© 2012, Frank Scavo. All rights reserved. After the Implementation: Best Practices for Optimizing ERP Frank Scavo [email protected] (949) 442-0114

© 2012, Frank Scavo. All rights reserved.

After the Implementation: Best Practices for Optimizing ERP

Frank [email protected]

(949) 442-0114

The Manufacturing ERP Experience October 4, 2012

© 2012, Frank Scavo. All rights reserved. 2

About Frank Scavo

APICS Fellow (CFPIM)President, Strativa President, Computer EconomicsPrincipal Analyst, Constellation ResearchBlog: Enterprise System Spectator at http://fscavo.blogspot.comAdvocate for end-user IT organizations


ERP Experience Life Cycle

ERPSelection

ERP Implement-

ation ERP Use

3


What is to “Optimize?”

op·ti·mize:1. to make as effective, perfect, or useful as possible.


Optimizing ERP Makes ERP…

• Perfect: – Fits your business

• Useful:– People actually use it– It is worth using

• Effective:– Has positive effects on

your business


ERP Optimization Case Study: Midsize Manufacturer

Order entry process cumbersome

Poor support for returned material

Sales reporting inadequate Database row-locking Serialization of inventory

leading to high transaction volumes

Some production processing outside ERP

Poor visibility and costing of WIP

Manual processes for MPS/MRP

Poor visibility for non-conforming material

New product information and engineering changes not tightly controlled

Poor response time Purchasing units of measure

conversion done manually Receiving process requires

re-keying of data Quality Group can’t keep up

with production volumes Etc., etc.

Symptoms


7

Tracing Symptoms to Four Root Causes

Wrong System

System Not Installed Correctly

System Not Being Used

System Not Being Used Effectively

Not “Perfect” Not “Useful” Not “Effective”


Category #1: The Wrong System

Missing functionalitySystem performanceNot scalableBugs


Category #2: Right System, But Not Installed CorrectlyBusiness processes not configured correctlySystem tables incompleteProduct cost elements not detailed enoughInventory locations not set upRelevant system options not turned on


Category #3: Right System, But Not Using It

Unfinished implementation (e.g. “Phase II Syndrome”)Lack of knowledge about system featuresParts of the old system still in useSide systems


Category #4: Right System, But Not Used EffectivelyData inaccuracyLack of user proceduresPoor disciplinesLack of trainingOrganizational disincentives


Overlapping Root Causes, Vary by Organization

1. Wrong System2. Right System, Installed Incorrectly3. Right System, Not Being Used4. Right System, Not Used Effectively


From Our Case Study: Analysis of Symptoms and Causes

Wrong System

Right Sys-tem, But Installed

Incorrectly

Right Sys-tem, But Not

Used

Right Sys-tem, But Not Used Effec-

tively

0%

25%

50%

75%

100%

27%33%

73%

40%

*Adds to more than 100% because some symptoms cross multiple categories

Decision: Stay with

Current System But Take

Corrective Actions


Opportunities for Sub-Optimization Throughout the ERP Life Cycle

ERPSelection

ERP Implement-ation ERP Use

14

• Picking wrong system

• Implementation mistakes

• Limiting scope for cost/ schedule

• Changing business requirements• Organic growth• Mergers and acquisitions• Organizational restructuring• New products/services• Changing business model• New demands from customers & suppliers• International expansion


The Cost of ERP Must Also Be Optimized

15

ROI =Return

InvestmentBenefits

Cost=


Cost of ERP is Mostly in Ongoing Support

Up-Front Costs; 21%

Ongoing Support;

79%

Implementation Plus 3-Year Ongoing Support

16

Up-Front Costs; 7%

Ongoing Support;

93%

Implementation Plus 10-Year Ongoing Support

Source: Computer Economics, 2012Assumptions: 100 user, on-premises ERP systemUpfront Costs: ERP license, data center hdw/sfw, implementation expenseOngoing Support: ERP maintenance fees, data center hdw/sfw maintenance, ERP staff costs


And, Total Cost of ERP Often Exceeds Expectations

Out of 16 technologies we surveyed in 2011, ERP ranks WORST in terms cost overrun. Out of 16 technologies we surveyed in 2011, ERP ranks WORST in terms cost overrun.


How Can We Optimize ERP?

1. Analyze Root Problems 2. Identify Corrective Actions

3. Identify Potential Cost Savings

4. Carry Out an Optimization Roadmap

18

op·ti·mize: To make as effective, perfect, or useful as possible.


If You’ve Got the Wrong System…

Can it be fixed?Newer versionVendor PatchModificationCan you work around the problem?Can you supplement the system?Do you need a new system?


If System Was Installed Incorrectly…

• Why?– Ignorance? – Trying to make new system

look like the old– Some other reason?

• Can you change the set up?

• Do you need to re-implement?


If System Not Being Used…

• Why?– Old system still in use? – Lack of training?– Lack of resources to

implement?– Resistance to change?

• Solution depends on the problem


If System Not Used Effectively…

• Data problems?• Discipline problems?• Integration problems?• Incentive/Measurement

problems?


Postscript: Consider Cloud Deployment

• Facilitate upgrades• More flexible in accommodating

changes in business volume or business model

• Sometimes include development environment for extending system, without modifications

• More easily leverage 3rd party developers

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* Source: “The Differences Between Cloud ERP and Hosted ERP and Why They Matter” Constellation Research, 2012


Midsize Companies

Small Companies

ERP Cost Optimization: Consolidation is Key

• ERP support staff are more productive in larger installations– IT staff in midsize

companies support twice the number of users as in small companies

– In large companies, the ratio triples

• Therefore, combine multiple ERP systems, versions, and instances wherever possible

24

Source: “ERP Support Staffing Ratios,” Computer Economics, 2011

IT support

ERP users


ERP Cost Optimization:Minimize Code Modifications

25

Source: “ERP Support Staffing Ratios,” Computer Economics, 2011

ER

P S

taff

Pro

du

ctiv

ity

Situation worse if mods cause organization

to forgo ERP version

upgrades

100%

“Few” or “No” Mods

80%

“Many” or “Extensive” Mods


ERP Cost Optimization:Consider Third-Party Maintenance (3PM)

• Vendor margins on software maintenance can exceed 90%

• Much software maintenance revenue goes to fund new development

• Customers who don’t plan to upgrade may do better with 3PM

• Savings on order of 50%• 3PM providers may support

customizations26


ERP Optimization Roadmap

Root Cause Problem Analysis

Optimization Initiatives

Cost Optimization Opportunities

Typically 6-18 monthsTypically 5-20, depending on severity of problems and organizational capacity for change

Priorities and task dependencies


Optimizing ERP Can’t Wait Until “After the Implementation”

Your ERP selection and implementation decisions today will

dictate your optimization options

for years to come

For Example:• Pick the right system• Negotiate to keep your

3PM options open• Consider cloud

deployment• Implement correctly• Limit modifications• Etc., etc.


Thank You!

Frank [email protected]: @fscavowww.ConstellationRG.com

The Enterprise System Spectatorhttp://fscavo.blogspot.com

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© 2012, Frank Scavo. All rights reserved. After the Implementation: Best Practices for Optimizing ERP Frank Scavo [email protected] (949) 442-0114