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© 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
© 2012, Frank Scavo. All rights reserved.
ERP Experience Life Cycle
ERPSelection
ERP Implement-
ation ERP Use
3
© 2012, Frank Scavo. All rights reserved. 4
What is to “Optimize?”
op·ti·mize:1. to make as effective, perfect, or useful as possible.
© 2012, Frank Scavo. All rights reserved.
Optimizing ERP Makes ERP…
• Perfect: – Fits your business
• Useful:– People actually use it– It is worth using
• Effective:– Has positive effects on
your business
© 2012, Frank Scavo. All rights reserved. 6
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
© 2012, Frank Scavo. All rights reserved.
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”
© 2012, Frank Scavo. All rights reserved. 8
Category #1: The Wrong System
Missing functionalitySystem performanceNot scalableBugs
© 2012, Frank Scavo. All rights reserved. 9
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
© 2012, Frank Scavo. All rights reserved. 10
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
© 2012, Frank Scavo. All rights reserved. 11
Category #4: Right System, But Not Used EffectivelyData inaccuracyLack of user proceduresPoor disciplinesLack of trainingOrganizational disincentives
© 2012, Frank Scavo. All rights reserved. 12
Overlapping Root Causes, Vary by Organization
1. Wrong System2. Right System, Installed Incorrectly3. Right System, Not Being Used4. Right System, Not Used Effectively
© 2012, Frank Scavo. All rights reserved. 13
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
© 2012, Frank Scavo. All rights reserved.
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
© 2012, Frank Scavo. All rights reserved.
The Cost of ERP Must Also Be Optimized
15
ROI =Return
InvestmentBenefits
Cost=
© 2012, Frank Scavo. All rights reserved.
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
© 2012, Frank Scavo. All rights reserved. 17
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.
© 2012, Frank Scavo. All rights reserved.
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.
© 2012, Frank Scavo. All rights reserved.
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?
© 2012, Frank Scavo. All rights reserved.
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?
© 2012, Frank Scavo. All rights reserved.
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
© 2012, Frank Scavo. All rights reserved.
If System Not Used Effectively…
• Data problems?• Discipline problems?• Integration problems?• Incentive/Measurement
problems?
© 2012, Frank Scavo. All rights reserved.
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
23
* Source: “The Differences Between Cloud ERP and Hosted ERP and Why They Matter” Constellation Research, 2012
© 2012, Frank Scavo. All rights reserved.
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
© 2012, Frank Scavo. All rights reserved.
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
© 2012, Frank Scavo. All rights reserved.
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
© 2012, Frank Scavo. All rights reserved.
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
© 2012, Frank Scavo. All rights reserved. 28
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.
© 2012, Frank Scavo. All rights reserved.
Thank You!
Frank [email protected]: @fscavowww.ConstellationRG.com
The Enterprise System Spectatorhttp://fscavo.blogspot.com