The high competitiveness that exists in the business world, drives organisations to innovate in processes, methodologies and tools that can generate advantages over their strongest competitors. On one side are customers demanding better products, better prices and better services, and on the other side are the companies that need to provide better service to their customers, be more efficient, optimize their costs, have more flexible processes and improve their timely response to the market. The alignment of information technology with improvements in business processes have generated software packages to facilitate enterprise resource management, which are more commonly known as “ERP”, English acronyms that mean “Enterprise Resource Planning “.
More and more organisations need to implement an ERP system to grow and achieve a competitive advantage. Statistics from the business world, indicate that 85% of the most successful companies are using an ERP. However, few small and medium sized businesses have knowledge about what it takes to sucessfully implementing an ERP system. Many small and medium sized organisations do not have a clear idea of how to structure, measure, justify, select, hire and manage its implementation.
What is an ERP? An ERP, is a business management system that incorporates business processes designed in base of the “best practices” of the industry or sector, within a configurable and robust software tool. Its main purpose is to sort, process and integrate information from all functional areas of an organization, and centralize it in one place, to facilitate the access, optimize the data processing and support the decision-making. With these systems, managers of companies expect to improve performance in their organizations, to give a better response to the needs of their customers and achieve that competitive advantage. ERP provide the transactional basis of the company and are the nucleus for subsequent integration with other specialized applications such as:
ERP are systems conformed by several modules and these include various business processes. All these set of modules with their respective processes, allow the integration of the different operations of a company, especially those related to production, logistic, distribution, finance and human resource management.
In the past, companies invested in information technology almost by obligation, and sometimes the results were not the expected. To consider it as an expense or an investment, will be directly related to how implementing and using the ERP. If the ERP is not correctly configured and once deployed in a production environment, does not do what it is expected to do, then it is likely to be considered as an expense. But if its use increases efficiency and therefore improve productivity and profitability of the company, then it will surely be considered as an investment.
The statistics also indicate that companies, once implemented an ERP, continue investing in complementing it with other products such as CRM, SCM, WMS, etc., to generate greater business intelligence, which confirms without a doubt, how important it is for companies to be able to have an ERP system.
Must they develop an ERP, or purchase one already developed? Nowadays, there is a lot of ERP products already developed and available in the market, which are ready to be used, and that cover most of the processes of almost all types of businesses, such as: manufacturing, services, distribution, security etc., so, it is becoming less common, the need to develop one to fit. It would have to be a very particular and differentiated type of business for which there is no available an ERP product that can meet their business processes. ERP already developed, usually are products that have a lot of time invested in research, development, testing and optimization, and have already reached a good level of maturity and stabilization. If there is availability of an ERP product suited to the client’s business type, it will always be better to acquire than to develop it, for all that this implies in terms of: effort, time, cost, quality and risk.
To develop a bespoke ERP system, most likely will take longer, and will cost more, and at the end, it will have a product that is still susceptible to failures, and that will take some time to stabilize it. In addition, to qualify for a development, it is very important that the client knows “how to ask”, it means, to have very clear, what are all their business requirements that must be met by the ERP to be developed. More reason, if the implementor who will develop the ERP, is not an expert in the business area of the client. It will be better to choose a product already developed, which includes the processes with the best practices of the client’s industry or sector.
In this series of blog posts, I will focus only on those already developed ERP products, and open source ERP systems which are available in the market and that are ready for its implementation.
To implement a project of this nature, besides the investment that has to be made to acquire the ERP software (modules), it is also required to hire a specialized consultation for its implementation, usually replace or upgrade the existing IT infrastructure (hardware and base software) and contract various complementary products and / or services, which added all, result in a strong financial investment.
That will depend on several factors, but it usually takes several months to do it. For instance:
What I call the “definition stage”, I mean the one that starts with the definition of the minimum requirements to be met by the ERP, and ends with the ERP purchase and the implementation service contracting with the selected company or companies, it can last between 2 and 4 months, depending on how clear the client knows his requirements, and the available options in the market, at the client’s location.
Then comes what I call the “implementation stage”, which goes from the initiation of the hired service, to the system deployment in a production environment, which can take between 8 and 10 months, which gives a total between 10 and 14 months. This period can be extended even further, depending on whether there are changes on the fly and if there is any complication during execution, which can easily happen if it does not take a firm control over all project activities. Additionally, it can take between 4 and 6 months to fully stabilize an ERP after being put into production.
These time periods apply to the implementation of ERP products which I will call “large”, when referring to those products that are produced by the worldwide more recognized ERP software manufacturers, products that are made up of several integrated modules, that include a lot of processes, which provide a huge functionality, which have a high capability of configuration and setting of parameters, that can process efficiently a high level of transactional volume, and therefore, are addressed to medium and large companies, those ones that usually already have an important application platform, and that seek for optimization of the automation of their processes and generate a greater business intelligence.
But these implementation time periods do not apply to ERP products which I will call “small”, when referring to those ERP that include only a few basic processes, that offer a limited functionality, that have a very little configuration and setting of parameters capability, that support a low level of transactional volume, and therefore, are oriented to small businesses, those that usually do not have any application platform, and that seek for automation of their processes for a first time. For this second group, the times for the definition and implementation stages, are dramatically shorter for obvious reasons.
In this series of blogs, I will focus only on the implementation of the “large” ERP products.
It must be kept in mind, that an ERP project is done not only with the work to be performed by the consulting company hired for implementation, to which, from now on, I will refer to as “the implementor”. The implementation of an ERP is a teamwork, that consumes a lot of effort for both, the implementor, and the company that hires its implementation, to which, from now on, I will call the “client”, and, if any of them stop doing, or does not do well, his corresponding part of the job, for sure, the project will not be successful.
By the other hand, the adaptability of the users to Open Source ERP Software will be very difficult at first, due to their limited expertise at the moment to operate their processes in the new system, so that, their level of satisfaction on it will be very low at the beginning, but will rise gradually to the extent that they become known and increasingly taking advantage of it.
The benefits of implementing an open source ERP, will not be seen immediately. These probably will be seen just after the first year of its utilization, at which time, the system will be fully stabilized, will provide more historical information, users will be more proficient in their operation and will have learned to exploit in a greater measure the benefits of the new system. Besides, when the Open Source ERP software is put into production by the first time, it runs the risk of temporarily affect the business, because it is likely that in the early days some difficulties could arise for billing, dispatching, collecting, buying, accounting, etc.
This can occur if the processes in the ERP are not working properly, either by operational mistakes incurred by users due to their inexperience, or because some process was not well designed, or due to not detected defects during the software configuration, or inconsistencies in the initial data entered into the system. Once the Open Source ERP is put into production it can also cause a “temporary blindness” in the company, if it does not have the necessary information for business control and decision making, which can occur, when there is a delay in the delivery of the first reports that must be issued by the new system.
For all above mentioned, the Open Source ERP software projects are often perceived as expensive, long, complex, hard work, hard adaptability, long-term benefits and with a high risk of failure, or at least with an initial impact to the business. This in itself already sounds a bit disappointing; however, the good news is, that an ERP, like any other project, no matter its complexity, can be well implemented, if it follows the right steps and takes a good control over all its activities. What should ERP be implemented? With whom should be implemented? What should you ask? What should you get? How should you manage its implementation? These are just some of the questions that surely will come to mind when thinking about implementing an open source ERP solution.
The answers to these questions, will be found in so far as the reader progresses in the reading this series of blogs.
The content of this book and its recommendations to the readers, are the result of the training and the author’s experiences in this kind of projects, and due to have had the opportunity to be several times on “both sides of the playing field”, as project manager of the implementor, and as project manager of the client. In order not to do so “extensive” the content, or too “heavy” the reading of this book, the author only deepens the minimum required in each subject. Just enough, so that the reader will keep in mind, all the aspects to be considered, and the most important recommendations on each aspect.
This book does not follow the letter of any project management methodology in particular, and its fundamental purpose is to serve as a practical guide to help ensure that an ERP project be successful, so undoubtedly will be very useful for corporate officers, professionals in project management, information technology executives and other persons interested in this topic, but mainly for those people who are responsible for leading an ERP project.
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