Taking steps to optimize your business
Think back to when you first began considering a serious digital transformation within your company. If you're like most leaders, the first and most basic reason you began to think about a change in enterprise resource planning software and systems was when you recognized that your current processes and systems are outdated. You had to finally come to terms with the fact that manual processes and legacy systems are creating a bottleneck that is holding you back.
This realization is, arguably, more important than the system itself—when organizations recognize that current and progressive technology solutions are necessary to grow and drive efficiencies within their business, they can move forward into a new era of profitability.
This doesn't mean that your company needs to live on the technological bleeding edge, but staying relatively current is key. Companies that ignore this paradigm find themselves lagging behind the competition, unable to maximize employee efficiencies, keep up with customer demands and meet overall expectations.
Why is a new system so important? In older ERP systems, processes and modules have been heavily modified over the years, with custom interfaces, modules and spreadsheets, making them impossible to upgrade.
Upgrades to new versions would require manual data transfers and time-consuming effort. And companies tend to wait due to prioritizing technology against plant and equipment investments or other change initiatives.
Because old systems have limited capabilities, islands of information spring up as departments find their own solutions from third parties or develop their own solutions, including Access/Excel databases, usually with no involvement of IT. Legacy ERP systems also often operate in batch mode. This leads to a lag in visibility, decision-making and action. These characteristics are reasons why many legacy systems have been "dead-ended" by ERP companies.
Many of our clients haven't thought about what's wrong with their current systems, simply because they don't know what is available instead. We recognize technology is moving faster than most companies can absorb, which is why you need to partner with our experts at Ultra to help you learn new best practices, educate your team, drive business improvements and help discern the technology requirements that can track and measure the new tangible value to your business.
Another reason some consider making a change to their systems is a rather simple, underlying rationale, such as, "Our growth rate is going to be constrained by outdated information technology." Another common scenario we see is, "We've made acquisitions, and we need to get every division on a common system. Visibility to the financials and operational activities is limited, making it difficult to get answers to even the simplest of questions."
Some companies worry the competition has made technology investments beyond their own, and they fear their clients will not remain loyal, causing their business to fall behind. Others just determine that continuous improvement is a high priority, and that better technology will enable more positive change.
The value of a new system
Years ago, companies justified a new system mainly on its ability to improve the balance sheet by reducing inventory and days sales outstanding. Those days are long gone, as most companies have squeezed as much value as they can from these processes.
Companies are now being more progressive in their investment decision-making processes. Those who have invested in continuous improvement activities are now looking at technology to drive even more efficiency and, more importantly, higher customer satisfaction and loyalty. This makes it easier to do business via more competitive, on-demand solutions that meet and exceed customer expectations.
Today, customers are seeking relationships with the companies they do business with. This requires streamlined processes, simplified transaction processes and conversational sales experiences that deliver on promises. The bottom line? These relationships require real-time access to multiple data sets: accurate information, customer buying patterns, competitive analysis, production capability, supply chain visibility and a host of business intelligence information that can be trusted. Within the manufacturing industry, the following factors drive value for new ERP solutions:
Productivity Improvements. With redundant processes, staff are less productive than they could be. While a new ERP may not increase the productivity of lazy employees, it can greatly improve productivity, thereby requiring fewer overhead resources as your organization grows, which improves margins.
Employee Retention. Sooner or later, employee dissatisfaction takes over with the added stresses of business growth and inefficiency. Employees begin to see better ways to manage information and handle their day-to-day activities. Systems that are hard to use and do not have modern capabilities negatively impact employee morale.
Access to Information. Most of our new clients are frustrated, due to not being able to access meaningful, actionable and trusted information within their older legacy systems. Many of these companies still rely on custom spreadsheets or special IT requests for their information. They are unable to get a single source of data truth, and they cannot get real-time data to convert into information to make timely decisions. Thus, late information or no information negatively impacts profits.
Supply Chain Improvements. Many manufacturing companies continuously work to reduce costs and speed up the velocity of the supply chain. Modern ERP systems have better ways to manage inventory, vendor performance and the entire production process.
Engineering Advancements. A competitive edge in manufacturing companies is maintained through engineering capabilities. Engineers are more productive with dynamic configurator capabilities, integrated BOM and CAD information and PLM insights driving product innovation and speed to market, with higher quality and more competitive products. Document management requirements have become much greater, and ERP systems have responded with integrated capabilities.
Financial Consolidation. Many companies have invested in acquisitions over the past few years. Often these acquisitions come with their own set of problems that stem from older legacy systems and inefficient processes. Enabling financial and performance visibility into these acquisitions requires modern ERP solutions. The ability to consolidate financials across business units and operations is key to strategic decision-making and long-term business viability. If business integration is on the horizon, ERP can serve as the enabler to achieve those goals, too.
Quality Management. Effective visibility into the operational processes, supplier capabilities and performance, production capabilities, supplier returns and customer returns with root cause analysis are all factors that comprise a robust Quality Management system. ERP enables this visibility on-demand and provides insights to drive continuous improvement and target resolution to root cause issues.
eCommerce Extensions. As supply chains consolidate, more companies choose the direct-toconsumer channel. This requires retooling in the warehouse to support a pick-pack-ship operation and improved sophistication on supply chain forecasting. Integration between ERP and eCommerce must be robust and secure. Companies must understand the value of a new system for the sake of the enterprise. Focusing on the business benefits with solid justification is the key to successfully moving forward with an enterprise-wide change.
Each year brings an expansion of innovative capabilities in technology and ERP solutions. For example, advanced functionality, module convergence and integration, mobility and cloud, device independence, eCommerce and extensions.
ERP implementations impact all levels of an organization, so securing support is a vital element in the transformation effort. Companies who choose not to quantify these benefits find they have little measure for accountability and fail to meet expectations.
Establish metrics of success in business terms that extend beyond the ERP go-live event, to achieve sustainable success.
Set value expectations to provide targets within the business that challenge you to think "future state" and cut through the tendency to automate the legacy processes and activities.
Changing technology
In the past few years, we have seen continued improvements in not only ERP function, but also in deployment options (cloud), access options (browsers, tablets, smartphones), integration capabilities, and ease-of-use. Our advice to the ERP buyer? Get educated. System capabilities change quickly, customer expectations increase and employee capabilities are more progressive now than ever before. It is hard to keep up!
As independent advisors, it is our job to stay apprised of the vendor solutions, industry trends and best practices. Our four full-time researchers conduct extensive vendor analysis, in-depth solution discovery sessions with vendors, regularly present webinars, write white papers, attend industry conferences and present research-advanced manufacturing best practices to the marketplace. Most importantly, we partner with our clients to apply this knowledge so they can experience these benefits long-term.
Vendor pro tip
The following topics can be received via webinar or a custom vendor demonstration:
Order to Cash Deployment Options Have a vendor describe their cloud strategy. Ask the vendor to see a demonstration of Understand their approach to licensing, an order to cash process for your industry maintenance and deployment Vertical Industry Capability Integration Capability Ask the vendor to discuss the advancements See how vendor tools can be used for accomplished by their customers in your industry integrating systems
Access Options See a demo of entering an order or accessing information on a smartphone or tablet
Many ERP implementations fail due to a lack of understanding and management of risks, such as selecting the wrong ERP system, failing to quantify and justify the benefits and having ineffective communications and change management. Most manufacturing professionals are too busy to dedicate their time to a digital transformation project. Or, they simply do not have adequate experience in selecting and implementing an ERP system and the many associated best practice business processes.
An experienced ERP consultant can bring that knowledge to your team, streamline the overall process, eliminate the risks of the unknowns, ensure the benefits of business transformation and increase the speed to value realization.
What about the cloud?
There is a great amount of confusion regarding the understanding of cloud computing as it relates to enterprise applications and ERP. This confusion stems primarily from three aspects, which make cloud computing unique: the method of delivery, the method of payment and the method of software upgrades.
Cloud-based ERP systems have the following:
Method of Delivery. This solution is hosted completely off-site, on hardware provided by the vendor, in addition to vendor-provided software, database and support. The vendor owns all aspects of providing access to the application to the company. They upgrade hardware, hire staff to support and buy the database. Also, the vendor is responsible for achieving defined services levels.
Method of Payment. For all the services above, the vendor typically charges a monthly user fee for access to the system. If the service levels are not met, some or all of this fee is returned to the client.
Method of Upgrade. One of the many hidden benefits of cloud ERP is there is no longer a need to upgrade to the latest release every 3-5 years, which would involve many IT and functional staff hours. Instead, the system is upgraded by the vendor. In most instances this happens automatically.
The benefits of cloud-based ERP systems over that of on-premise solutions include many of the same aspects of moving to a new system. Users prefer cloud or SaaS due to its ongoing value to the business. When comparing dollar-for-dollar, SaaS model pricing vs. purchase price, plus annual maintenance/support fees, reveals that cloud-based or SaaS is more expensive around year three. However, when including the following aspects into the analysis, true cloud computing may be less expensive.
Staff and Database. Included in these cost savings is the cost of training and hiring replacements, as IT people may leave the organization.
Upgrades. This cost savings includes the staff time of both IT and functional employees every 3-5 years to refresh the software.
Productivity. New modules, features, partner integrations, devices (e.g., phone apps), look and feel, are immediately available. The ability to "stay current" with best practices driven by software capabilities is critical to driving continuous improvement and productivity of the business. Other benefits to consider are reduced risk and matching information capabilities to that of the culture. Risks are reduced by outsourcing the security of your system to a vendor who may have hundreds or thousands of businesses for which they are responsible. This security of company information is one of the main requirements of being a cloud ERP provider.
Culture is one of the bigger fumbles of most organizations when considering cloud ERP. There are many factors to consider to ensure a good match: Who is the company? Is it high-tech? Is it customer-focused? Is the company leading-edge or a fast follower? Are your employees able to easily navigate the current system?
A cloud-based solution is always up-to-date on the newest of technologies, including online detailed help, which drives the productivity of both old and new employees.
Cost of a new system
For years, industry analysts have quoted statistics that show manufacturing companies spending 1% to 3% of their annual revenues on a new system. These are reasonable guidelines, but sooner rather than later you need to calculate your estimated costs for items like software licenses, annual maintenance fees, SaaS subscription fees (if applicable), hosting fees, disaster recovery, business continuity costs and implementation costs. Of these costs, implementation is the broadest category, often including several subcategories such as:
Project management Project governance and accountability Product education Solution design and configuration of the new system Testing the new system Technical assistance (data migration, customizations, system administration and security) User documentation and training Readiness assessments Organization and process change management Benefits realization
For each of the categories above there are further guidelines to consider when estimating and budgeting a new system.
Should I upgrade or buy new?
If you are currently on a maintenance
plan, you should certainly consider upgrading. However, while upgrading may be the easier or most costeffective route versus buying a new system, there are also multiple factors that must be considered before making this decision.
Consider all the legacy modifications you have likely invested in over the years and understand what capabilities the vendor has added to their system that may eliminate the need for porting those modifications.
In most cases, vendors have provided tools and services specifically designed to ease the transition to the new version. But depending on how many versions you are behind, this could prove to be of little benefit. If you are not on a maintenance plan, or the legacy software is unable to meet your foreseeable needs, then you should definitely invest in the research and due diligence to see what else is out there. This may add a few months to your project as you evaluate vendors and their respective solutions, but this investment will likely be well worth the effort when you consider a new solution should last you 10 to 20+ years. By engaging with independent experts like Ultra, this investment can often be accommodated by accelerating the overall process and getting the right technology and solution in place faster and with greater success.
Hiring an independent consultant
Over the last few decades, the industry has fluctuated in its position on whether to hire an independent consultant for ERP and business transformation services. It used to be that about half the market used a consultant and half did not. In some cases, a CFO or CIO was hired to bring their knowledge of ERP to the organization to facilitate a change.
Since the last economic recession, the industry has developed a new perspective. More and more services are being outsourced to allow flexibility in staffing and to take advantage of an individual's specialized expertise. A consulting firm can offer a far greater variety of skill sets and areas of expertise than if an executive or manager with a more limited set of experience is hired. In addition, companies are realizing the landscape of options is far too much for any one person to truly understand.
Now our studies show about 75% of the industry uses an independent consultant to drive the process. Why?
Sooner rather than later you need to calculate your estimated costs and fees, such as software licenses, annual maintenance, subscription, hosting, disaster recovery, business continuity and implementation.
There are two main reasons companies hire independent consultants. First, the experience associated with choosing the right product such as project management and ERP best-practice knowledge are specialties not readily found.
Second is they cannot spare the resources to dive into the project. An independent consultant will enable the successful realization of their strategic long-term goals with more speed, less risk and higher confidence.
Summary
Deciding when to leave your old ERP behind and initiate a new ERP project is one of the most challenging decisions a company makes—primarily because there are so many aspects of the decision that are changing constantly. By providing you with the most important factors to think about in a selection process, Ultra Consultants can explore and revisit these topics to see how they change over time.
Being up-to-date on the software vendors and their industry- and vertical-specific solutions is essential to a successful ERP project. Partnering with an independent consultant like Ultra will guarantee that you have the most recent ERP knowledge to ensure you find the right product for your company.
About Ultra Consultants
Ultra Consultants has a deep passion for helping our clients realize technology-driven business transformations that deliver measurable and impactful business and technology improvements. Our focus is on manufacturing and distribution companies. Our knowledge of industry best practices and enterprise software solutions enables our clients to realize their transformation goals, which typically include:
Dramatic improvements to existing business processes structured upon industry best practices and differentiating business models.
Accelerated process for selecting and successfully implementing the best enterprise and related solutions that align to the needs and future goals of our clients.
Negotiated software purchase agreements and implementation services that deliver the best Total Cost of Ownership for enterprise and associated technologies.
Successful realization of ROI goals and aspirations of our clients through Business Analytics, Process Excellence, Lean, Six Sigma, and other proven methodologies.
Driving these four strategic activities is a highly professional and competent Ultra team to facilitate the complexities of risk management and change throughout our clients' organizations.