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Erp Implementation: Do You Have A Strategic Plan For Execution?
Enterprise Resource Planning (ERP) has transformed from being a resource management software to a critical system that has the capability of affecting the bottom line of businesses while boosting customer satisfaction. With the emergence of disruptive technologies, ERP takes care of complex processes making businesses more competitive and responsive. Thus, when firms decide on implementing ERP, it can’t be an ad-hoc process executed in isolation. Instead, ERP implementation needs to be appropriately strategized, taking into account every challenge that can be expected based on extensive research of the processes involved.
Process in ERP Implementation
While this is the ideal approach for any tech integration, but more so for ERP implementation, it’s critical to follow up with a structured and comprehensive process. This method begins with requirement gathering and continues even after the deployment of ERP with continuous support from ERP vendors.
At the outset, it is essential to conduct a performance analysis to identify the gaps in current business processes. For this, you can constitute a project team that is responsible for finding out why and where software intervention is needed and how implementing ERP will impact KPIs. The next critical task is to define the objectives of implementing ERP, along with developing a project plan. Your objectives should address specific business goals like increasing productivity, supporting expansion, reducing backlogs, and improving on-time deliveries. Additionally, you should define budget considerations, timelines, and training procedures at this stage.
Based on data from your requirements gathering process, you need to choose an on-premise or cloud-based ERP. Nowadays, ERP is available in different versions like on-premise ERP, Cloud ERP (single and multiple tenants), and SaaS (Software as a Service). An on-premise solution is available as an application installed on the organization’s IT infrastructure. Cloud ERP, on the other hand, is hosted on a cloud server and accessible through a SaaS-based model. You should brainstorm these ERP options while mapping the current and future needs of your business with the ERP functionalities. It is critical to consider cost implications at this point. You can consult with ERP vendors and consultants to select the most suitable option. Leading vendors like SAP organize summits to help firms understand how they can innovate with SAP S/4HANA to extract the full benefits of cloud ERP.
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Phases involved in ERP Implementation Process
Convert/ Migrate data: Most organizations face challenges at this phase of ERP implementation due to the extensive amounts of data, much of which is not tagged appropriately. It’s also critical to know which of the data must be migrated and decide which information flow is crucial for various stakeholders for business operations. An essential precursor to this is completing the data hygiene tasks, which means checking the accuracy and validity of the data migrated to the ERP system.
Examine the need for scaling infrastructure: The next step is to assess the current infrastructure. Make sure that your IT infrastructure possesses the scope of scalability to support future requirements.
Complete the necessary customization: At this step, you must check if your ERP solution needs to be customized to support your specific business requirements. Sometimes there is no need for customization as a standard solution can support current and future needs. However, you must ensure that an off-the-shelf ERP implementation caters to all your business requirements, both at present and for the future, when the organization scales its operations. If not, you must ask your vendor to custom-create an ERP model aligning with requirements.
Manage Transition: The decision to implement ERP is expected to bring change in working conditions, operating procedures, reporting structure, resource management, and many operations-related activities. It is vital to enlist the support of employees during ERP implementation. They must be involved in the process to understand the need for change, and leaders must always be available to address their queries and challenges. Top management or change facilitators must handle resistance from employees during this significant transition.
Train the trainer: Training is one of the most critical aspects of the ERP implementation process. You can’t afford an ill-trained ERP vendor sharing knowledge about handling your new ERP system. Your ERP vendor must provide comprehensive training to the concerned project leaders for every department, who will be driving the ERP implementation and adoption. Later, in-house training sessions should be conducted to transfer technical know-how related to ERP to other members as well.
Test the system: Once ERP implementation is complete, it is time to test the overall functioning of the system. You must fine-tune the configuration after ensuring proper alignment between predefined goals and the new system.
Deploy to go live: Before going live with an ERP system, it is essential to ensure that every aspect like data migration, documentation, training, employees support, availability of vendor, etc. are in place.
Ensure the vendor provides continuous support: ERP is a long-term investment and there’s a need for continual support from the vendor for further updates and maintenance. You must enter into a contract with vendors to avail of annual maintenance services.
Evaluate the system: Continuous monitoring and evaluation of performance post-implementation are equally vital for the successful implementation of ERP. You should conduct a post-implementation audit after six months and check deviations between anticipated ROI and current ROI. Keep reviewing the performance of your ERP system to maximize the returns on your investment.
Why strategic planning is necessary for successful ERP implementation
With an inclusive strategic plan for implementing ERP, the chances to achieve success increase significantly. It will answer how you are going to achieve ERP implementation goals with an optimal combination of human and technology resources while creating competitive advantages for the organization.
Nevertheless, companies have witnessed failure at different stages of ERP implementation. Whether it is about vendors failing to secure data during testing, crossing stipulated timeframes or exceeding budgets; or about ERP system ordering wrong inventories or showing incompatibility with existing processes, ERP implementation failures cost massively, and most of them have ended up in court. Faulty planning and incorrect vendor selection are top reasons why ERP implementation fails.
According to the 2019 ERP Report, “ERP implementation requires steady leadership, significant resource investment, the right system integrator as well as a detail project plan and communication strategy. It is most successful when focused on integrating people, processes, and technology.”
Let’s discuss some instances when this didn’t happen leading to ERP implementation breakdowns
Discount supermarket chain Lidl upgraded its legacy system with SAP HANA and planned to roll out the new system to its 10,000 stores in Australia in 2015. However, later, it dropped 500 million Euro project by saying that predefined strategic goals were getting difficult to meet without spending the additional cost.
Hewlett-Packard, a software company, known for providing infrastructure and consultancy for SAP ERP implementation, faced a revenue loss of $40 million when it decided to phase out its legacy systems and replace them with SAP R/3 as their preferred ERP solution in 2004. The key leaders revealed that failure was attributed to issues like improper data integration, inadequate contingency plan, poor planning, and faulty testing while migrating to a centralized ERP system at their North American division.
Overstock.com, an online retailer, is another example of unsuccessful ERP. In 2003, the retailer decided to implement Oracle Virtual Machine ERP, which eventually turned into a big mess. In 2008, executives revealed that they had been reporting false financial statements for five years because of glitches in their new ERP system. Their new Oracle VM forgot to reduce the amount of cash overstock received due to customer refunds and subtract shipping revenue for those canceled orders, which eventually added up to a significant loss. Oracle VM could not align with itslegacy accounting software, thus being a massive disappointment for Overstock.com. The apparent reasons for ERP implementation failure were a lack of research, hasty planning, insufficient testing, and a rushed schedule.
Recently, Revlon, a US beauty powerhouse, is facing class-action lawsuits by its shareholders. Allegations reveal that the company failed to create measures to plan and monitor the implementation of its enterprise resource planning (ERP) system. Revlon employed the SAP ERP system in 2018. The company was unable to fulfill product shipments of approximately $64m of net sales and incurred $53.6m of incremental charges to remediate the decline in customer service levels.
Derek Prior, a former Gartner SAP analyst, explains that SAP implementations go wrong because companies do not employ the right people to measure business outcomes, who can match the SAP implementation with the business case.
ERP implementation is an essential project with high stakes. You should always ensure to follow a strategic action plan to come out victorious, while also understanding that it’s an ongoing project and not a one-time integration. Also, it is equally essential to see that your vendor follows industry best practices to provide a seamless ERP integration.
More on best practices in an upcoming blog. However, here are some lessons to learn for successful ERP implementation.
Katalyst Technologies: Your reliable ERP implementation partner
Implementing ERP is a high-stakes project. It is an opportunity to replace your existing legacy system and replace it with an advanced solution. Thus, vendors play a significant role in catalyzing the process. Katalyst Technologies is a digital transformation expert and consultant, helping clients in evaluating and implementing the right ERP solution. At Katalyst Technologies, we rely on the industry best practices to provide end-to-end management of ERP projects.
Get in touch - https://katalysttech.com/get-in-touch/#utm_source=ait&utm_medium=offpage&utm_campaign=op
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