Reducing costs of an ERP Implementation

ERP implementations are quite comprehensive and challenging endeavors associated with high costs. The largest portion of the costs are no longer the hardware and software associated with the project, but the related services for customization, training and support. Across the board, we see a decline in the costs of software, if we compare a dollar spend on software today vs. the same dollar ten years ago, we recognize quickly that today’s dollar probably buys ten times as much functionality compared to a decade ago. If you doubt this, you may want to check the dollar menu in Apples iTunes store.

Hardware in being marginalized as well. You can choose today whether you want to install your back-office (server) functionality on-premise or in the cloud. If you go cloud based, you have a range of options and more choices in the near future. In my view, most cloud offerings are not really ready for prime-time yet, but the future looks very promising. Right now it is more for the adventurous type of companies. My private experiences with cloud based services have been disappointing, whether I tried the Microsoft Stack (SkyDrive), Google (Google Docs) or Apples iCloud. All these cloud services are at the beginning of the evolution cycle, they are rock solid just yet. But either way, even if you buy your back-office equipment, it won’t cost you an arm and a leg.

The biggest chunk of costs is related to training and services. It may not look that way when you just account for your external costs, but latest when you factor in the internal costs of your own people during and after the implementation, you most likely wind up with more that 50% of your total ERP acquisition costs related to services. This is by far the largest block of costs and the one that both partners, the vendor and the customer of the project, can influence.

In general terms, they costs of learning and implementing an ERP System coming from 4 different segments:

  • Adaptation and Customization
  • Knowledge Acquisition
  • Knowledge Creation and Storage
  • Knowledge Distribution

Adaptation and Customization are always needed to adapt the chosen software package to a company’s specific requirements and environment. The more specific that software caters towards that type of customer in his size, in his industry, in his geography and culture, the less of that adaptation is needed. Within the food industry, there are certain unique requirements, such as “catch weight”, “Farmers Settlements”, “Cutting and Deboning Yields”, “HACCP” as well as raw material potency (Fat, Protein Content, ph-Value, others) that are very hard to customize into an ERP system that does not support them. The first big savings is from picking an industry specific software package for food, that has the most ‘out-of-the-box’ functionality for your specific requirements, reducing or even eliminating adaptation and customization costs.

You got to learn your new ERP System, otherwise you buy a great tool but don’t know how to use it. I have a few of those tools in my garage. First we need to understand that User Interface (UI) is a productivity factor. The easier and more intuitive the application design, the lower the costs of learning. If the functionality comes natural to us, we don’t need to learn at all. User Interfaces are today largely either Windows based or browser based. Some functionality such as report writing is being done with toolsets that are not vendor specific, whether that is Crystal Reports, SQL Server Reporting Services or more basic MS-Excel. So there is a pretty big gap between vendors on how much you need to learn, where some systems come more naturally to you vs. others. Once you have that baseline, the question is what other resources are available to learn that new product? Online help is a given! Everybody has that. But what else is out there? Are there resources on the web? Are there social networks where opportunities can be discussed with your peers in your industry? Are their bulletin boards where people share their information and knowledge? A wiki? Is there a user group that drives adaptation of the technology? And finally, are these things all lively and active? This dictates largely what knowledge is available!

Next you need to account for knowledge creation and storage. With the implementation of a new ERP System, companies usually redesign their business processes. These process designs are intellectual property of each organization. These need to be documented and formalize. To some degree, these processes can be organized using Workflow Management Systems, Business Flow Management systems or just configured as a natural part of the business application directly. Outside of this, you will do training for your own people in your organization highly tailored to their needs. In these trainings, you will not teach them 100% of all the functionality at their disposal, you probably limit yourself to just that functionality they really need. These training sessions will need to be repeated, as your company grows, as you need to train replacements and therefore these training materials need to be created and stored. Creation and storage of these things are not really a question of the tool you use, but a question of the media you chose. Traditionally use Word Processors to create these kind of documents, but this is pretty cost ineffective, difficult and pretty hard to learn from. I like to make video recordings of any training session I do, which than contain the screen, the navigation and my narration as part of the session, and can be replayed anytime any place on any device, it becomes LearningEveryware. Video recordings come cheap, are easy to make and are part of most training conference applications like gotomeeting, gotowebinar or Webex.

Knowledge Distribution is normally not difficult. Unless you have really confidential processes, most of your knowledge should be readily accessible for anybody that wants to learn. Your knowledge should be available in some sort of library. I think it is clear, that this library needs to rely on some form of Web platform, but it really does not matter much whether that is a wiki engine, a bulletin board or a website. This platform should be able to provide content that can be taken offline, watched in planes while travelling, listened to while we drive in our cars. LearningEveryware does not only make the knowledge for us accessible any time, but also usable on any device. We can significantly reduce the costs of our implementation if we just store anything that has been taught to anybody and make it available to anybody that wants or needs to learn it, anytime they can spend dedication and time to learn it. This not only makes our implementation cheaper, it makes our implementation better.

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