Discussion: ERP implementation cost reduction

This time I am posting about a useful discussion around a topic close to all of my readers i.e. ERP cost reduction. In today's economic environment of constrained and highly scrutinized IT budgets, all organizations are looking for ways to reduce their deployment cost and long-term total cost of ownership for enterprise applications or ERP. Some ways to achieve this can be found at http://bit.ly/ReduceERPCost but are these pertinent in 2010 too, that is what I intended to find out in the discussion and I must say some of the inputs provided by the participating forum were great while all of them were extremely useful.

According to Mark Danly, who is owner of Danly Consulting Services, some of the measures are:

• Don’t cut costs! This doesn't mean you should spend, spend, and spend. But cutting costs will result in an incomplete project
• A strong project manager is a must. We find it better to be an outsider as the project manager because we aren't torn between the PM job and the everyday job. We also don't get involved with politics; we can be neutral and help facilitate the right approach with no politicking involved
• First step is to develop a... clear plan. This may involve different phases of a project. Be clear with what you will do phase one and what you wont do with phase one. Don't let anyone change that. Make sure the management team has bought into the plan
• The project team is critical to success. Make sure you have all areas of the operations involved. The person on the team should be willing to make changes. Anyone on the team that says “that is the way we do things here”, doesn’t belong on the team. You will often find that the team members are often your next managers, vice presidents, etc.
• Training is so critical and cannot be skipped. The project team must be trained in the new functions and must understand them. Have the team members write detailed work instructions for each task. This will demonstrate if they understand it or not
• All ERP packages have some sort of setup parameters. Each one of these must be discussed in detail with the management team and decided how the will be set. Document the rationale for each, I guarantee you that you will revisit several of these throughout the implementation process
• Master data must be scrubbed, accurate, and complete. This is what runs the system. Any errors in the master data will result in other errors several other places. If you don’t get the master data right at the beginning, you will be chasing errors for a long time
• The project team must have time to spend on the project. Cross train other employees to fill in for the team member. Taking an employee and stretching her/him too thin will result in burnout and a failed implementation

Arif Siddique added his points too by pointing that though a strong project manager and team from all areas of operations, clear plan, scoping, training, accurate master data availability etc. are the prerequisite for any ERP implementations, we should be congizant oif the fact that ERP Implementation is in fact a Reengineering Process of the Business Processes of the organization where ERP is being implemented. It is told to company by the ERP vendors that this is a standard business practice inbuilt in the ERP Package of that Particular Vendor- SAP, Oralce, JD Edward, Baan etc. and minimum deviation is recommended. Finally, be sure your scope is well-defined and is set up in manageable size pieces. One of the problems we face with our clients is the desire to 'have it all' on day one. This drags implemenations out beyond what is really needed to get live. Focus on getting the software live for the majority of your business needs. This is the classic 80/20 rule. Once you are LIVE on the new software, you will quickly gain internal expertise and knowledge. You'll see how the software really works. You'll be able to minimize the need for external resources to get you the rest of the way.

This means that the organization has to go through the Business Process Reengineering with the hope to achieve the best practice of the so called ERP vendor. When it comes to Business Process Reengineering you can’t actually estimate exact cost of Man, Material and Time. So the organization should have a clear vision of what it wants to achieve within a time frame with limited resources they are having.

So he seemed to be advocating a case of budgeting more than cost control.

Todd Griffith, who is the President at GRT Business Solutions, expanded the ever growing list by stating his point of view. As per him, from both perspectives (the client and the consultant), the single most important key to project success is assigning the right resources to the project. Way too often, clients try to select the resources that are 'available', rather than the best resources to impact the future direction of the company. As a client planning our implementation, we heard this loud and clear from all four competitor companies (of multiple software systems) that we interviewed. We were trying to learn from their experience. They all said the same thing:

• Pick your best people (this will be painful in the short-term, but very rewarding in the long-term)
• Dedictate them to the project 100% of the time (this too is very painful)

None of them had actually done this, and they all paid the price of having their implementations run way over schedule and budget. Ultimately, the 'right' people have to get involved anyway. You should have them involved from the start. Not everyone needs to be 100% dedicted to the project. But, you need a core group that is focusing on this and nothing else. This concept applies to any outside consulting support as well. Don't just look for local and/or cheap resources. Interview any external resources extensively. Make sure you are hiring people with extensive experience not just with the software product, but in your specific industry as well. The hourly rate may be higher, but the overall cost will be significantly lower and the risk of an incomplete implementation will be significantly reduced. Contracting with the right external resources gives you access to their yeas of experience with companies similar to yours. This is very valuable during an implemenation.

Excellent and valuable inputs from Todd above.

Al Jones, Director of IT at Panolam Industries International, emphasized on points like:

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  A clear vision of the organizations drivers and priorities will make resolution of the inevitable conflicts of time, of money, of corporate resources much more beneficial to the organization. With a clear focus on priorities you can combat the 'day job' syndrome, and focus employees and mangement on the future benefits
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  I have always found that involving the grass roots of the organization is far more productive than keeping projects limited to, or even mostly run by, IT. Forming project teams with structured goals, delegated responsibilities, and accountable performance lets those people who know their jobs bring that expertise directly to the project. It also has the stealth benefit of creating huge buy-in because of the time and effort contribution, as well as a sense of ownership that cannot be understated. I use very broad teams to expose as many line employees to the new systems and to bring their expertise to bear on the business process issues that arise

The thoughts of Lanaya Baker who runs Better Business Coaches as their President, mentioned that she have seen many implementations go way over budget, languish and actually result in job loss. A project manager with a plan and the support of management is critical. A project manager must be able to make implementation the number one priority for staff and employees who also have regular job functions. It is often the case where implementations are put on hold when staff have to attend to their normal job function. While this is very seductive and looks like a good idea in the short term, it derails more implementations than anything else. A project manager with the authority to keep the implementation on task and on schedule will need a suit of armor, figuratively speaking. He/She will not be popular in the short term, but once the implementation is completed and the benefit of ERP are realized the pain of the implementation will subside.

Not only does the project manager need authority and boundaries made of steel they also need a realistic and intelligent plan. The vision of that project manager, along with their ability to communicate and enlist team participation, is probably more important than their technical expertise. These are the kinds of qualities that translate to real dollar savings and successful implementations.

Brian O'Conner at Synergy Resources was convinced that in all the implementations he was involved with he was senior management involvement in the implementation is most important. It insures that assignments are completed on time by the implementation team. Otherwise the implementation can take many more months and never be installed completely. With senior management involvement those who drag their feet or obstruct will be identified. A fair point.

Alexander Hankewicz, who is Senior Research Analyst at Equinox Assoiciates, wanted to give all this a new perspective as an aside from Senior Management involvement. The key element in his opinion is to have a clearly defined picture of what the ERP system should look like. This means having the due dilligence done to define both the current snap shot of the existing Business Process Models and then the mirror image of what the process will be under the new system. This is a painstaking effort and requires the ability to listen ask questions and then go back to validate findings. This way an RFP can be developed which has addressed the actual needs of the organization.

To add to this, Carol Albert from Babbleware has some fresh ideas, she said that, "In my opinion the reason for such resistance within the organization when it comes to implementing a new system is the amount of time, money, and resources it takes to actually get that system off the ground. During that time, which can be years, revenue and jobs are lost. Sometimes replacing a new WMS leads to complete company failure. It is the same outcome and headache most every time. 2010 brings Enterprise 2.0 which allows changes to the behavior of your current business systems operations without having to change that existing system in place.There is a way to implement outside of the existing system, modify that behavior, and send it back to the host. All without risk or change to your current system and at a fraction of the cost".

We had contributions from ERP consultants too and as part of that I want to mention points from Tony Bermudez who is an ERP Analyst at Hexcel. He mentioned that, " I would add that active participation from all business units and dedicated resources from them to review the ERP functions to the business needs is necessary. In my experience, I've seen business units initially involved but later removed to attend to their primary job functions only to come back near the time of go-live and find several gaps exists with the new system or business needs have changed. Companies often try to reduce the cost of implementing a new system by reducing the personnel needed to successfully implement a new system and quickly find out that the people on hand are not experts in every module of an ERP or know all the differences in how the company operates in relation to the new ERP system. It takes several knowledge experts to understand this and tie them all together.

By getting all business units continuously involved and having dedicated knowledge experts from all business units will quickly help identify whether the ERP package selected was the appropriate one and whether the business needs to change their business practices or change is needed to the software. The faster that this can be identified the greater chance of success can be obtained sooner."

Well, that summarizes some of the points mentioned by key experts in the discussion and though the space constraint forced me to leave some of the similar comments but thanks to you all participating in the discussion and making it useful for the organizations that are planning to start ERP implementation at their end.