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ERP system replacement criteria

February 2008 | BY Sanjay Kumar Pal

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An ERP system is our information backbone and reaches into all areas of our business and value-chain. Replacing it can open unlimited business opportunities. The cornerstone of this effort is finding the right partner and specialist. Our long-term business strategy will form the basis of the criteria for our selection of an ERP system replacement. Our ERP provider must be part of our vision. It is the duty of a software provider to help us to get there by doing their part to make sure our next system will be our last ERP system replacement. Some of the criteria that allow us to identify and select the solution that will meet these expectations.

Criteria 1: A Future Proof

To under stand what the next ten years will bring for manufacturing, and what impact it will have, look at the last ten y ears and double that rate of change. Technology will provide information to the knowledge worker at any time on any device. Information will be personalized and will anticipate the needs and activities of every organizational role. It will focus on providing data to make decisions on exceptions and automating routine daily processes. And it will have to adapt to new business and technology strategies that few of us can accurately predict today. Evidence of dedication to providing strategic, enterprise wide, mission-critical applications to support your manufacturing business models and size today and tomorrow, is important. To that end, look for a reputation for agility in accommodating new market needs. History is the best predictor of the future and vendors involved two decades ago in the early development of "computerized" manufacturing systems based on sound manufacturing principles will provide a more solid choice. That philosophy must also continue today, delivering new solutions such as Quick Response Manufacturing (QRM), Workflow and E-Business that streamline and automate business operations and processes. An ERP system needs to grow with your company and business plans, according to industry executives. One of the greatest proofs of this assertion is from customers that have grown by acquisition. It is not possible to predict the dynamics of future company acquisitions. Even so, a future-proof system grows and accommodates multiple facilities and companies with different processes. For example at one medical supplies manufacturer, ERP plays a vital role in their acquisition strategy. Its complete integration facilitates enterprise-wide visibility and decision making, while its flexibility enables easy adjustments to suit unique business requirements, rules and practices of acquired companies. A manufacturing software system's history of evolving to changing business and technology trends is not accidental. From the beginning, this agility would have to have been designed into the system. Clearly, this points to its ability to support your vision of manufacturing - known and unknown - both today and in the future.

Criteria 2: Rock-Solid Solutions

Somewhere between concept and delivery, many good software ideas lose focus on the most important principle of providing value as perceived by the customer. Are technologies are evaluated and employ ed based on their relevance to the needs of manufacturers and distributors? Delivering relevant technology-driven solutions that provide demonstrated and sustained business advantages for customers, is a rock-solid approach. Leaders in the ERP industry place a higher emphasis on providing critical functionality needed by their customers. Theirs is no t a "vanilla" system that is a commodity that merely has the same functionality as every other system on the market. The best systems, as their customers will attest, include capabilities t hat are essential for manufacturers looking for new ways to be more competitive. The origin of a system is an important distinction. For manufacturers, the right system is one that, from its beginning, has been based on a strong manufacturing and process engineering foundation. It all starts with good bill of material (BOM) management and practices as the central element tying together many of the systems functions. Inventory management, purchasing, material requirements planning, costing and sales are just a few examples of functions that are tightly controlled by the systems' BOM Management application. The engineering origins of the strongest ERP solution makes it a reliable and accurate replacement for less rigorously designed systems. Another dimension of the rock-solid category is the extension of the system to a vast degree through self-authored content and adherence to a commitment to a high level of system-wide integration. This enables you to implement the latest techniques because the system can be more easily maintained and upgraded with additional functionality to accommodate new manufacturing techniques. Today, systems must support a wide spectrum of capabilities including supply chain management, supplier relationship management, customer relationship management, manufacturing, finance and accounting, and human resources. Rock-solid solutions generate rock-solid results. Companies that use functionally superior ERP report measurable improvements that are orders of magnitude greater than they had expected:

  • 90% reduction of order-to-ship time
  • 86% reduction of order entry steps
  • Reduction of time to "configure" orders from hours to minutes
  • Lot size reductions from 50 to 10
  • 99% next day shipping of service parts
  • $120,000 reduction in finished goods inventory in four months
  • 99% on-time off-the-shelf fulfillment and delivery rate
  • 50% reduction of labor and overhead
  • 1/3 reduction in manufacturing lead times for complex engineer-to-order products
  • 80% reduction in labor to create bills of materials
Criteria 3: Replacement Know How

This is one of the most important decisions you will make for your company and you will want to select a vendor that has been down this path more than a few times. To be sure, when ERP is practically all a vendor does, it is a better choice than one with divided, unfocused interests and business units vying for resources. In the last five years system replacements have reportedly been over 80% of ERP implementations. When a vendor's business is 80%-90% system replacements, they have learned what it takes to make a smooth and flawless transition. They will also have become experts at how to review and replace ineffective processes that an old system has forced you to use.

Your data is an asset. That's why it is important to find a provider with a strong emphasis on being able to automatically migrate the data you currently maintain about your suppliers, customers, production resources and employees. The goal is to help you through this process by minimizing the costs and disruption of conversion, while maximizing your knowledge of the new system. Utilities in the system should aid in moving data from "legacy" systems to the new database. The methodology should be easy to use, reduce the amount of knowledge of database and programming techniques needed, and provide auditing of the converted data to ensure its integrity before going live on the new system.

Replacement know-how means having experience replacing almost every tier one and tier two system for discrete manufacturing and light distribution, as well as homegrown systems. From systems for the largest fortune 500 companies, to systems for mid-sized an d the small manufacturers, look for the vendor that has replaced them all, for businesses with both single and multiple packages. If your current system is no longer accommodating your business requirements or if you are growing beyond the abilities of small business accounting packages, spreadsheets or database applications, they can help. There are very few transition situations, concerns and questions they haven't faced and solved. Each replacement came with its own set of issues, coordinating multiple databases, changing organizational models, implementing new part numbering schemes, converting manual process an d data, and both large and small database conversions, to name a few. In the final analysis, you will need to hear testimonials from their users such as a construction equipment manufacturer who said, "In the weeks following implementation, our system was tested and didn't even blink."

Criteria 4: Elimination of Implementation Guesswork

The success of your new system depends on two dimensions: the length of time it takes and the amount of business change and value delivered. Quick advantage occurs when the implementation is fast and results in high strategic value. This type of implementation is the greatest strength of the software vendor you are looking for. According to the dictionary, to install is to fix in position for use, but to implement is to carry into use. A proven implementation methodology removes uncertainty and addresses your expectations for a rapid, effective and worry-free system replacement process. That methodology starts at your very first meeting with our sales representative and carries on through measurement of your results and return on investment. On the speed of implementation dimension, the best systems can now be typically implemented within six months and many inside of four months. For example, one manufacturer of fastening equipment, such as nail guns, simultaneously brought up 14 sites in just six months. Do not, however, be misled by speed alone. Along the strategic value dimension, effectiveness and a worry-free process rounds out the three implementation critical success factors. To reinforce the right choice, the one you can get implemented on time, and will get you the return on investment anticipated, there must be a comprehensive methodology. At a high level the following seven elements are required:

1. Discovery: Based on information gathered in a discovery session, a preliminary project plan and statement of work (defining the scope, schedule and resources) are developed.

2. Strategy: A project manager helps you determine the impact of change on various areas in your organization and develop a strategy for managing the changes.

3. Business Analysis: In this phase, roles and responsibilities are defined, goals and objectives are revisited and the project pl an is finalized.

4. Education: Thorough training takes place, with methods based on your culture, size and objectives.

5. Application Configuration: This phase provides for reviewing the deployment strategy, developing functional specifications and preparing test scripts to be used for conversion testing. Menus, screens, user-defined fields and workflows can be tailored to your specifications and tested.

6. Readiness Assessment: Requirements, procedures and the data conversion process are finalized at this point. A final integrated systems test is performed and end-user and overall readiness are assessed.

7. Deployment: The data conversion is finalized and the system is rolled out to the entire company with close monitoring by the vendor's consultants.

Criteria 5: Manufacturing and Distribution Mastery

With extensive manufacturing and distribution experience and expertise, a vendor will be equipped to offer you the kinds of support services and tools that allow you to successfully solve your most difficult business challenges, rapidly deploy applications and maximize your return on investment. The number one weakest link in IT implementations has been reported to be consulting expertise, so make sure a vendor's staff of design professionals, systems analysts, technical, manufacturing and distribution consultants, and financial experts understand manufacturing and distribution inside and out. In addition, they need to know how to provide you with the most cost-effective software solutions. It seems obvious, but the right vendor must understand discrete manufacturers and their production modes. Test their knowledge in their largest concentration of customers. This might be in electronics, medical products, and industrial and commercial machinery, or other industries they serve such as fabricated metals, transportation products, sporting goods, consumer packaged good, furniture, household appliances, heating and air conditioning, plastics, fasteners and fastening equipment, construction machinery, musical instruments, telecommunications equipment, and many others. While understanding there are common challenges among these groups, make sure they are also knowledgeable in the different modes of production that they employ, such as make-to-order, make-to-stock, assemble-to-order, engineer-to-order, configure-to-order, and repetitive/flow manufacturing. To complete the picture, be certain their team will help you integrate the system's distribution and logistics capabilities so you can not only make, but also deliver, the right product at the right time and place to the right customer.

Look closer to verify that the software provider maintains a highly skilled work force and industry experienced owner-managers that assure their long-term ability to serve your company into the future. On the front line, the team consists of a consulting project lead, a financial specialist, and a manufacturing/distribution specialist. The consulting project lead is responsible for coordinating the entire transition process. The financial specialist knows how to make financial functions work toward your investment objectives. And the manufacturing /distribution specialist makes sure the system meets the requirements of your manufacturing and distribution environments. Highly skilled and experienced consultants must be assigned to each phase of your project. Look for seasoned experts, who have real world experience and an extraordinary number of consultants certified by APICS (American Production and Inventory Control Society) at the CPIM (Certified Production and Inventory Management) or Fellow levels.
  • Do all levels of people at your vendor understand manufacturing, from programmers to executives?
  • Do you have complete access to technical service groups, the National Helpline, Software Consulting Services and the Installation and Upgrade Support Group?
With that depth, you can have confidence that the system will fit your needs both now and in the future and that they know how to help you move from an old system and processes to an extensible enterprise software infrastructure.

Criteria 6: A Testament to Scalability

If this is to be your last ERP system replacement, investment protection should be the cornerstone of your software provider's product development strategy. Have they maintained a continuous history of growth while providing upgrade paths to their customers? Emphatically embrace this philosophy and make sure your vendor pledges to continue it into the future.

As a testament to a vendor's ability to keep up with the needs of their customers, the percent of customers on current releases of their software should be high. The uncommonly good vendors are as high as 98%, and the percent of customers on maintenance may be as high as 99%. Furthermore, in an industry where the average life expectancy of an ERP installation is 5-7 years, inquire how many clients systems have been in use longer than 5-7 years and how many have had their systems 10 to 20 years or more. A vendor with a majority of clients over the 7 year mark is doing things right. These are unprecedented numbers in our industry and are proof of the ease of upgrading, the low need for custom programming, and the high relevance of capabilities delivered in each new release. It means you can continue to expand the system's functionality as needs arise or as new features become available.

A major element that allows the system to grow in concert with the scale of our customers is in its design approach. To create more flexibility in how the package is used, it is designed to require few customizations, if any. This means that you can easily upgrade to future releases of the system without having to worry about the impact of custom programming done to meet unique requirements. And for those times custom programming becomes an inevitable option many jointly developed functions for specific customers and industries are often incorporated into the standard product, making the next upgrade easier.

Check to be sure there are no limitations on the software's ability to accommodate small and mid-sized high growth companies or large (fortune 500) corporation s with multiple divisions. Take the example of a maker of archery equipment that has been using the same ERP system for 17 years. When they first started they had twenty employees, two computers in accounting and about 5 product part numbers. Since that time they have expanded to 10 types of compound bows, 5 recurve bows, various options, as well as a full line of bow hunting accessories - far beyond the 5 original part numbers - and are nearly doubling that number every year. Their system has established a history of keeping up with all aspects of their growth including their product line, number of employees, and number of customers to allow them to adapt to new business requirement s. At a manufacturer of air conditioning equipment and user of their system since 1984, they believe the flexibility of their system has been the critical factor in their ability to deal with industry change. Interestingly, they came from a mainframe environment that required large amounts of resources to support the system. Since installing the system, they have quadrupled in size from $60 million in sales to over $200 million and the software has kept pace with that change without any problems. Whether you increase the number of users, expand the number of facilities, or implement new business models, be absolutely convinced your new system will continue to remain and become more integral to your business.

Criteria 7: Community Collaboration:

Manufacturers do not get to know the people and culture of their ERP supplier before making the selection decision, though it is frequently a major reason for making the replacement decision. You must know how customer-oriented your supplier is and how much information they provide to those on the front line. When people at your choice of vendors, who provide support to customers are given immediate access to all the information they need, they cannot help but take responsibility. Central to any vendor's mission is the commitment to your long-term success. This commitment is the motivation for the quality technical support services offered to clients. To address a wide range of technical supp ort needs and system skill levels, look for a comprehensive support program. This total support package is designed to provide you with the in-depth product knowledge and skills you need to learn how to use the system most effectively in your unique manufacturing environment. Most importantly, the support program includes access to valuable resources, services and information that will make the most of your every encounter with your vendor. In addition to standard offerings such as Field Consulting, National Helpline, Installation and Upgrade Support, Software Consulting Services (i.e., custom programming), and Training, the vendors that stand behind their commitment to customers offers exclusive services that have a powerful impact on the success of your ERP implementation:

Criteria 8: Integrity and Dedication

Determine the longevity of your vendor. Not many can claim to have been a leader in providing manufacturing solutions for over two decades. In that time, the few that have, have found that nothing speaks more to their level of integrity than their promise that they don't recommend a solution until they understand enough about your business to know it is a good fit. They make sure it will work in your environment. Your selection of a system is just part of a continual process leading to achieving rapid return on investment. Honesty is the cornerstone of ERP industry leaders. Many ERP software providers have come and gone, and their customers have suffered. To avoid being in that position, look for consistent growth and strong financial stability, adherence to sound corporate and fiscal management practices. Understand their business objectives! It is these strengths that will enable the right partner to be a dominant force in the industry for years to come. Consistent growth and profitability maintains and improves the ability to provide exceptional support and technology advancements in step with your developing needs and the needs of the market. This is one more way to take the worry and guesswork out of your decision to select your best, and last, ERP system replacement.

Criteria 9: Delivering Return on Investment

In a 200 1 survey by Information Technology Toolbox, 59% of 1124 respondents, by a margin of 3 to 1, saw their highest return on investment (ROI) coming from ERP. That has been the case for over two decades due to strategic, enterprise resource planning solutions that streamline, integrate, automate and improve manufacturing operations in companies like yours around the globe. An ex tended ERP solution manages processes across your value chain. Some of the results of this coordinated effort that help you achieve the maximum return on investment with the shortest payback period include:
  • Reducing your lead-times and cycle-times
  • Increasing the accuracy of your costing
  • Protecting your profit margins
  • Increasing your market share
  • Reducing your inventories
  • Shortening your product lifecycles
  • Increasing loyalty of your customers by responding faster and more effectively
  • Streamlining communications
On the investment side of the equation, the ability to provide a lower cost of ownership solution is a result of three factors. First, is the system as functionally rich as tier one solution that are targeted for fortune 500 companies, but with an initial investment that is a small fraction of the cost? An intense focus on programming development for the needs of mid-sized manufacturers and also efficiency of implementation results in providing the same level of functionality at a lower cost. Second, as a corollary to the low initial cost of ownership, the reduced maintenance cost alone, based on the lower software cost, can heavily minimize, if not entirely pay for, the cost of replacing an existing system. Third, the system architecture and underlying technologies, such as the imbedded database, require minimal support, people and resources to maintain - far lower than most other tier one and even more comparable tier two systems.


Source: Ubiquity Volume 9, Issue 8 (February 26, 2008 - March 3, 2008)

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