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After the Implementation: Best Practices for Optimizing ERP

After the Implementation: Best Practices for Optimizing ERP. Frank Scavo frank@constellationRG.com (949) 442-0114. The Manufacturing ERP Experience October 4, 2012. APICS Fellow (CFPIM) President, Strativa President, Computer Economics Principal Analyst, Constellation Research

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After the Implementation: Best Practices for Optimizing ERP

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  1. After the Implementation: Best Practices for Optimizing ERP Frank Scavo frank@constellationRG.com (949) 442-0114 The Manufacturing ERP Experience October 4, 2012

  2. APICS Fellow (CFPIM) President, Strativa President, Computer Economics Principal Analyst, Constellation Research Blog: Enterprise System Spectator at http://fscavo.blogspot.com Advocate for end-user IT organizations About Frank Scavo

  3. ERP Experience Life Cycle

  4. What is to “Optimize?” op·ti·mize: 1. to make as effective, perfect, or useful as possible.

  5. Optimizing ERP Makes ERP… • Perfect: • Fits your business • Useful: • People actually use it • It is worth using • Effective: • Has positive effects on your business

  6. Order entry process cumbersome Poor support for returned material Sales reporting inadequate Database row-locking Serialization of inventory leading to high transaction volumes Some production processing outside ERP Poor visibility and costing of WIP ERP Optimization Case Study: Midsize Manufacturer • Manual processes for MPS/MRP • Poor visibility for non-conforming material • New product information and engineering changes not tightly controlled • Poor response time • Purchasing units of measure conversion done manually • Receiving process requires re-keying of data • Quality Group can’t keep up with production volumes • Etc., etc. Symptoms

  7. Tracing Symptoms to Four Root Causes Wrong System System Not Installed Correctly System Not Being Used System Not Being Used Effectively Not “Useful” Not “Effective” Not “Perfect”

  8. Category #1: The Wrong System Missing functionality System performance Not scalable Bugs

  9. Category #2: Right System, But Not Installed Correctly Business processes not configured correctly System tables incomplete Product cost elements not detailed enough Inventory locations not set up Relevant system options not turned on

  10. Category #3: Right System, But Not Using It Unfinished implementation (e.g. “Phase II Syndrome”) Lack of knowledge about system features Parts of the old system still in use Side systems

  11. Category #4: Right System, But Not Used Effectively Data inaccuracy Lack of user procedures Poor disciplines Lack of training Organizational disincentives

  12. Overlapping Root Causes, Vary by Organization Wrong System Right System, Installed Incorrectly Right System, Not Being Used Right System, Not Used Effectively

  13. From Our Case Study: Analysis of Symptoms and Causes Decision: Stay with Current System But Take Corrective Actions *Adds to more than 100% because some symptoms cross multiple categories

  14. Opportunities for Sub-Optimization Throughout the ERP Life Cycle • Changing business requirements • Organic growth • Mergers and acquisitions • Organizational restructuring • New products/services • Changing business model • New demands from customers & suppliers • International expansion • Implementation mistakes • Limiting scope for cost/ schedule • Picking wrong system

  15. The Cost of ERP Must Also Be Optimized ReturnInvestment BenefitsCost ROI = =

  16. Cost of ERP is Mostly in Ongoing Support Source: Computer Economics, 2012 Assumptions: 100 user, on-premises ERP system Upfront Costs: ERP license, data center hdw/sfw, implementation expense Ongoing Support: ERP maintenance fees, data center hdw/sfw maintenance, ERP staff costs

  17. And, Total Cost of ERP Often Exceeds Expectations Out of 16 technologies we surveyed in 2011, ERP ranks WORST in terms cost overrun.

  18. How Can We Optimize ERP? • Analyze Root Problems  • Identify Corrective Actions • Identify Potential Cost Savings • Carry Out an Optimization Roadmap op·ti·mize: To make as effective, perfect, or useful as possible.

  19. If You’ve Got the Wrong System… • Can it be fixed? • Newer version • Vendor Patch • Modification • Can you work around the problem? • Can you supplement the system? • Do you need a new system?

  20. If System Was Installed Incorrectly… • Why? • Ignorance? • Trying to make new system look like the old • Some other reason? • Can you change the set up? • Do you need to re-implement?

  21. If System Not Being Used… • Why? • Old system still in use? • Lack of training? • Lack of resources to implement? • Resistance to change? • Solution depends on the problem

  22. If System Not Used Effectively… • Data problems? • Discipline problems? • Integration problems? • Incentive/Measurement problems?

  23. Postscript: Consider Cloud Deployment • Facilitate upgrades • More flexible in accommodating changes in business volume or business model • Sometimes include development environment for extending system, without modifications • More easily leverage 3rd party developers * Source: “The Differences Between Cloud ERP and Hosted ERP and Why They Matter” Constellation Research, 2012

  24. ERP Cost Optimization: Consolidation is Key • ERP support staff are more productive in larger installations • IT staff in midsize companies support twice the number of users as in small companies • In large companies, the ratio triples • Therefore, combine multiple ERP systems, versions, and instances wherever possible Small Companies ERP users IT support Midsize Companies Source: “ERP Support Staffing Ratios,” Computer Economics, 2011

  25. ERP Cost Optimization:Minimize Code Modifications 100% Situation worse if mods cause organization to forgo ERP version upgrades 80% ERP Staff Productivity “Many” or “Extensive” Mods “Few” or “No” Mods Source: “ERP Support Staffing Ratios,” Computer Economics, 2011

  26. ERP Cost Optimization:Consider Third-Party Maintenance (3PM) • Vendor margins on software maintenance can exceed 90% • Much software maintenance revenue goes to fund new development • Customers who don’t plan to upgrade may do better with 3PM • Savings on order of 50% • 3PM providers may support customizations

  27. ERP Optimization Roadmap Root Cause Problem Analysis Priorities and task dependencies Optimization Initiatives Cost Optimization Opportunities Typically 5-20, depending on severity of problems and organizational capacity for change Typically 6-18 months

  28. Optimizing ERP Can’t Wait Until “After the Implementation” For Example: • Pick the right system • Negotiate to keep your 3PM options open • Consider cloud deployment • Implement correctly • Limit modifications • Etc., etc. Your ERP selection and implementation decisions today will dictate your optimization options for years to come

  29. Thank You! Frank Scavo 949.442.0114frank@ConstellationRG.com Twitter: @fscavo www.ConstellationRG.com The Enterprise System Spectatorhttp://fscavo.blogspot.com

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