Prioritize your focus areas for best benefits from your ERP

In one of the recent meetings with a group of CIOs, I heard this loud and clear from more than a handful CIOs that though they have implemented ERP and have waited for couple of years to stabilize the processes but still the expected benefits have not been able to impress them as well as the CEOs. Going into details, one common thread that came out from all of them was their extra wide focus areas. When asked about in which area, the results were far from satisfactory or which areas you were focusing on get the low hanging fruits first and then aim for the higher ones, the reply that I got is that they focused on getting all the benefits and have taken quite a good amount of initiatives to make them happen with the help of ERP. Quite a decent strategy! But then, why they are still unhappy or rather I should say less satisfied? Is it the ERP as product or their processes or the expectations or something else?

Together we tried to go deep into it and picked couple of cases from the group and the findings were enlightening. Though I will not be able to share the name of the organizations, CIO names or the exact findings but I would like to share the strategy that came out after this post mortem of their existing strategies which left them less satisfied with their ERP deployment. The clear cut strategy was multifold, but it was suggesting in more than one ways that instead of firing bullets in all directions, the focus should be on fewer directions and in phases. Say for example, a typical organization wants following benefits after ERP implementation at their end:

• Cost reduction due to process standardization, automation, improved end to end visibility etc.
• Improved working capital due to lower and accurate inventories, less obsolescence/scrap etc, better payment terms etc.
• Better customer satisfaction due to improved on-time delivery, communication/response time, perfect order fulfillment etc.
• Effective strategic decisions by executives due to crystal clear MIS, reporting etc.
• Improved compliance due to process controls, monitoring etc.
• Higher collaboration between teams, with suppliers, with customers etc. increasing efficiencies and reducing cost of operation
• Improved staff efficiencies due to smaller period closing activities, automation etc.
• Finally single source of truth for everybody to benchmark and plan accordingly

There will be many other benefits an organization can get but the objective of listing some of them above is that if we start focusing on everything from the start, there are chances that we are not able to do justice with all of them and lose steam on some of them or even all of them when our patience runs out. A larger group has always less patience and tiny but focused groups with smaller milestones will always have higher success rate.

So the strategy here should be that we need to prioritize our focus areas in such a way that we pick some of the critical ones along with the few low hanging fruits in the first phase - implement your action plans and then move on the next phase with a similar combination of focus areas. With this, I do not mean that you should take business functions or modules one by one (that is a different discussion altogether) but the intent of the strategy is to pick your result areas after implementing the ERP and keep on improving the processes, putting controls, automating it further, complementing them with BPM solutions etc. to make them ready to reap benefits and then move to the next batch. The batches can also overlap for some time looking at the available bandwidth of team.

The group of CIOs jointly took a decision to re-look at their ERP deployments and identify the areas of focus to give a new try to reap the benefits and you also might want to try out this simple but effective strategy. Best of Luck!

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.