Is It Time To Purchase A New ERP?
HINT: It’s not brain surgery. Don’t wait until the patient is dying.
Whether you are contemplating a first time purchase for your entire company, expanding into a new territory currently not supported by Enterprise Resource Planning (ERP), or deciding whether to replace your existing ERP solution, it’s a big decision. For decades ERP implementation in general, and more specifically ERP replacement, has been compared to brain surgery. You just don’t do it unless the patient is dying. But today the better analogy is joint replacement. You suffer with that bum knee or hip until you can’t stand the pain any longer, or you simply can’t function properly. Apply these same principles to your next (or first) ERP purchase. Suffer along if the status quo is “good enough.” But what if it’s not? Sure there will be some “recovery” time required; plan for it. But with careful selection and planning and aggressive goal setting you too can be operating pain-free and better than ever by implementing a new ERP.
According to data collected for the Mint Jutras 2011 ERP Solution Study, 62% of businesses with ERP installed are running the first solution ever implemented in the company. Why? Because for years most people equate replacing ERP to brain surgery. You just don’t do it unless the patient is dying. “Rip and replace” was avoided at all cost, even when there was no possible way the existing solution or its underlying architecture could keep pace with new market drivers and changing business needs. Upgrades were viewed as difficult and painful but a reimplementation was often seen as pure evil.
While the brain surgery analogy is catchy and dramatic, there actually might be a more appropriate comparison today, one that doesn’t presume a fatal prognosis. That better analogy is joint replacement. When do you replace a knee or a hip? While not a life-threatening situation, a replacement is precipitated when either the pain becomes unbearable or you can no longer do what you want or need to do. In other words, you can’t function properly.
The same should apply to ERP. Replace it when the pain of outdated technology, hard to use software and/or missing features and functions becomes too great. Or when your current solution simply cannot support your business needs.
There is of course a certain level of subjectivity in this type of decision, partly based on your tolerance for pain and partly based on your needs and desires. If you want to climb mountains or ski down them, you will be more inclined to replace that knee. But if all you want to do is sit on the couch and watch television, maybe not. After all, it provides you with the perfect excuse for not being active. If you have no plans to grow and no need to improve the performance of your business, then your current ERP may be just fine, even if it doesn’t perform well or produce world class business results. Just fine, that is, until your business or the market around you changes. But don’t let your current ERP, or lack of an ERP solution, become an excuse for poor performance or stagnation.
Why do companies replace ERP?
We asked this question of the 38% that had actually replaced an ERP solution. Lack of functionality available (75%), outdated technology (67%) and the inability to scale with growth of the business (40%) were the top three reasons by far. Yet when we asked a similar question of all respondents, asking what might prompt a replacement in the future, the responses were more evenly spread across a variety of factors.
Functionality (51%) and outdated technology (44%) still claimed the top two spots, but the inability to support growth plunged to the bottom (16%). Taking its place at third (38%) was the perception that there was a cost advantage in replacing ERP. While a full-scale replacement is never free, there can be a huge cost saving potential as a result of your efforts.
Some of the cost savings are obvious, but some are subtler. Clearly the implementation of newer technology and more functionality should result in productivity gains. Replacement of outdated technology can also save in terms of maintenance, both preventative and remedial. When do you consider trading in your car? Typically when the maintenance bills start to escalate.
Of course added mileage and wear and tear on ERP are not the issues. It’s more a question of ERP being able to keep up with market and business changes, as well as the accelerating pace of business. Long gone are the days when effective decisions could take days, weeks or months without negatively impacting business. We’re talking minutes today, which requires a level of visibility and transparency that few companies have been able to achieve today. Can you?
What is the potential for cost savings? To answer that question we look at the results produced by our survey respondents. All savings are measured “since implementing ERP.” While we would like to say “as a result of ERP” we know that savings result from a combination of people, process and technology. Otherwise, why is it that two different implementations of ERP can produce very different results even with exactly the same software?
We also determine what we view as a “World Class” ERP implementation. For this we use a composite metric of results measured since implementing ERP, progress achieved in meeting company-specific goals and select key performance indicators of current performance. Using this metric, we take the top 15% and anoint them as “World Class” implementations. World Class implementations produced an average of 19% savings in operating costs, 15% in administrative costs, 19% in inventory costs and also reduced obsolete inventory by 18%. Would those savings alone justify a new ERP for you?
But you may be thinking, that’s only the top 15%. What about the rest of the implementations? With so much focus in the news and press on failed implementations, it is easy to assume they don’t produce any kind of results. But that would be a poor assumption. Even the rest of our survey population (the other 85%) reduced operating costs by 7%, administrative costs by 5%, inventory costs by 7% and obsolete inventory by 8%. And they also produced other improvements like improved percentage of orders shipped complete and on-time, reductions in cycle times and increase in production volume.
Deciding to purchase ERP is indeed a big decision. Whether you view it as brain surgery or joint replacement, there is no such thing as non-invasive surgery. It can and should have a serious impact on your business, but hopefully in a positive way. An ERP implementation is not easy. Just like surgery, there will be some “recovery” time. But that doesn’t mean your business stops during that recovery period. It just means you need to take extra care to insure a full recovery, with the result being a healthy business that is able to function better than ever.
The 2013 Mint Jutras ERP Solution Study is now live. Participate in this year’s survey to receive the latest results. While contact information is entirely optional, we will need a valid email address in order to deliver those results. But rest assured we never share your contact information; individual responses will be kept strictly confidential.
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