , , , , , , , , , , | Leave a comment

Axis News… Newsletter That Is

Posted on October 19, 2010 by Site Administrator

Since introducing our “Solutions” newsletter earlier this year we’ve had a terrific response from our clients and others. However, one of the comments we heard was, “there is so much good content … I’d rather see Solutions more frequently with less content so I can get to it all.”

You asked, we listened, and now we are pleased to announce that Solutions will be produced monthly starting in October with fewer articles. This will also give us the chance to keep you posted on new or important information in a more timely fashion, such as new product releases, the current month tips and tricks videos and more.

We value your feedback, comments and ideas. We’d love to know what you think … send us an e-mail to news@axisgp.com.

Posted in Newsletter, October 2010 | Tagged , , , | Leave a comment

What is ERP Really? Part 2 of a 5 part series

Posted on October 19, 2010 by Site Administrator

In part 1 of the series, the real definition of ERP was discussed and that ERP is here to stay. In part 2, learn about the impact it can have on a business, your company’s performance, and how it fits in to the bigger picture.

How can ERP improve a company’s performance?
ERP’s best hope for demonstrating value is as a sort of battering ram for improving the way your company takes a customer order and processes it into an invoice and revenue—otherwise known as the order fulfillment process. That is why ERP is often referred to as back-office software. It doesn’t handle the up-front selling process (although most ERP vendors have developed CRM software or acquired pure-play CRM providers that can do this); rather, ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling it. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order (the customer’s credit rating and order history from the finance module, the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module, for example).

People in these different departments all see the same information and can update it. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, you need only log in to the ERP system and track it down. With luck, the order process moves like a bolt of lightning through the organization, and customers get their orders faster and with fewer errors than before. ERP can apply that same magic to the other major business processes, such as employee benefits or financial reporting.

That, at least, is the dream of ERP. The reality is much harsher.

Let’s go back to those inboxes for a minute. That process may not have been efficient, but it was simple. Finance did its job, the warehouse did its job, and if anything went wrong outside of the department’s walls, it was somebody else’s problem. Not anymore. With ERP, the customer service representatives are no longer just typists entering someone’s name into a computer and hitting the return key. The ERP screen makes them businesspeople. It flickers with the customer’s credit rating from the finance department and the product inventory levels from the warehouse. Will the customer pay on time? Will we be able to ship the order on time? These are decisions that customer service representatives have never had to make before, and the answers affect the customer and every other department in the company. But it’s not just the customer service representatives who have to wake up. People in the warehouse who used to keep inventory in their heads or on scraps of paper now need to put that information online. If they don’t, customer service reps will see low inventory levels on their screens and tell customers that their requested item is not in stock. Accountability, responsibility and communication have never been tested like this before.

People don’t like to change, and ERP asks them to change how they do their jobs. That is why the value of ERP is so hard to pin down. The software is less important than the changes companies make in the ways they do business. If you use ERP to improve the ways your people take orders, manufacture goods, ship them and bill for them, you will see value from the software. If you simply install the software without changing the ways people do their jobs, you may not see any value at all—indeed, the new software could slow you down by simply replacing the old software that everyone knew with new software that no one does.

What will ERP fix in my business?

There are five major reasons why companies undertake ERP.

  1. Integrate financial information—As the CEO tries to understand the company’s overall performance, he may find many different versions of the truth. Finance has its own set of revenue numbers, sales has another version, and the different business units may each have their own version of how much they contributed to revenues. ERP creates a single version of the truth that cannot be questioned because everyone is using the same system.
  2. Integrate customer order information—ERP systems can become the place where the customer order lives from the time a customer service representative receives it until the loading dock ships the merchandise and finance sends an invoice. By having this information in one software system, rather than scattered among many different systems that can’t communicate with one another, companies can keep track of orders more easily, and coordinate manufacturing, inventory and shipping among many different locations at the same time.
  3. Standardize and speed up manufacturing processes—Manufacturing companies—especially those with an appetite for mergers and acquisitions—often find that multiple business units across the company make the same widget using different methods and computer systems. ERP systems come with standard methods for automating some of the steps of a manufacturing process. Standardizing those processes and using a single, integrated computer system can save time, increase productivity and reduce head count.
  4. Reduce inventory—ERP helps the manufacturing process flow more smoothly, and it improves visibility of the order fulfillment process inside the company. That can lead to reduced inventories of the stuff used to make products (work-in-progress inventory), and it can help users better plan deliveries to customers, reducing the finished good inventory at the warehouses and shipping docks. To really improve the flow of your supply chain, you need supply chain software, but ERP helps too.
  5. Standardize HR information—Especially in companies with multiple business units, HR may not have a unified, simple method for tracking employees’ time and communicating with them about benefits and services. ERP can fix that.

In the race to fix these problems, companies often lose sight of the fact that ERP packages are nothing more than generic representations of the ways a typical company does business. While most packages are exhaustively comprehensive, each industry has its quirks that make it unique. Most ERP systems were designed to be used by discrete manufacturing companies (that make physical things that can be counted), which immediately left all the process manufacturers (oil, chemical and utility companies that measure their products by flow rather than individual units) out in the cold. Each of these industries has struggled with the different ERP vendors to modify core ERP programs to their needs.

To help address industry-specific problems and customization needs, ERP vendors have recently begun to offer specially tailored application sets to take care of each vertical segment’s needs. There still is customization work to do to satisfy each and every customer, but packaged applications now target such industries as: retail, media, utilities, high-tech, public sector, higher education and banking. In addition, ERP vendors have further tailored application to address the individual concerns within the broad manufacturing space. These range from consumer products to construction to HVAC to aerospace and defense companies.

Will ERP fit the ways I do business?

It’s critical for companies to figure out if their ways of doing business will fit within a standard ERP package before the checks are signed and the implementation begins. The most common reason that companies walk away from multimillion-dollar ERP projects is that they discover the software does not support one of their important business processes. At that point there are two things they can do: They can change the business process to accommodate the software, which will mean deep changes in long-established ways of doing business (that often provide competitive advantage) and shake up important people’s roles and responsibilities (something that few companies have the stomach for). Or they can modify the software to fit the process, which will slow down the project, introduce dangerous bugs into the system and make upgrading the software to the ERP vendor’s next release excruciatingly difficult because the customizations will need to be torn apart and rewritten to fit with the new version.

Needless to say, the move to ERP is a project of breathtaking scope, and the price tags on the front end are enough to make the most placid CFO a little twitchy. In addition to budgeting for software costs, financial executives should plan to write checks to cover consulting, process rework, integration testing and a long laundry list of other expenses before the benefits of ERP start to manifest themselves. Underestimating the price of teaching users their new job processes can lead to a rude shock down the line, and so can failure to consider data warehouse integration requirements and the cost of extra software to duplicate the old report formats. A few oversights in the budgeting and planning stage can send ERP costs spiraling out of control faster than oversights in planning almost any other information system undertaking.

We’ll cover the real costs of ERP, return on investment and more in part 3 of this article series in next month’s Solutions.

Posted in Newsletter, October 2010 | Tagged , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment