Get ready - ERP Tools

The first step in any project should be to determine its objective or expected deliverable. The objective of the system implementation should be a SMART goal: specific, measurable, achievable, related,and have a time line associated with it.

The implementation of ERP is a major project for any size organization. The project will go through its very difficult times and having a SMART business goal provides the focus for the team to keep it going during the difficult times. These objectives can be separated into two objective types: strategic and economic.

Examples of strategic objectives include the implementation of new business models, integration of processes, customer responsiveness or flexibility, improved information, cost, productivity, and new application infrastructure. Economic benefits include inventory investment, financial management, personnel cost, information technology cost, supplier management and procurement, or order management. Sample metrics can include:

  1. Reduce inventory from 27 to 20% of revenue
  2. Reduce $15M out of $350M inventory
  3. Reduce procurement time by 25%
  4. Reduce overall cost of raw material by 5%
  5. Reduce financial personnel by 10%
  6. Increase revenue by 25% without increased hiring
  7. Reduce end of month closing time from 12 to 4 days

The important thing to remember is that whatever goal or objective is chosen,it should be meaningful to the entire enterprise. This provides the motivation for the project during the difficult times. Having the goal of an information technology update is insufficient for project motivation. The next step of the get ready phase is to determine the approach for the implementation. There are three basic possible approaches for implementation.

Do-It-Yourself Approach

The first approach is to accomplish the implementation entirely within the enterprise with no outside assistance. The benefit of this approach is that the out of pocket cost will be the lowest.

However,if the expertise does not exist within the enterprise to accomplish the wide variety of tasks required in an ERP implementation,the project could take much longer than expected and the returns could be very disappointing. If the enterprise seriously considers this option,all involved personnel must be well acquainted with the underlying concepts of ERP and Supply Chain Management(SCM)through an intensive educational effort.

This approach has been proven very successful in companies with a common understanding of the concepts led by internal personnel with extensive experience in previous ERP implementation. To consider implementing ERP without having anyone inside the firm with previous implementation experience and without outside support is a sure plan for disaster.

Hire Outside Resources

Another approach that many larger companies take is to contract for the additional resources required to accomplish the ERP implementation. There are many consulting firms happy to provide this resource at a price that is relatively high per hour compared to the company’s current salaries. This can be a source of hard feeling within the project team if the billable rate becomes public knowledge. This approach assumes that the necessary business transformation has been accomplished already.

Add to this the fact that some of these consulting firms hire bright,well educated young people directly from college. The benefit of this approach is that their billable rate is significantly below the rate charged for the experienced personnel.

The primary downside is that although these fine young people may have an excellent theoretical background,they could very likely be learning their practical application at your company’s expense. In addition to learning the practical application of theory they also must become familiar with your company and its processes.

If insufficient resources exist within the enterprise to accomplish the implementation,this may be your only practical choice. The secondary downside in addition to the expense is that your operation will quickly become reliant on these additional people. Before they disengage from your company,there must be a plan on how the knowledge transfer will occur from the consulting team to your team.

The other risk is that the decisions made during the implementation may not take into account some of the finer business process intricacies. The typical large consulting company approach is that it will apply pre-developed templates based on industry best practices. The risk is that these best practices may not be the best fit for your specific company.

Without the integral involvement of key personnel from your company,the consultants will not know that. Because of the negative press around ERP implementations,the consulting companies are beginning to quote a project at a firm fixed price given a negotiated statement of work. This statement of work should be well understood and include the measures for performance and payment.

Mentor Resource Model

The mentor resource model is a cross between the two extremes of doing it all yourself and having a busload of consultants move in with you. This model requires that the overall project team leader is a resource that is internal to your enterprise.

Outside resources are used only when needed to support the implementation,provide answers to specific questions,and provide overall strategic support. Usually the rate for these resources is negotiated at the beginning of the implementation,but only the amount of resource that is actually used is paid for. This should result in a lower cost than the previous option,but the risk is that the most of the budget can be easily consumed very early in the project. Having a strong internal project manager is critical in this approach.

Scope Development

Whatever approach is chosen the overall implementation must include a clear statement of work or scope of the project. This scope should include the modules selected for implementation as well as the business processes that will be in scope and out of scope. Scope creep is a very common phenomenon in ERP implementation.

As the implementation team becomes more familiar with the software tool and can see the application within the enterprise for other functionality,the project can easily expand to incorporate this new scope. Unfortunately,the budget was not developed with this increased scope and the costs can quickly spiral out of control without an adequate return on investment.

The increased scope can mean that the project will never come to completion. This experience is very common and can be difficult to control as there is insufficient scope control at the beginning of the project. The scope determination includes not only which modules of the software will be implemented,but also the business processes that are in scope for reengineering consideration and automation.

Any ERP system implementation can quickly turn into a major enterpriseremodeling job. Anyone who has ever attempted a home improvement project can identify with this. The project may be a very small project with a welldefined scope such as adding an electrical plug in your home. Once the hole is cut in the wall it is determined that the wiring in that wall is not really the best. Now the whole wall needs to be rewired. Once this is started quickly it moves to rewiring the whole house.

The next thing discovered is that the structure behind the walls is unstable and should be replaced. Now the entire wall is torn out for renovation; this continues on and on until it really would have been less expensive to tear the house down and start over. This is an excellent example of scope creep. Tight scope control must be exercised not only on modules, but also on business processes.

Once it has been determined which processes are included on the project then an assessment can be completed on which industry best practices fit the desired overall strategic direction of the enterprise. Instituting industry best practices without assessing their fit to the company’s strategy will drastically increase the resistance to change as the implementation moves forward.

Budget

ERP implementation is an excellent time to reassess the enterprise’s competitive strategy,both present and future. This top-level strategic direction then provides the guiding principles for the implementation and provides focus for the project. These guiding principles include the measurable expected results and help to determine the budget required.

The breakdown of costs for a typical ERP Implementation—generalized industry application 293 implementation are cited as 10% hardware, 30% software (ERP, database, operating system ,middleware), 10% education and training,40% consulting services,and 10% other. Although the exact percentage may vary widely from company to company, these percentages may aid in preparing an overall budget. The exact budget is determined in detail by the specific approach taken by the company,especially how much outside assistance is needed for the implementation.

Part of the budgeting process is an expected time line for the investment and the anticipated return. The budget must include the resource models and the overall assumptions made for the project. This should be well documented early in the process so that later in the project these assumptions can be easily identified. The typical time line is project preparation of 1 to 3 weeks followed by business blueprint preparation of 3 to 6 weeks.

This planning phase is followed by detailed application of the software to the company’s process, including at least two conference room pilot demonstrations. This step takes the bulk of the time and can be accomplished in 1 to 9 months depending on the motivation and resources of the project team. This application phase is followed by the actual go-live process where the system is utilized to run the chosen business processes.

After the system goes live,the final version of the new business processes must be documented and communicated to all affected personnel. If a consulting company was used to support the implementation, this final phase includes training all personnel in not only how to accomplish the detailed transactions,but also how these transactions fit into the overall system. The best approach is to have company personnel working side by side with the consultants to speed the departure of the consultants after the project is complete.


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