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Why You Shouldn’t Buy a New ERP System

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

But most of the improvement in operating profit typically comes from specific point solutions, such as price optimization, production-scheduling optimization, inventory- level optimization and transportation optimization. Focusing on implementing point solutions, whether specific modules of the existing ERP software or third-party packages built to work with the ERP package, is often the best way to address key business requirements and improve the bottom line.

Then there are business-decision-support solutions (also known as focused “big data”). Most companies have all of the data needed to provide executive management with the analyses required to support the day-to-day business decisions. But very few companies are laser-focused on providing the business with exactly what they need to make those daily decisions.  Instead, companies typically put all the data in a data warehouse and let the business access it without providing the necessary analytics.

A decision-engineering approach identifies the exact business decisions for which executives need assistance — for example, what price should I set for this product, how many drivers should I schedule for tomorrow or how should I sequence production? Such an approach can improve the bottom line by helping executives make a better decision by using analyses and information targeted specifically for that decision.

Just because an ERP system is old doesn’t mean it isn’t doing its job or that it needs to be fully replaced. It’s important to remember that the original purpose of ERP systems was to process business transactions efficiently. As long as your ERP system continues to do that, the costs and risks associated with wholesale legacy-system replacement can make for a poor strategic decision.

Often the issues with current ERP systems can be addressed with point solutions focused on optimizing specific functions and with business-decision-support solutions.  Re-directing efforts to these solutions can be a much more effective — and cost-efficient — way to improve bottom-line results.

Bruce Myers is a managing director and Chris Payne and Adam Pollak are directors in the information technology and applied analytics practice at AlixPartners, a business-advisory firm.

Image: Wikipedia

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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