Typically, a company approaches ERP when its current business operations are causing it to suffer unbearable and costly pain. In most cases, unbearable pain becomes manifest through some combination of business process inefficiency, reporting limitations, inability to support growth, and exposure to excessive risk.
Companies generally set themselves up for project failure when they search for an ERP system with a narrow focus on solving a few acutely painful ailments instead of a broader focus on all critical business requirements. Ultimately, they omit consideration of less obvious needs – ones that might not be causing evident pain but are nonetheless critical to business operations.
ERP is not a localized solution for a localized problem. It is a broad and far reaching solution that touches all four corners of a business. The purpose of ERP is to unify a company’s various business functions in a common transactional and data processing environment. By committing to ERP, a company stands to benefit from the software to the extent that functionality aligns with business needs. However, ERP can be a double-edged sword. When software functionality is incapable of supporting business needs, it can cause inefficiencies, bottlenecks, and unanticipated costs.
A Case Study on the Wrong Approach to ERP Selection
As a supplier to big-box retailers, this company is subject to revenue penalties for failing to meet a prescribed four day delivery window. Further, its big-box customers require shipment of complete orders. Partial orders are not accepted. The company’s already thin margins are being further eroded because of its consistently late deliveries. Further, a customer that accounts for 80% of its order volumes is threatening to revoke the company’s preferred vendor status.
The company identified inefficient inventory management processes as the culprit. Currently, inventory receiving and movement of data are transcribed on paper and entered into a standalone inventory management system at the end of each day. However, inventory is oftentimes received the same day it is needed to meet delivery obligations. This delayed recording causes system inventory records – from which order fulfillment is planned – to be
out of-sync with actual inventory statuses.
The company purchased and implemented an ERP system that supported real-time warehouse data collection. During implementation, however, the company learned that the system couldn’t support its transportation planning and container loading requirements. After significant investment and business disruption, the company merely shifted a bottleneck from one part of its distribution operations to another.
The case study drives home the following point: although particular business pains might trigger a need for ERP software, the focus of ERP evaluations shouldn’t be narrowly focused on just those pains.
Ultimately, our manufacturing company went wrong by not defining its requirements in more detail with consideration to the impact on all business operations before evaluating ERP solutions.
ERP selection is not rocket science. Relatively speaking, it’s not very difficult when compared to the complexity of ERP implementation. Nonetheless, the volume of ERP projects that fail because of limited up-front planning and poor requirements analysis continues to be common. Picking the right system and the right vendor are fundamental, baseline, non-negotiable project success factors. If a company can’t do this properly, it risks an unsuccessful implementation project that can be very costly to the business.
Therefore, the starting point for ERP selection is an internal due diligence process designed to discover and document all critical business processes and ERP requirements.