Strategy: Improve business efficiencies with ERP Health Index

Business efficiencies can never reach a level that satisfies a CEO completely which simply means that we need to constantly keep on improving on it. As you will iron out one area of business processes to make them more efficient and effective, the other areas will starting popping with new inefficiencies as per the market dynamics and everytime it is not the fault of the employees but the new requirements of market force them to take their own small measures to adapt to the newer practices which might not be best practices and these continue bringing new inefficiencies. One of the measures to reduce these inefficiencies is to constantly review them and address the business issues urgently and the 2nd option, whihch we will talk here in detail, is utilizing your ERP Health Index to improve business efficiencies.

To start with, what is an ERP Health Index? Do you have one for your ERP? Well, let me start explaining the concept of ERP Health Index or EHI. Every ERP has a set of processes mapped to the technology as per the business metrics or Key performance indicators (KPIs). during the course of implemeting the ERP solution, these business metrics are identified, frozen and a processes is setup in such a way that these metrics attain their best values. Normally, what happens after some time, that due to reasons like market demands, lack of co-ordination within departments, new systems coming into place and getting integrated with ERP, new features implementation in ERP etc., the best practice processes which were put in place while solution deployement are either changed or are not best practices any more and need to be changed. Now, how do we measure this? How will we make sure that our ERP still has the best solution suited to our business? EHI helps in measuring these changes and you can achieve following:

• Know the existing state of ERP in terms of the business metrics and KPIs
• Helps to find out the desired state of ERP
• Assists in creating a roadmap for reaching the desired state in certain time frame

Normally an EHI has 2 important sections and that are: functional - which focusses on KPIs measurement, their best in class values and ways to improve those KPIs and, technical - which focusses on the technical aspects of ERP telling you about the performance of the instance, inegrations, data duplicacy and redundancy in the system etc. Both these sections have a set of configurations and scripts that will extract information from your ERP, present them as a dashboard, compare them with indutry best in class standards and recommend the actions that will help you improve your processes in ERP to ultimately improve your business efficiencies.

I will be happy to share more details on the modus operandi of EHI and its ingredients if anyone is interested more in this. Don't worry - the information you may want from InfoVerto is not chargeable at all.

SCM Strategy: Do not lose sales due to inventory issues

I have written earlier about inventory optimization and its key drivers and thanks to my readers, the article made it to the best inventory optimization articles and was appreciated by Chief Supply Chain Officers across the globe. It also triggered a debate on how should we first identify the exact causes of lost sales due to inventory related issues and deploy pertinent solutions. Normally, lost sales due to inventory drives the business teams to push for increase in inventory levels and if the supply chain team resists, the sales team will start adding buffers to the safety stocks of at least the best selling items and hence the inventory levels will rise automatically over time. These measures  however, are less scientific and panic driven which increase the working capital and inventory carrying costs. It also reduces the inventory turns and leads the best in class organization towards the laggards position, though the service levels might increase.

This whole situation compelled me to take the article to the next level and come out with the possible reasons, causes, solutions and enablers on the subject of losing sales due to inventory issues. I could create a small framework that talks mainly just about the key reasons etc. and do not cover everything related to it. Infact, this framework (which is given below) is industry agnostic and can be the starting point of inventory optimization for most organizations. It also incorporates the best practices that major supply chain leader companies (like Apple's iPAD SCM policy) deploy and is worth a look and evaluation.

In case the above picture is not visible or you need further details on how to use the framework to identify the reasons, causes, solutions and enablers for your own organizations, please contact me through the contact form. I share the knowledge completely free of cost.

Time to differentiate your ERP from transformational systems

Most organizations deploy ERP to manage their transactions, keep their records & data and to provide a platform for business intelligence tools for giving information to management/business teams. Yes, there are other applications of ERP also that are used in organizations but broadly, the above mentioned three uses are the most sought after objectives for ERP deployment. The latest thought process revolves about classifying your IT systems into three major kinds, which are:

• Transactional Systems - These are the systems that form the foundation for your enterprise and manage the information necessary to run your business. These are transaction oriented and are core to financial reporting and regulatory compliance. Their pace of change is slow, with their life span measured in decades. They're most likely delivered on premises traditionally but now these are being evaluated as SaaS or even further – using clouds computing
• Differentiation Systems - These are the systems that help drive differentiation for your organization. They connect to customers and trading partners, as well as help speed time to market and overall agility. They are more collaborative in nature, and while they leverage data from transactional systems, they capture and maintain additional information also. They are relatively stable and have a life span of anywhere from three to ten years. Many of these systems will be deployed on premises, but some may be delivered as a cloud application. These applications are also called as best of breed systems popularly that flank your core transactional system and provide not only the extra features that are required to project your differentiators in market but also help in making the processes further lean
• Transformational Systems - These systems create innovation for your organization. They are often developed out of ad hoc processes and tied to specific initiatives, so they can have very short life cycles. They are driven, developed and funded out of business budgets. The transformational systems are also highly collaborative and involve both structured and unstructured data. The dynamic nature of these applications is well suited for cloud-based deployments as these systems are not always huge and carry far less amount of data as compared to transactional systems or differentiation systems

It is not that role of all three systems can not be interchanged. They can be interchanged based on the objectives they are fulfilling but saying that our ERP itself is our transformational system, might not be a right statement. Let us take an example here: A automobile company hired a consulting company to identify a strategy to launch its new model in rural and far fetched areas where it has minimal presence till now and this launch has to be a big bang launch for all its markets in a country. The consulting company suggested a strategy that required a temporary system that is needed to record preliminary data, ongoing campaign data, collaboration between multiple teams, continuous monitoring of progress of campaign etc. and the client organization got this system developed for this launch campaign. Now this system, which is quite different from your transactional system (ERP), is your transformational system and it will have a short life period equal to the launch campaign period plus some post campaign analysis etc.

We need to not shy away from development of these niche systems and keep on pressing the fact that we already have one system (ERP) which should cater to all our needs. Differentiation is very important these days and automation in your processes, new campaigns etc. will ensure that you remain ahead of your competition always.

Role of ERP & Data Accuracy in Mergers and Acquisitions

Mergers and Acquisitions have become an inherent part of the global enterprise strategies and looking at the pace of acquisitions, mergers and de-mergers that are happening these days, it is important that organizations come up with detailed frameworks and leverage them to speedily complete the process of acquiring, merging or separation of entities. This will not only reduce the cost of activity but will also make sue that we cover all aspects during the process with no surprises left for later stages. ERP has a large role to play in these mega activities as it is seen that lot of issues can be reduced if ERP can be leveraged correctly. Obviously ERP’s role will be governed by the consistency, accuracy and completeness of data as the data in it will be a core factor to take multiple decisions in the process.

The benchmarks for divesting a company or merging with a newly acquired company have climbed in last couple of years to 6 - 8 weeks. Along-with this, internal re-organization exercises like creation of new regional business, moving production from one plant to another or compliance related changes also are eligible to be part of M&A activities in terms of their similarity of sub activities. These also have quite stringent benchmarks these days and are possible to achieve only with the help of ERP.

To execute the above talked business objectives, a comprehensive global data strategy is critical and must be part of the overall enterprise strategy. The scope of the data strategy must be coordinated and owned by a data management team that operates as a business cross-functional team. To ensure business sustainability and growth, the ERP system needs to be able to support data process changes in a focused, fast, and flexible manner (the front end) and must include the swift re-alignment of data and data hierarchies to reflect internally or externally driven changes to the business context. Also the introduction and scale of shared services will need to be enabled and even accelerated to provide a slim, cost-efficient, and service-driven back end. Business modernization, operational efficiency, and successful mergers and acquisitions all rely on accessible, timely, high quality data.

ERP can help you to define, measure and monitor the integration of new businesses with parent business and it is important that you come out with a framework which leverage your ERP, your ETL tool and the business logic for smooth integration of data integration. One of the popular frameworks is as below:

To measure the success of mergers and acquisitions transactions, it is imperative to set up clear criteria related to the data dimension. Otherwise, the business case will be incomplete. The cultural change is critical for any merger or acquisition. A tremendous effort will be required in this area to ensure a successful change management. Therefore, introducing and executing a proven data excellence framework supported by a robust platform is a mandatory accelerator to deliver an efficient data integration and to support a business driven data governance while the organization focuses on the cultural challenge. 53PSVV3Q4S2M

Best Practice: 5 ways to implement strategic sourcing and save cost

The biggest objectives of sourcing operations are to save cost and make sure that right material is available at right time. Since both pull each other in terms of getting one of them fulfilled makes the other one unfulfilled, it has become a dire need for the industry today to move from the tactical ways to improve the efficiencies in sourcing operations to the strategic ways so that more organized and intelligent purchasing decisions are taken as a process.

The today’s strategic sourcing initiative can be facilitated using following 5 ways:

• Automated sourcing or eSourcing: This is the most important and the best way to achieve higher efficiency from your sourcing process. Automation of activities like RFPs, supplier negotiations on lead time-price etc. and other online requests like advance shipment notice, changes in delivery schedule will make sure that the delay in communication is least and the manual errors are avoided. This also can be supplemented with supplier base, item category and process knowledge to support online negotiations and maintain advanced sourcing results
• Contract Lifecycle Management solution: Lot of times, we fail tot rack the key milestones in our contract and either lose on discount or lose the already calculated potential savings. Activities like creation of contract, approval management, maintaining the service level agreements and key data analysis helps the sourcing team to execute and monitor the supplier contracts much more efficiently and hence can bring good savings
• Spend Analysis: Do you know, even the best managed organizations have only 70% spend under management. This is an area which offers a lot of space to improve and availability of this spend data helps not only drive deflation with suppliers, it also provides you opportunity to aid your other sourcing efforts. Spend Management tools will add to your ability to extract data from multiple systems, its transformation and enrichment and reporting in user friendly formats. You will be able to see data on the basis of vendors, item price, item category or UNSPC codes which will immensely help you in negotiating with your vendors and improve cost savings
• Collaborative Sourcing: It is time to include your suppliers as well as customers in your sourcing cycle not from costing perspective but from item lifecycle value creation perspective. You need to start exploiting your suppliers innovative skills to your advantage by collaborating more with them and collectively reach your targets of cost savings
• Reverse Auctions: We all know that reverse auctions are auctions where the bidder is the seller and not the buyer. This concept forces competing vendors to reduce their bids in order to win a particular contract and in process you get the cost savings. Implement a reverse auction system in your organization and start using this for at least the high volume commoditized products and items. In addition of the savings, this is more transparent and competitive way of sourcing which takes the whole process to a strategic sourcing level. One caveat though, most of the suppliers do not like this process as this squeezes their margins and does not help in long term relationships with suppliers. Implement it but balance it in such a way that your partnership with current suppliers is not impacted.

I am sure above practices and tools have the potential to help you achieve your strategic sourcing objectives and can bring cost savings to your operations.

Strategy: Implement ERP Balanced Scorecard to transform business

ERP is widely regarded as one of the strongest IT enabled initiatives that has the ability of transforming businesses and making them ready for future business growth, expansion plans and consolidation strategies. But, it also has a dubious distinction of one of the most cost intensive exercise that engages whole business during its deployment and often the great expectations after it goes live, fall flat. This builds the business case for the organizations to have a proper measurement and management system or framework in place to make sure that the results of ERP deployment are measured, reported and actioned regularly and ERP balanced scorecard is the best way to go about it. Using an ERP Balanced Scorecard creates a common language between IT and business stakeholders, making it easier to align strategies and measure and communicate value.

It is a next step that moves the organizations from just metrics based or outcome based measurement system to connecting business metrics and outcome with the efforts and also makes sure that:

• ERP value delivery focuses more on business alignment, in line with initiatives and budget
• It connects the customer satisfaction with the end user perspective so that usage of ERP is at its maximum
• It optimizes the business and IT processes for improved operational excellence
• The roadmap and expansion of ERP footprint is aligned with business future orientation plans with focus on improving staff and organizational capabilities

So, implementing an ERP scorecard and becoming a strategic partner with an explicitly communicated and clean strategy can help the IT organization demonstrate more business value. We all need to learn to transform the information technology organization by not only sharing risk with the business unit but also by identifying and executing solutions to specific business problems. Also we need to learn, how the best in class organizations measure and communicate business value and customer satisfaction to their internal and external stakeholders. Without this, IT and business teams will remain two separate teams but working for a common objective will take back seat and in-fighting as well as conflict of interest will come to the fore, as is the case in most organizations. This makes IT teams as just support teams and are not considered as part of the main business stream or revenue generating or enabling team. I am sure, by implementing ERP balanced scorecard that captures points as discussed above, ERP and extended IT organization can improve return on income as well as make sure that business and IT teams works on same strategy, review them together, make corrections/modifications together and improve overall business metrics – Again quoting my favorite slogan: Work Together, Win Together.

Are you sure that your ERP is in safe hands?

From the above topic, I do not intend to argue whether the "Bad Men" like terrorists, scamsters etc. are using the technology to make their job easier and faster and how should we prevent that to happen. This post is to talk about the normal "Good People" who wants to use the technology but have very less idea about the real capabilities and limitations of it. If we just copy a large organization in selecting an ERP or a SCM product for our organization thinking that it must be a good product and that is the reason they have got this deployed, then there is a high probability that we will fall flat on our face while implementing as lot of requirements of our business are not met with the product. These is not a hypothetical case and for different reasons enterprises often end up selecting the wrong product for their operations and instead of getting benefitted from it, they get worse off and start blaming the product. The golden rule in this case,

as we all know, is to map your key requirements against the product capabilities and take a couple of references from similar industries before going for the product.

Strategy: Marry Lean principles with ERP...Part 2

In my last post, I mentioned how 5Ss of Lean can be applied in ERP for larger benefits. Similar to 5Ss of Lean, we also have 8 wastes classified in Lean that can be applied in ERP scenario and when blended with already matured processes and IT management strategies in the organization, these acts as a cataylst to improved ROI of ERP investment. Let me articulate these 8 wastes in terms of ERP environment and how these can add value.

I will start with the first waste that is Overproduction. The definiion if overproduction in Lean is well understood but to apply this in ERP, it certainly means that do not eat database space with more modules installed than required, more functionalities deployed than needed as per IT strategy or with more custom components than ablolutely necessary. This not only eats costly database space (specially when on premise ERP implementation is still the most popular service and SaaS has just acquired less than 10% of market) but also creates confusion in users, leads to more unnecessary documentation, increases staff cost in non value added trainings and increases instability in system. In addition, this will reduce the scalability of ERP in some situations. So this waste is a perfect fit for ERP.

Moving to the next one, which is called as Waiting. We have seen in ERP like manufacturing, that many a times, users are waiting for their turn to take actions just because an activity is still happeneing in the system or another is taking time to complete a task in the system. This reduces efficiency of staff and is sure shot case of dollar leakage. The To-Be processes as we call in a typical ERP deployment project, needs to be designed keeping this in mind so that the waiting time can be reduced to minimum. Also, the custom components running time needs to fine tuned in the build phase so that they take minimum possible running time and no users have to wait for their completion to start their set of activities to take the process forward.

The 3rd waste is Stocks and Inventory. Lean advocates minimum stocks or inventory as same is true for ERP too. ERP is deployed by a large number of organizations just to reduce their stocking levels with sustained service levels so ERP understands the importance of this waste, to the maximum. But to comeback to the chain of thoughts on how to articulate this waste in terms of ERP scenario, we need to again tie this back to the first waste where we are keeping the modules, functionalities or custom components to the lowest possbile level. Also, this susggests that we need to move from the make to stock situtation to make to order situation by increasing forecast accuracy as well as reducing lead times - the processes mapped to ERP product needs to take care of these aspects accordingly.

Let me move to the 4th waste here, which is Transportation. Lean highlights that transportation of material should be minimum possible in an manufacturing scenario ans same is true for ERP also. Though most of the ERP products these days, are web cased and do not need to be installed on client machines, we still need to keep in mind that we do not select a product that is not enabled on web and hence can not be accessed from Web. Also, the integrations of ERP with 3rd party systems need to be seamless and real time so that no time is lost in data transportation from one system to another.

The next waste focuses on reducing the Motion in shop floor and in the cases of ERP it means that there should be minimum manual touch points or hand-offs in the system/process. The processes should be sufficiently automated in ERP so that minimum time goes in subjective decision taking and business logic incorporated in ERP takes care of automated decisions in most cases. For example, order scheduling for customers takes too much time and have high subjectivity but can be smoothened with the help of automated logic incorporation in ERP which will then automatically schedules orders and reduces motion in the process.

Processing is the next waste as per Lean and it has a direct impact on ERP as the system is supposed to take minimum processing time for the programs, integrations, custom components and information availability.

The next waste in Lean processes is Defects. Defects is something that applies almost everywhere - whether you are manufacturing, managing a supply chain or running an ERP system. Like the manufacturing defects, IT systems have their own defects or issues or bugs as they are popularly called and these are required to be minimum possible as these not only reduce the instability of the system and makes it vulnerable to outages and hence business disruptions but also reduces the efficiencies of staff and increase staff cost. Defects resolution is seen as one of the most nono value added activities after ERP goes live and shaves your revenue off due to maintenance of huge support teams to keep the system stable. We need to make sure that enough testing for each and every component that goes into ERP, is done during the ERP cycle so that these deadly post implementation defects can be kept at bay.

I will move to the last one that is called as Information. Genrating and communicating information is also seen as a waste in Lean and it too is valid in the case of ERP. Though ERP is seen as wealth of information and it is believed that it helps in informed decision making for the stakeholders but we need to make sure that we are keeping the reports to an optimum level as per our requirement as huge number of reports in different formates will not only create confusion in the eyes of ever changing users but will also increase load on the system. Focus should be on the flow of information from and to ERP from the 3rd party system and the accuracy of the data that resides in ERP.

I could summarize my thougths on how ERP can be blended with Lean Principles, whether they are the 5Ss or the 8 wastes. I am sure these can be utilized in an ERP scenario in much more ways as the list I higghlighted is no way closer to an exhaustive list. Keep thinking and evolving.

Strategy: Marry Lean principles with ERP

As I wrote in my last article about blending Lean and ERP while doing an ERP deployment for your organization, I thought of extending the whole thought and take it forward to usage of lean principles in ERP so that real benefits of this combination can be extracted. We all are aware about the 5Ss of Lean that are the basis of Lean application in any scenario in your organization, be it manufacturing or supply chain management or for that matter sales and operations management. Let us see how different and yet same, will be the interpretation of these 5Ss in both Lean and ERP and they guide us to similar benefits.

The first S stands for Sort: For Lean, it means to eliminate unnecessary tools, instructions, items etc. by tagging them red and disposing them off after final need disposition. If we apply this in ERP, we can articulate this like – Thoughtful usage of only those parts of the ERP that benefit the organization. The modules or functionalities need to be in sync with the overall business strategy and not just that it is to be used if it is part of the package or if it is coming as free with the package you just ordered. Also, eliminate the unnecessary and redundant processes, manual efforts for data entry, programs or reports as part of the Sort 5S execution in ERP.

Simplify is the 2nd S of Lean which suggests that there needs to be a place for everything and everything should be in its place. In ERP, this can be interpreted as straight forward business processes needs to be implemented as part of the ERP deployment and they need to be integrated with each other to enable automatic Lean methods like back-flushing. The customizations needs to be lowest and manual hand-offs should be minimum in the processes. Simplify also means that the code deployment for the custom components is as per established standards and it can be re-designed, de-bugged or modified easily in case of changed or expanded requirements.

The 3rd S for Lean is Shine, which simply means clean everything daily and in ERP also it has far reaching consequences if it is articulated correctly. ERP depends on data accuracy as much as Lean Manufacturing depends on cleanliness, hygiene and proper instructions. Applying Shine to ERP means that our data that goes into ERP or that stays in it or that goes outside ERP, needs to remain accurate, consistent and upto date. The duplicity or incompleteness in data will skew your results and as we know that one of the main functions of ERP is to help the top management take informed decisions – this function will get defeated because of inaccurate data and not only this, but this will have a cascading impact on other processes to create a chain reaction within the application. So shine your data regularly.

Next one in Lean Principles is Standardize which simply means in Lean to have documented instructions and rules to maintain the above Ss. It means to have same set of procedures for everybody for the same work so that the efficiency of the process can be consistent. This S in ERP is of biggest use as it goes with the whole purpose of ERP which is standardization of processes across the departments, countries, operations and distribution channels. Not only, we need to have a set of procedures (SOP) to run the ERP system from the users point of view but also the process mapping needs to be done as per the standard rules set by the implementation team. Any deflection in the process to accommodate exceptions in the processes will result in a sub optimal solution that caters more to exceptions and less to the major regular process activities. So standardize S can be used to make the most impact in an ERP environment.

The last S of Lean principles is Sustain and this means in Lean that the daily operations need to be carried out in a proper and pre-decided sequence, with utmost safety and minimizing waste in the process. Again, for ERP it holds maximum importance as after you implement an ERP, only after that you have a greater challenge to utilize it to the fullest to take out maximum advantages out of it and reach the level of target ROI sooner than later. It means for ERP we need to have a clear cut strategy after Go-Live of minimizing the waste means the system bugs, data issues, or training bugs that waste the organization’s time are at a minimum. This will help not only in eliminating waste but also in improving the operations and information system for instant organizational benefits as well as for future mergers and acquisitions.

So I tried to explain 5Ss of Lean and apply them in ERP scenario so that we can take the best out of both worlds. I am sure, these can still be expanded further and it is one area where good research can bring ERP and Lean together and can usher a new era in both the fields.

ERP Strategy: Blend Lean and ERP

One of the long time complaints of Lean practitioners with the ERP product vendors is that there are no Lean enabling functionalities built in the ERP products rendering the Lean initiatives depending on spreadsheets and other offline tools. This makes Lean less responsive and takes more time to come out with the proposed changes in the way we work due to a new situation. In this turbulent time, this is what we expect least from a team or business function that they are slow to respond and more effort is required to make them respond. Lean experts and practitioners have been impacted by this perception (not only a perception though) and the return on investment as well as the targets of process improvement and increased efficiency takes longer than required. Ultimately, the organizations are disillusioned with Lean activities (sometimes) and start focussing on other initiatives more.....This is one of the biggest mistakes they make, in my opinion. Any business scenario, be it low or high demand, good or bad cash flow...process improvement is one area where we can not compromise or have second opinion and Lean is one of the best catalysts to achieve it and this is why we need to blend Lean and ERP.

There is a strong need to automate (beyond templatization) the lean frameworks and as per the Lean practitioners, ERP can play an excellent role in it by incorporating the functionalities in this respect. It can work in as simple way as it is done by incorporating multiple forecasting techniques by large ERPs in their products. This will sure take Lean to next level and the business fraternity as a whole will benefits for this and this includes the ERP vendor, the customer organizations that implement ERP and the service provider or consultant. Finally, it will help the consumer because of many reasons.

But, let us go a little beyond our obsession of incorporating Lean related stuff in ERP products and find out how else we can blend both of these (even with current offerings) during an ERP implementation and take benefits from this blend.

Ideally, as soon as it is decided that the organization is going for an ERP product deployment (or even a product upgrade or re-implementation), one of the activities, that need to take off is to start inventorying the business processes that we intend to move to this platform and start looking at improving them by using the best practice process databases available. Though, too much effort should not be spend on any process improvements at this stage but we need to start collecting data at this stage so that we are ready for the next stage. After deciding the product, going ahead with the requirement gathering and penning down as-is processes, there comes this point where we should start blending Lean into our ERP endeavor. This point is: To-Be Process Design. Here is when we should break the processes into smaller activities and tasks and use Lean tools like SIPOC, Fishbone, FMEA, QFD, value stream mapping etc. to first identify the target activities and tasks to be Leanergized and then design the processes in such a way that the processes fit into the ERP product as well as are the best processes as per the business operations. Remember that this exercise of designing the To-Be processes will be done with the help of the service provider (consultant) and since these days most of the world class consultant organizations have their own Lean frameworks and methodologies, I am sure this will not take more time than budgeted in the ERP project. But make sure that it is communicated as one of the success criteria for selection of the implementation partner when you float the request for proposal document.

The importance of Lean and ERP blending in time, increases with the fact that it is seen multiple times that point solutions (Lean) deployed after ERP deployment, have not provided the requisite benefits and have rather become counter productive in most cases.

ERP Strategy: Move to maximize ROI in addition of minimizing TCO

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The economic scenario is getting better and organizations once again are moving towards maximizing future growth instead of trying to sustain their existing business models. Once again, we are seeing plans for IT investments from select sectors especially in the field of ERP, which is considered as one of the driving engines for future growth and meeting needs of expansion plans. The latest industry downturn stamped the best practice that cost reduction is never an accomplished activity and it is a process that needs to be part of the continuous improvement program. In case of ERP, Enterprises were already focusing on reducing the cost of implementation & maintenance of their systems and reducing the TCO (Total cost of ownership) was one metrics that ranked highest on their priorities.

It is high time that the enterprises now shift to the next level and focus on more holistic picture of increasing the ROI (Return on Investment) instead of just focusing on reducing the TCO. While TCO takes care of just one part of the story which is cost, it leaves the rest of the part where organizations need to measure and realize both tangible and non tangible benefits of ERP. Typical ROI calculations will include the TCO part as the input and the benefits converted to dollars become the output.

To simplify, organizations need to consider ERP as another business (P&L account) which needs to payback the investment in certain period and then start churning profits for them.

As I said earlier, the ROI calculation will include the TCO part and data like:

• How many more customers we can serve in same period
• How many more products or services we can sell using the system
• How can the system help me improve my margins (yes, it can)
• How much reduction I see in my administration costs and inventory costs
• By what amount I could reduce my working capital and
• How transparent and compliant are my operations now…

The list is long and all of them are so important that if we do not measure these pre-decided key performance indicators after the ERP deployment (say after 6 months), we will not be able to realize the true benefits of ERP.

In-fact, to go a step further, the ROI calculation criteria should be discussed and agreed between business and IT teams before going for the actual ERP deployment because of 2 major reasons – one is that this will give a clearer picture of the measurable objectives of ERP deployment to business in all areas and the 2nd one is to have the success criteria clear to everybody and the same can be communicated to the consulting partners too so that everyone works for the same objectives in mind.

The above points are related more with the organizations that go for ERP implementation solutions but the same needs to be understood by the consulting or service provider organizations also. They too need to start thinking in these terms and rather than focusing alone on highlighting their capabilities on reducing the TCO of ERP while deploying or supporting it, they should go for highlighting and practicing ways to improve the ROI. This will truly become a partnership model of working between provider and customer and much better results can be achieved in all areas.
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ERP Strategy: Implement ERP as SaaS and increase ROI

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These days, we keep talking about the same thing again and again and that is, to reduce the cost and increase the return on investment specially return on IT investment as though IT is an enabler of growth but there is no tangible return on investment immediately after deploying a new system or upgrading a system. Coming to my favorite topic i.e. ERP - it normally requires sizeable investments and the best in class organizations expect the ERP to return its cost back to business in almost 2 years. This is important to justify continued investments in ERP in these troubled times.

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Software as a Service or SaaS as it is popularly called, is generally gaining ground on the basis of this very logic. I tried to list down the benefits that a SaaS ERP model offers and wanted to share with the readers with two objectives - One is to make them a little more awaree of this new phenomenon that is leading the latest ERP wave even in this downturn and 2nd is to build this list with more points so that it is easier for organizations to genuinely compare the capex heavy traditional on premise ERP and service oriented SaaS model. Let's go through the list as below:

• Faster ROI: As we all know that due to today’s economic downturn, ROI is more critical than ever. SaaS ERP implementations streamline all stages of the lifecycle including requirements gathering, process mapping and improvements, Building customizations, testing and training. contrary to the belief, a SaaS implementation is a complete, prebuilt application implementation done at the providers end but with full involvement of the customer's business. It is also more cost-effective to scale to multiple locations or suppliers/customers, and keep current with the most updated version of the systemas it is the reponsibility of the provider to present a time bound roadmap to the customer for upgrading the application in future
• Capex down to minimum: Since we are buying a servcie and not the servers, we are not bothered on the the cost involved on the server acquisition and maintenance. I understand that the cost of the equipment will be inbuilt in the service cost but since it will be a staggered cost and not upfront, it is a huge benefit in today's scenarios. The pay per drink model minimizes risk because an enterprise can roll in applications based on business need (for instance implementing just the order management first, inventory management next and so on) as appropriate to the business need
• Minimized Operational costs: The costs and resources required for ongoing maintenance, support, system performance and version control all go away with SaaS implementation. Data security, globalization, feature enhancement, connectivity, and safety are the responsibility of the SaaS vendor, freeing up the manufacturer to concentrate on core tasks. In addition, true multi-tenant architecture makes every customer instantly benefit from system enhancements
• No plan needed to retain technical talent in turbulent market conditions: Since the ERP is run by your provider forever and you just based on outcome or transactions or number of users as the case may be, you are not required to keep costly technical consultants on your rolls. Please note that retaining ERP consultants after you go-live is much more difficult task than hiring them and SaaS model helps you overcome this hurdle too
• Integrations simplified: Gartner estimates that up to 35 percent of the implementation costs associated with on premise ERP applications is for integration. SaaS ERP makes integration with other applicationsor hardware faster, easier and less risky
• More choices available: SaaS has really evolved in last 3 years and there are many choices available for the customers to choose as per their specific business needs. This is contrary to the fac that still theer are just 3 or 4 major vendors for the on premise ERP that have captured most of the market
• Flexibility added to your plan: As you will be paying as you drink and anytime you can switch loyalties towards another drink if you do not like the first one, it offers magnificent flexibility in planning your business needs vis-a-vis costs, functionality available and market trends - and all this at no extra cost, no depreciation worries etc.

I will stop here as the list of benefits that I could gather, are finished. Now I will look forward to the the readers to contribute and let us know if we more benefits of SaaS over on premise ERP, and yes please highlight the down side also so that we all can get a clearer picture before we take a decision.

ERP Strategy: Increase your ROI from ERP

Most Enterprise Resource Planning (ERP) purchase decisions are based on payback or Return on Investment (ROI)-based business cases. Business cases often use reduction in inventory and headcount as the primary ROI justifications. Since ERP software is also considered an infrastructure investment, it is natural to expect financial returns. Most organizations deploy ERP, and sit back to wait for returns. And when returns fail to come in, the ERP Strategy is regarded as a failure. It is important to understand that ROI comes from the process improvements supported by ERP—not from ERP software alone.

ROI does not come from ERP. ROI comes from what you do using ERP. ERP is a tool and it all depends on how well you use this tool. There are organizations that have got substantial benefits, which are many times their investment. And there are organizations that have not got the desired benefits. Realizing greater value from ERP systems is a matter of focusing attention on the effective use and alignment of people, process and technology. Additionally, I believe that today organizations are not able to quantify their ROI from ERP implementation because at the beginning of the project the KPIs (Key Performance Indicators) and measurement criteria were not defined; this makes it difficult to quantify the ROI at a later date. I divide the steps for getting the maximum ROI from your ERP in 3 broad categories which are Pre-Implementation Steps, During Implementation steps and Post implementation steps. Let me list down the steps under these categories, here:

Pre ERP Implementation:

• Identify the objective(s)
• Finalize the metrics or KPIs that are required to be improved upon ERP implementation
• Define their current value
• Audit the data quality of all key metrics and have a plan to improve it before you go live with new system
• Put in place the measurement system and method
• Freeze the targets for KPIs
• Identify the processes that impact those KPIs
• Make sure that the business initiatives are in place in these processes to achieve the identified KPIs
• Assess the organization's technical maturity level before project launch

During ERP Implementation:

• Stay focused on the KPIs improvement finalized in above steps
• Keep an eye on the cost and ensure no cost over-run as mentioned in my earlier post
• Go beyond basic project management and incorporate strategic alignment & tangible business improvement plans in addition of focusing on tasks & completion dates
• Use vendor resources wisely – use them only where you lack skills. For example, if you have excellent project managers, then use only the technical people from vendor
• Keep customizations to minimum
• Revisit KPIs and review them
• Plan change management strategy

Post ERP Implementation:

• Stop running parallel systems and the ERP should be the only source of truth
• Measure the KPIs only after 6 months of operations after Go-Live
• Keep on looking for improvement opportunities through benchmarking and assessment exercises
• Utilize ERP to the fullest as a tool for decision making and planning future initiatives
• Plan a strategy to counter post ERP challenges

These were some of the steps that will help organizations to improve their ROI from ERP. A more complete analysis of return can be made by looking at the overall payback that enterprise software can offer to a company. Enterprise software payback includes not only quantifiable improvements in bottom and top line functionality, but also more qualitative measures like new business opportunities, improved customer and partner relations, and improved time to market.

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7 Ways to reduce ERP implementation cost

In today's economic environment of constrained and highly scrutinized IT budgets, organizations are looking for ways to reduce their deployment cost and long-term total cost of ownership for enterprise applications or ERP. The obvious targets for both of these areas are: Reduction in the product license cost and the consulting fees of the implementation and support partners. Let us look at these and some of the other equally important aspects that can make sure that the cost of ERP implementation remains lowest and with best of quality thereby increasing the ROI.

• Grab the obvious first - Negotiate software license cost: As I said above, the buck starts at the license cost and it is not that the big boys of ERP applications do not negotiate on the cost of licenses. They do. Take this up as a part of your project decision and approval phase and make sure that while the functionalities and architecture that you need are a must (so a decision just on cost should not be made), you also find ways to bring down the license cost of the software to make your overall cost at lowest level
• Hit the implementation cycle time with correct frameworks and tools: We have seen in the past that all ERP implementation projects are not successful and long cycle times are one of the core reasons of their failures. In addition, longer the cycle time, higher the cost of implementation. Do your research and find out various tools and frameworks that are available in market to make sure that you reduce the implementation cycle time by utilizing them. These frameworks and tools developed by some IT organizations have successfully improved the cycle time by 30 to 50% and hence
• Play as per your strength on consulting fees structure: Though most of the organizations keep on moving towards the fixed price agreements with the consulting partners so that there are no hidden costs (at least from the vendor side) during implementation period, but this strategy is worth re-visiting after having a look at your strengths and nature of the project. It makes good sense to go for an hourly based consulting fees model (called as T&M model popularly) if you already possess good project management skills and bandwidth to manage these projects. A blend of both these models can also be explored. There are more pricing models made available in market these days by the ERP Service Providers and you need to do a proper research on these before engaging the consulting partner
• Vanilla is the best flavor: Customizations are something that make the ERP work on your commands but beneath, there lies a monster that if wakes up, will make sure that ERP becomes more of a junk box of errors and bugs. Well, it is not as bad as it sounds but take a clue from this and make sure that the customizations are at their lowest ebb in your ERP environment to keep the size of the monster smallest possible. Not only, the customizations inflate the cost of ERP implementation (more developers needed) but also will consume more time of business superusers and users to test more. It will also impact the "post implementation support and maintenance cost" as it will hit the stability of the application. A customization free application is popularly called as Vanilla implementation
• Manage Scope and Change Requests: It happens and will keep on happening that when you do the requirement gathering exercise, you will get a good wish list from some business functions but some might not be able to spend the required time on the list and you get the half baked requirements from them. It is during the implementation (specially after the first environment pilot and testing cycles), they will see their brain bulbs lighted with more requirements or changed requirements for that matter, which will ignite a fire of scope creep and hence the need of change requests that were earlier not part of the "Fixed Price Contract" with the service provider. What follows next, is additional cost on the project which could have been avoided by taking some measures to freeze scope in the beginning
• Take a second opinion on design: In most of the ERP implementations today, only one vendor (or team) is engaged for deployment and since these skills are normally not available with the business, organizations end up depending completely on the vendor team's expertise on the design and deliverables pace and quality. The major risks of these are again cost inflation (a study mentioned last year that 8% ERP projects are delayed due to insufficient planned testing), expectations not getting met after Go-Live, more than required customizations (and hence more cost again) etc. A best practice that is emerging from the best in class , is to hire specialized teams and utilize their scientific tools and frameworks for validating the design, deliverables and pace of ERP project before it is too late. Though, it will certainly consume resources and money but believe you me, this micro additional cost (you can good deals in this area) will make sure that you are doing everything right and can correct whatever is going slow or wrong
• Exams are still the best way to gauge a student's performance: What will happen if you find out after Go-Live that the functionality that you wanted in the new ERP system, fails in a particular scenario and since it is not easily detectable, you run the risk of wrong usage of the application and hence the "data truth" is lost. Additionally, if that functionality malfunctioning impacts leakage of revenue in some form or other, then the matter will be worse. What will follow, is fixing of that functionality or if it is needs longer period or changing the design altogether (yes, it is possible), then you will need to plan a new release for rollout of this and the implementation cost will increase. There are multiple scenarios like this which can be avoided if we do proper and frequent testing and make sure that there are no bugs, no mismtach between expectation and result and no data issues. Recognize testing as the most important part of the project from the business users point of view so that the issues can be reported timely and can be resolved within the timeframe of the project itself (and hence the cost remains protected)

These points represent just a few of the steps that will help you in keeping the cost of ERP implementation in control in turn increasing the return on investment which will come handy in current time when every penny going out of pocket pinches deep.

ERP Strategy after Go-Live

We have all seen lot of material available all over the internet in vendor white papers, research articles and independent blogs about the best practices on improving the ERP implementation cycle in terms of cost, cycle time and return on investment. Most of these articles stop at Go-Live and do not capture the challenges and the opportunities after Go-Live so that the envisaged benefits from ERP can be realized.

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If you ask me, I would say that Going Live successfully with the application is the first milestone in the whole business transformation exercise and we still need to not only measure and benchmark the process efficiencies as well as automation levels at fixed intervals to continuously improve them, but also make sure that the changes that have been brought in the organization as a result of the ERP Application Implementation, have gone down well with the users and they also see long terms benefits in switching to this new ERP, leaving behind their favorite legacy systems.

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I have tried to capture few challenges and opportunities that we stumble upon after Going Live with ERP that we all should consider so as to reap the benefits to the maximum. Let me first start with the challenges:

1. The first and foremost challenge after Going Live is to stop running parallel systems. While few organizations have really matured on this part and wither switch off the entire legacy systems or those functionalities in them that are now available in the new ERP and users are expected to work on them only in ERP, but still a very large number of organizations still do not have a well charted process in this regard. This poses multiple issues, the biggest being division of data in 2 or more applications and the very objective of having one source of truth is defeated.
2. Transition of Project Managers. While, all ERP projects have dedicated project managers who go well beyond the go-live to post production support period and make sure that the Live system is stable from bugs perspective before they off board, but often, role and responsibility clarity after that phase, dissolves and there are multiple owners (or shall I say Managers) and very less number of contributors that are needed to take it to the next level of change management, ongoing trainings, user access process, upgrade or enhancement decision processes etc.
3. Over dependence on support teams for knowledge management. It is often seen that after setting up a vendor team for providing post production support, organizations depend totally on their teams for preparing and updating the user manuals and other soft training material for users and new employees. Though they claim to review the documents before releasing to the business teams but I have my doubts on the review process. Again, not only the ERP documentation but defining the complete process of knowledge management for the process improvements using the application is a challenge.
4. Independent customizations in multi country rollouts. One of my friends, is working in an European company and they implemented ERP in 1999 and never upgraded after that. The implementation was done in 23 countries across the globe and finally when they thought of upgrading the ERP this year, they came to know that their ERP system is not a standard system any more. Every country has got done some or more country specific customizations in the ERP, making this a bunch of disparate systems that do not offer a standard process. The pain that they are going through now for upgrading the ERP is enormous and it has increased their costs multifold. The challenge here is to keep the standard system, standard enough so that future upgrades are done with minimum costs
5. ERP is not a magic wand. As soon as we go live with ERP we start expecting it to take over the organization and transform it to a world class organization. We want to be Best in Class as soon as possible, being done so much hard work during the implementation period. Keeping the expectations of business users to realistic levels is another challenge that needs to be addressed.

Likewise there are more Post Go-Live challenges that we all need to consider while making a strategy to realize maximum benefits from your ERP. I do not want to paint a gloomy picture by just highlighting the challenges here. It is not that you only have challenges after Go-Live and ours lives will revolve around them forever. Successful ERP implementation offers multiple opportunities to business beyond the expected benefits. Some of them are:

1. Standard and predictable process lets you plan future initiatives as well as further improve the process efficiencies
2. Improve the KPIs. Now that the as-is values of the KPIs are known to you, it is easier to make desired KPI model by benchmakring with the Best in Class and charting a roadmap to reach there
3. Rationalize the staff. It provides you with an opportunity to relook at the staffing levels and use them in more productive areas as automation will free up some staffing hours/days
4. Flank it with Best in Breed Systems. ERP might not be there in its present role for eternity. While ERP will give a standard platform and one source of truth, there are chances that it is not the best system in all areas. It might be the best transaction system (or financial reporting system) but still might need to be complimented with best in breed systems for niche areas like service parts planning, demand driven supply chain planning, procurement auctions or product lifecycle management for that matter. Having an ERP system tells you where you are currently and what do you still miss to reach the pinnacle of success

I have not captured the direct benefits that an ERP will provide to an organization but I understand that these opportunities sometimes look like the benefits (due to a thin line difference between them) only but believe me, you will still need to do some good amount of work to explore these as against the direct benefits that you will get after implementing ERP successfully. Essentially, the challenges are required to be part of our overall Benefit Realization Strategy from ERP and opportunities are the areas which show the way for reaping the by product benefits from ERP.