We explored ERP user experiences -- why they chose their vendors and what types of benefits and challenges they discovered -- through in-depth interviews conducted in January by Market Data GroupFast facts: enterprise resource planningERP definition: An enterprise resource planning system (ERP) is a packaged business software system that lets a company:
* Automate and integrate the majority of its business processes.
* Share common data and practices across the enterprise.
* Produce and access information in a real-time environment.
So, you thought ERP was all about tracking factory inventory and crunching pay cheques. Well, listen to the opinions of a couple of dozen managers -- some who were pioneers in ERP and some who are just launching their implementations -- and it becomes clear that enterprise resource planning strategies were really designed to get the corporate house in order.
Better inventory management and faster order processing were on the minds of some people when they set out on an ERP course. But the real benefits most people have been chasing have revolved around matters such as standardising business processes, building a clean base of data and erasing the complexity, expense and year 2000 problems surrounding legacy systems.
The managers interviewed included a mix of information technology executives and executives from departments such as human resources and finance. When they were asked to cite the forces that drove their ERP strategy and the benefits they have seen, more than half of them said new ERP systems give them the chance to standardise or improve their business processes. They cited lower costs in 11 cases, year 2000 problems in 10 and the need to support corporate growth or market demands in seven.
The following ERP managers share their experiences and offer advice for their peers.
Challenges in ERP implementation
The ERP project teams tackled a broad spectrum of issues and problems, ranging from PC compatibility issues to management challenges such as selling an ERP plan to the CEO. The most common problems centred on networking issues, knowing when to allow users to modify the packaged software and user training.
"The scope of the project was the largest challenge. To implement a fully integrated suite meant we had to change every application in the company. Our mind-set had to change from our traditional way of doing business: user specification, design, write the application, implementation. We had to become accustomed to buying something off the shelf' and using it as it came." -- David Mewes, CIO (J D Edwards user)"There had been no standardisation among desktop computers. Although it seemed as if we were changing only the accounting system (or desktop we were implementing a large culture change. We faced a training challenge when we asked people to transition to a Windows 95 environment from DOS." -- Terry Smith, IT director.
"Mapping our business and re-engineering model with SAP functionality. We needed to find the way to build a leasing application layer with R/3 architecture without changing a line of R/3 code." -- Michael Cromar, managing director (SAP user).
"In 1993, SAP resources were incredibly hard to find." -- Rodney Rogers, general manager (SAP user).
"The need to purchase new hardware -- there was no existing [wide-area network]. The need to keep the old system running during the changeover." -- Juan Garcia, systems manager (SAP user).
"Finding qualified Baan people here was quite a challenge. Communications have also been a challenge. Figuring out how to lay out a wide area network to handle this." -- Robert Hyche, project manager (Baan user).
"J D Edwards doesn't really get into [the apparel industry] very well, so we had to put some programming around the system to meet the needs of our company and industry." -- John Lessmeuller, director of IT (J D Edwards user).
"From an MIS perspective, it was the planning and incredibly long hours. My hat's off to those folks and their families." -- Julie Peeler, corporate vice president (Baan user).
"Gaining CEO endorsement . . . Our company had not developed software in over 11 years." -- Michael Cromar, managing director (SAP user).
Benefits so far
Just as the rollouts and modifications will continue for years, some benefits could take years to come together. However, some managers already cite cash benefits -- one manager is saving $1 million per month through inventory management -- and better management in general.
"We saved many dollars and man-hours in avoiding Y2K upgrades. We have fewer people focused on transaction processing at the business units, allowing them to spend more time on reviewing and analysing financial results." -- Terry Smith, IT Director.
"Cost savings. For example, $165,000 per year on salary administration. Technical support staff cut from 12 to five." -- Diana Near, assistant director information systems (PeopleSoft user).
"Our sales increased two and a half times from the time we started the study through implementation. If we had remained on the legacy system, we would have needed to add at least 20 people in manufacturing, order entry and shipping to support that sales growth. I would estimate that we saved approximately $1 million in 1997, with recurring savings every year." -- Wally Hayes, vice president (J D Edwards user).
Benefits to come
The managers generally look at their ERP strategy as setting the stage for efficiencies and profits down the line. In many cases, the expected future benefits extend beyond the reach of their original ERP goals, and often are in tactical rather than strategic areas.
"We will be going to biweekly pay which will have a bottom-line dollar benefit to the company . . . It will reduce our year 2000 efforts on our old systems, and we will be fully year 2000-compliant. Reduced training will result in some productivity improvements." -- Ken DeWitt, vice president, corporate information systems.
When we asked managers what they want from their vendors, they often said they need cleaner code, fewer upgrades and better support. Beyond those requests sat an undercurrent of calls for additional functionality.
"First, I would like to see true optimisation of multiplant supply chain. The second thing is to keep the upgrade process as low-cost as possible and as simplified as possible . . . We would like to upgrade people at the same time in a simple, low-risk, low-cost manner." -- Don Castle, CIO (SAP user).
"We have been somewhat disappointed with the capability of SAP's support organisation." -- Wayne Sylvanowicz, (SAP user).
"Quicker turnaround for patches would be better. I like being able to apply a patch which affects just a few sessions." -- Robert Hyche, project manager (Baan user).
"Continue in the direction of ease of use, particularly for the casual user. It's not a friendly world for the casual user at this point. The vendors need to target the casual user [vs the frequent user] because if it's too difficult to use, the power of the system will be diluted." -- Vicky Pafk, executive director payroll operations and technical services (SAP user).
"Scheduled enhancements. There should be a cycle of development where the vendor takes input from the clients over one to two years and they should roll out major releases every two to three years. I don't have time to upgrade my software every year." -- Patrick Thomspon, CIO (J D Edwards user).
Besides the traditional big-project advice of "get CEO support" and "listen to the business user", the managers warn their peers in other companies to prepare for the long haul, make the most of out-of-the-box functionality, and ensure the participation of end users in the project.
"You really need to minimise customisation. Don't try to turn the ERP system into something unique for your company, but change your processes to work around the ERP system." -- Ken DeWitt, vice presient corporate information systems.
"Do not underestimate the need for change management. It is a full-time job." -- Wayne Sylvanowicz, program manager (SAP user).
"I recommend that businesses streamline their . . . processes and not just automate the way they have always done things . . . Use focused resources. Pull people off their regular jobs, put them on project teams, and give them specialised training -- both technical people and business users. If you need to hire contractors, use them to support the legacy system." -- Diana Near, (PeopleSoft user).
"Do not think you can do this alone. Your success depends on getting absolute CEO support . . . Start data migration the day you start your project." -- Michael Cromar, managing director (SAP user).
"Take a hard look at the software today. The functionality has moved light years ahead in the past two to three years. Stick with the vanilla processes as much as possible. The software was designed around best practice thoughts. Utilise that." -- Rodney Rogers, general manager (SAP user).
ERP sneak peek
-- James Connolly
Watch for 1999 to be a year marked by ERP vendors trying to add new decision-support tools and to drive into new vertical markets, particularly those outside the traditional manufacturing sectors.
Expect those same vendors to make progress in -- but not complete -- their integration of back-end ERP systems with front-office sales tools.
Analysts at AMR Research (http://www.amrresearch.com) offered their views on where ERP technology and some specific vendors are heading this year.
"During the past two or three years, many of the vendors have been developing vertical-industry offerings. They have been shifting their products, sales and consulting services to vertical industry orientations.
That will continue," says Jim Shepherd, an AMR vice president. Watch for vendors to extend their products in vertical industries in part by adding functions that are specific to that industry, such as special reporting capabilities.
Many of the vendor moves have been into nonmanufacturing areas such as retail, utilities, health care and the public sector.
"Except for the production aspect and sometimes the sales aspect, these organisations need to do all the things traditional manufacturers will do," says David Caruso, an AMR vice president.
Caruso notes that organisations in those areas need financial applications, purchasing and other ERP-oriented capabilities. The ability to carve out vertical-industry niches will prove important to many of the ERP vendors, particularly second-tier vendors, he says.
Although ERP vendors have been promising to integrate sales force automation software -- some of it coming from small vendors acquired by large ERP players in the past year or so -- with their core applications, Caruso says most integration now is limited to the SFA package passing a sales order on to the ERP package.
He anticipates that true integration is at least two years away.
However, Shepherd and Caruso do expect more user demand and more vendor activity in the area of business intelligence or decision-making. Business intelligence tools once were sold to IT people who, in turn, would show business users what types of decision-making applications they could build.
"Now it's being sold to the business users as an application," says Shepherd, who notes that it can be the tool that helps to sell the overall package.
Watch for creative pricing strategies centring on the number of seats covered in a licence that will disguise the fact that "the overall value to the vendor has gone up dramatically''.
Most vendors have announced some form of browser strategy, but the real user interest will be in using portals as convergence points for all sources of data.
The recently released Microsoft SQL Server 7.0 database management system could prove a serious competitor to Oracle's Oracle DBMS in the ERP space, particularly with many users interested in Microsoft Windows NT.