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Why You Shouldn’t Buy a New ERP System

Companies frequently undertake large ERP replacement programs that are totally unnecessary.

A pharmaceutical company was convinced that it needed either to replace its current enterprise-resource planning (ERP) system with a totally different software package or install the major upgrade that the current vendor was pushing.  Why?

• Dozens of spreadsheets, and manual workarounds had sprung up in the plant to help with production scheduling and handling make-to-order items that were new to the business over the past few years.

• The executives weren’t getting accurate margin data on which to base decisions.

• Sales forecasting, new pricing and rebate schemes, sales management reporting and period-end financial closing all required extensive manual intervention.

The assumption was that the company, a client of ours, had outgrown its current ERP system, and that a $5 million investment was required to implement an ERP package that would address the current issues. However, after a five-week deep-dive review of the sales, supply chain, finance processes and the company’s use of its current ERP system, it became apparent that the current software was more than adequate.

ERP

The problem was that the company was not taking advantage of the existing functionality, configuration options and business-intelligence (BI) tools. So rather than a high-risk, high-cost, 18-month ERP re-implementation, the company undertook a four-month project to:

• Redesign key business processes around changes in master data and configuration settings.

• Implement high-value BI sales, margin, forecast performance and financial reporting.

• Implement a finite scheduling package to make the best use of production scheduling.

This company is not an outlier. Companies frequently undertake large ERP replacement programs that are totally unnecessary. Several factors lead to this misstep.

Why They Believe It’s the Answer
While there are countless legacy ERP systems performing successfully throughout the world, there are typically several dynamics at work in companies that lead them to incorrectly believe a new ERP package will solve their business- process issues. These dynamics include:

•ERP software vendors that are constantly introducing new features and versions, as they must to drive their growth. Whether cloud-based versions, different functionality or new industry-specific solutions, vendors are constantly suggesting reasons for their customers to upgrade.

• Constant personnel changes in the executive ranks. New executives bring their past experiences and biases with them.  Whether the current ERP system is Oracle, SAP, JDE, QAD or XYZ, a new executive can always find issues with the current system and justify why the package they prefer, or are simply more familiar with, is better.

11 thoughts on “Why You Shouldn’t Buy a New ERP System

  1. Although it is an interesting overarching theme for the article, the suggested alternative courses of action aren’t preferable from a strategic standpoint.

    Implementing point solutions is not necessarily cheaper, as single pieces of a system are often more expensive than bundled packages. The smaller the purchase, the less negotiating leverage you have when dealing with vendors. Point solutions also require integration work to be incorporated into legacy systems which comes with costs – sometimes substantial. Additionally, ERP systems, just like all other technology products, become antiquated, and the investment to overhaul their current use via process analysis and installation of additional tools is a temporary fix.

  2. This is a very good article that explains the initiatives that companies should consider before implementing a new ERP. We have found that one more initiative should be considered — process improvement. Some of the inefficiencies surrounding an existing ERP may have been created right after implementation. End users have trouble giving up their old ways and no one ‘convinces’ them to perform their day to day tasks in a different manner. This could be done through change management or through ‘percussive persuasion’. The following article demonstrates how this could be done. http://trenegy.com/publications/change-management/2012/12/13/changing-the-approach-to-change-management/

  3. Interesting article. Businesses are no longer wanting to spend multi-million dollars on revamping their current ERP applications – its too expensive and takes too long with a lot of inherent implementation risks. However, they do want the functionality that can provide them with the insights, transparency and increased controllership, which is where smart, opex based bolt-ons come in handy.

    Please find below the link to an article highlighting a recent case in point. http://www.everestgrp.com/2013-12-why-the-avon-sap-news-is-important-for-your-business-sherpas-in-blue-shirts-12555.html

  4. More and more organizations are experiencing the value in what they’ve already paid for. Software vendors will continue to sell with additional license fees until the consumers smart up to the fact that they already have what they need. The challenge is in change management and integration governance, and the ERP vendors don’t teach that. Search “revealvalue” on YouTube and listen to customer stories where they have saved loads of money and seen significant increase in customer service through better use of their existing ERP system.
    See http://www.revealvalue.com for a cost effective change management methodology that works

  5. Good article with some valid points – as always, a correct and thorough understanding of your current ERP system is needed with ongoing review and development.

  6. Wise article indeed…Finding a judo solution (one that delivers maximum efficiency with minimum effort) is all about getting the most of out doing the least.

    Whenever you face an obstacle, look for a way to judo it. For instance, if your challenge is to get a bird’s eye view, one way to do it is to climb Mount Everest. That’s the ambitious solution. But then again, you could take an elevator to the top of a tall building. That’s a judo solution…

    Problems can usually be solved with mundane solutions. That means there’s no glamorous work and that you don’t get to show off your amazing skills. You just build something that gets the job done and move on.

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