Recall the story of David and Goliath. Goliath, a 10-foot-tall giant, challenged the Israelites and blasphemed their God. Not one of the hundreds of thousands of Israelite soldiers dared to speak back to him. This taunting went on for 40 days - until a young shepherd boy found out about the giant and was determined to take him on. Against all odds, and armed with only his slingshot and a few stones, young David slew the mighty Goliath. And the rest is history. Or is it? This 3,000-year-old biblical story is being portrayed today (with several twists of course).
ERP: From Enemy To Ally
When a midsize company decides to install a major ERP (enterprise resource planning) solution it might seem like it's being challenged by Goliath. The only difference in this variation of the biblical story is that the end goal is not to kill the giant but to make him an ally. Also related to this theme within the ERP arena, is the current battle between the midrange ERP companies and the ERP 'giants.' Up until the Y2K issue dissipated, most of the large ERP vendors targeted the Fortune 1000 companies. After saturating this market, these industry giants began targeting the mid-market - especially companies with revenue in the $50 million to $500 million range. To the casual observer it may appear to be a no-brainer that the industry giants will easily trounce their smaller ERP counterparts and dominate this segment. We've seen corporations like Microsoft promise consumers they will release a more superior software package than a lessor known competitor is offering.
Even if Microsoft's months of promises turn out to be nothing more than mythical "vaporware," they often have convinced enough consumers to hold off from buying the competitor's software, thus forcing it out of business. It may appear that a similar "bullying" will force smaller ERP vendors out of business; but, after hearing from a few ERP "Davids," you may have a different opinion on the matter.
Before we delve into the battle, it's best to make sure we understand what ERP is. Jay Taylor, executive director of professional services at Macola Software says, "ERP is a fully encompassing, total solution for an organization and is designed to help manage the whole business." Richard Hardy, VP of sales and marketing for Expandable Software, emphasizes the importance of choosing the right ERP solution when he says, "It's a you bet your business kind of solution. Whether you're doing CRM (customer relationship management), production planning, forecasting; and job execution; or, you're doing e-commerce and supply chain execution, ERP is all encompassing." ERP, which grew out of MRPII (manufacturing resource planning), has become an extension of the enterprise, integrating all of the departments within the organization. ERP is also the foundation for collaborative commerce - multiple departments working together to achieve the same end result.
"Many companies have multiple, non-integrated systems," says Joey Benadretti, VP of marketing for Syspro Impact Software, Inc. "These systems don't communicate; so, they can't benefit from each other's data. Additionally, the data is often incomplete, duplicated, and inaccurate." An ERP solution can solve this problem. But knowing which one is the best for your enterprise is as important as David's slingshot and stones in defeating Goliath.
Bigger ERP Is Not Always Better ERP
The first category to tackle with an ERP solution revolves around the timeless question, 'Does size matter?' Should you focus on the time-tested industry giants who have experience troubleshooting potential problems that will arise after the solution is installed? Or should you consider a midrange ERP vendor that better understands the needs of midsize companies and will offer a more practical solution scaled to your business? Tom Cook, senior analyst of AMR Research believes that the 'big boys' are making great strides in serving the mid-market. "They've heard their clients," says Cook. "They're coming out with solutions that are Web-enabled and easier to use. Previously, the large companies' systems were difficult to implement, overly complex for the mid-market, and required too many IT people to keep the system up and running. Additionally, these giants are now able to implement their systems in 16 to 18 weeks versus the previous implementation time of a year and a half."
One of the most difficult elements with installing an ERP system in the past was determining what the actual ROI (return on investment) was. Nowadays large ERP vendors are setting benchmarks and showing their clients 'this is where you are now and this is where we can get you.' Dave Boulanger, product manager of AMR Research, notes another advantage of the large ERP vendor over the mid-market vendor. "Mid-market ERP vendors typically sell through VARs," says Boulanger. VARs have had to do the work that the major players have already factored into the equation." Boulanger feels that VARs add potentially too much cost to a mid-market vendor's ERP solution. Additionally, a VAR (i.e. third party) may not properly understand the larger scope of the software. These factors alone are potential obstacles for mid-market ERP vendors. "VARs who focus on the business will do well, but other VARs - who only focus on implementing ERP software - will go by the wayside," predicts Boulanger.
Syspro's Benadretti has another take on the relevance of an ERP vendor's size. "The industry is full of stories about large ERP companies pushing their product way beyond what midsize companies need," notes Benadretti. "Also, because of the depth of some of the large ERP vendors' solutions, they have different experts assigned to each module of the system. It becomes a consultant contacting a consultant to get to the answers an enterprise needs. This creates a disconnect of communication which significantly increases the hidden overhead costs that are passed on to the end user." The best way to cut through the size debate is to check references. Any ERP vendor worth its salt will gladly provide a list of its customers who are currently using the vendor's solution. Try to look for the customers that closely resemble your enterprise. Compare apples with apples so to speak.
The Price Of An Integrated Enterprise
After settling on whether to consider a large ERP vendor or a mid-market vendor, cost issues will be part of the next step at arriving at an ERP decision. The cost of installing an ERP solution can range anywhere from about $40,000 to millions of dollars. Why is there such a range in price? Some of the reasons one ERP solution will be pricier than another is for the obvious one: functionality. Whether it is Web-enablement functionality, better enterprise application integration (EAI), or a higher level of CRM (customer relationship management) functionality, these benefits come at a price. Enterprises need to determine what functionality is necessary and what can wait until later. Another reason one ERP system is more expensive than another is not nearly as obvious as the first: perception. According to Hardy (Expandable Software), "One ERP solution may be designed to run on Oracle or Microsoft SQL server databases versus a dBASE or Microsoft Access database. The dBASE and Microsoft Access vehicles do not command the same dollars mostly because their perceived value in the mid-market is not there." Additionally, the hardware plays a major factor in the perception of the solution. A solution that runs on an IBM mainframe will cost more than a system running on an NT network.
A Phased Approach Makes Cents
One way a company can cut down on its initial costs for an ERP solution is to take a phased approach to installing the system as opposed to integrating every department in one 'big bang.' "Beware," warns Taylor (Macola Software). "You cannot buy all ERP solutions in a modular format. Some vendors require you to swallow the whole thing in one bite." After finding a vendor who offers a phased implementation, you need to ask yourself 'what are the critical modules needed to run my business?' According to Taylor, a typical phased installation starts with the financial and HR modules, which may include accounts payable, accounts receivable, the general ledger, and employee database. The second phase ties in inventory control, sales, CRM (customer relationship management), customer service, and supply chain management. The supply chain management module includes e-commerce, purchasing, engineering, and distribution applications. In the final phase, manufacturing modules such as shop floor control, manufacturing process routing, and manufacturing capacity are addressed.
Out Of The Box Or Custom Made ERP?
Another way companies can save
money on an ERP installation is to have a plan before talking to any ERP vendors. "The first thing is to assign a project leader and give this person the authority to make decisions," says Richard Hardy. "Next, the organization has to get educated about ERP and plot out realistic expectations it wants to achieve with the ERP solution." After that, enterprises should ask, 'Which ERP solution is right for us?' "You will never find the optimum solution that meets all your needs," says Jay Taylor of Macola Software. "If you can find an ERP solution that is an 80% to 90% fit you are doing well." Most likely ERP seekers will find a 70% to 80% fit. The 10% to 20% difference can be bridged by tying into other software solutions that integrate with the ERP software or changing some of the ways that 'things have always been done' to align with the software. Scott McMaster, national sales manager for Syspro Impact, is not a big proponent of companies customizing software to fit their way of doing business. "The critical issue is if you customize up front then find out the software could have worked just as well or better without being modified, you've wasted a lot of time and money," says McMaster.
"Typically, bad software companies are quick to modify the software to fit the business. This is rarely in the best interest of e-fulfillment, collaborative commerce, or the company." Other components that should concern a company about modifying software, besides the programming costs, are the potential troubleshooting costs that can be greatly inflated with modified software. When you call the ERP help desk the technician on the other end not only has to understand the ERP software, but they also have to understand all the changes your company made to it. Additional programming, new modules, and the overall changes in functionality to the software must be taken into account. Chances are it's going to be much more difficult to troubleshoot a problem if the software package was modified.
The bottom line with installing an ERP solution is that "ERP is not evil and it's not something to fear," says Hardy. "With proper planning and execution it can be a positive and profitable experience." As for good instructions on 'proper planning and execution,' don't forget about David and Goliath. Even if your organization's resources are the equivalent of a slingshot and a few smooth stones, you still have the potential to slay 'the giant.' Or, if you're really on your game, you can make the giant your ally.
Questions about this article? E-mail the author at JayM@corrypub.com.