ERP implementation best practices to reduce risk and costs
ERP implementation best practices to reduce risk and costs
Implementing a new ERP system provides a major opportunity to digitally transform your company. Not only can you move past the limited functionality or outdated technology of your legacy system, but you can also leverage modern ERP system capabilities to help you seize new business opportunities.
However, not all implementations go smoothly. So how do you set your company up for a successful ERP implementation? How do you avoid unnecessary costs and risks? These ERP implementation best practices can help you avoid common pitfalls and realize the benefits of your new ERP system more quickly.
When people think about system implementations, they often start by considering desired features. But new features or technologies are not the core issue; what a business needs for growth is modern business processes. Only with effective processes that allow you to be agile and responsive can you boost your competitiveness and better serve international customers.
Often, existing processes are inflexible and don’t meet company needs. Even when proven and cost-effective processes are in place, they often need to be updated to meet evolving needs or be enhanced with new capabilities, such as mobile access, alerts, and business intelligence. So, it’s important to always keep those processes at the core of your implementation plan.
Case study after case study of ERP implementations tell the same story: the make-or-break factor is the implementation team. Great software is only great if implemented by a strong team. If people lack the time, support, or skills to do the job effectively, they will not be successful – and the project will likely suffer from delays, additional costs, and/or software that fails to meet the company’s needs.
Case study after case study of ERP implementations tell the same story: the make-or-break factor is the implementation team.
Companies that have experienced ERP setbacks or failures have often assigned staff who “had the time” to work on the project. But to be successful, you need to recruit the people that “you can’t do without.” These are the busy people who know the business processes, work well with other members of the organization, and have the respect of executive management. Dedicate these people to the project full-time (40 available hours), or as many hours as possible per week.
Add no one to the key project team who can’t dedicate at least 25% of their time (minimum 10 hours) to the project every week. Team members spending less than a quarter of their time will merely be able to catch up on project activities but will not add value to the project.
Executive support for your team is also critical. In every major implementation, decisions must be made regarding priorities and resourcing trade-offs. Without strong support and commitment, even qualified teams can flounder.
Getting a modern ERP system implemented quickly is one of the most significant things a company can achieve. It’s worth dedicating your best people and laying the foundation for success up-front.
Schedule the implementation sequence realistically. Consider the availability of your leadership team, managers, and in-house experts who contribute to the effort.
Prioritize your needs so you can focus on the big wins while building a core software and technology base that can expand with your business needs.
Your detailed plan and KPIs will be tailored to fit your specific requirements. However, the following key activities are common steps in all successful implementations:
- Select a software and services partner to help in implementation.
Your software and services partners should have staff trained in your industry and available for your locations. If you have international customers and suppliers, your partners should have the multinational business, language, and currency skills to streamline your implementation.
Finally, review the project management software that a firm uses to make sure that it is compatible with your internal planning, scheduling, and tracking system.
2. Detail all project tasks.
Your implementation partner will help you develop a detailed task list of everything that needs to be done. This list will be extensive. Training alone, for example, includes many tasks:
- Project team training: Your team needs to learn about the software so that they can decide how to tailor your business processes.
- IT team training: The IT team must be educated so they understand how to optimally install and maintain the system.
- Business user training: Everyone expected to use the software must learn how it works.
- Ongoing training: New users will need training as they join your company, so you will need a longer-term plan in place.
The list of tasks should be divided up into phases. Time should be allocated for the conference room pilot, customizing the application, integration to other applications and data sources, infrastructure implementation, data cleansing, user acceptance, and so on.
Your implementation partner should be able to supply a detailed list of all the phases and steps required.
3. Calculate work hours.
Carefully estimate the amount of time it takes for each and every task. Do this by understanding the task and the work involved, and then assign the number of “work hours” required. It can be a range of hours, but it needs to be accurate. Add up the work hours for each phase of the project and assign the person responsible for getting it done.
This can be a daunting task; that’s why it’s important to involve an implementation partner familiar with the software solution. If you do this step well, you’ll be able to accurately calculate your timeline, determine if you need any help outside of your current team, and limit scope creep.
4. Create your realistic schedule.
Now that you have tabulated the work hours available and required, a manageable schedule can be created. In many cases, the first pass reveals a capacity problem when compared to the implementation timeframe that was originally presented to executives.
Here is an example calculation that illustrates the potential discrepancies:
- Target go-live time frame = 12 months or 1 year
- Total number of work hours available in a 12-month period = 540/week or 28,080 hours/year
- Total number of work hours required to implement = 42,000 hours in total
- Hours required divided by hours available per year = 1.496 years
The result? Go-live date is missed before the project begins. Here are some possible solutions:
- Reduce the scope – even though the team has agreed that these are essential tasks
- Extend the date to a realistic one
- Add more internal and external resources (work hours available)
- Break the project up into phases
This is where the executive management team will be required to make the decision. It’s just one example of why they should be involved in the software selection and implementation process.
5. Conduct a conference room pilot.
Once the project has been kicked off, and before you go live, conduct a test run or a pilot (in a conference room) before full roll-out. This conference room pilot will ensure that you have the proper business processes in place for the current and future needs of the company. As you design your new processes, it’s important to understand the range of options available in your ERP system – and to validate your processes with the project team and stakeholders from the user community.
In this multi-week phase, your implementation partner will install pilot software that allows you to test-drive all your processes and make sure that they work as expected, with no surprises. Often, you can apply best practices to save time, particularly if you have the configuration tools to make cost-effective adjustments as you refine your operations.
6. Cleanse your data.
It sounds simple but data cleansing is a very time-consuming activity. It’s best to start assessing your data accuracy as soon as possible because it takes a great deal of effort to complete this step correctly. During the project, business process changes will occur – so be prepared for additional data management steps during the implementation.
7. Keep everybody informed.
On a weekly basis, a staff member should contact all of the key stakeholders so that they know the positives and “not so positives” of the implementation project progress. The worst scenario is when people are not kept up to date and are taken by surprise.
Most good project management systems have visual representations of the project’s progress.
Not all businesses have the same issues, so it’s best to review your business processes and prioritize which ones to address first. Here is a list of high-value areas to consider:
- Business intelligence, including management alerts and dashboards: Your team needs fast updates on business issues, as well as the ability to easily drill down into the details to resolve matters quickly – in the office, at home, or on the road. You need built-in business intelligence and data that lives in a single database.
- Customer relationship management (CRM): Today, CRM processes typically touch every part of a business. Direct sales, distributors, retail showrooms, e-commerce, and customer and field service all share customer information with order management, operations, purchasing, engineering, accounts receivable, and shipping.
- Finance and accounting: Accurate, real-time financial transactions, KPIs, and analytics are critical to every business, and they must span all locations and departments. In addition to accounting, they must be integrated with costing, budgeting, forecasting, projects, asset management, compliance, and cash management.
- Supply chain management (SCM) and manufacturing: Tight schedules, low margins, and supply chain disruptions challenge every business. Managing them requires a team effort – working with suppliers, carriers, import/export firms, banks, and other partners – often on mobile devices across many locations.
- Human resources (HR): Managing a diverse workforce is more challenging today than ever, and your team needs immediate, secure access to employee information for payroll, benefits, budgeting, scheduling, and compliance needs. Plus, employee recruiting, development, and retention are a big part of evaluating current and proposed business plans.
- Multinational languages, currencies, and locations: As you expand your business, particularly if you move into new regions or countries, you need the ability to open and expand new operations consistently and quickly. This requires broad and advanced software capabilities, as well as consistent services from your software provider in each location.
- Mobility: The ability to access information and work remotely is now vital – as demonstrated by the COVID-19 pandemic. Those companies with the tools to adapt quickly can gain an edge in disruptive times.
All projects have an element of risk involved but below are five valuable tips for improving your chances of an on-time, on-budget project completion.
- Select software, business process, and implementation partners with industry and local know-how. Always interview references in businesses like yours.
- Don’t stretch outdated technology beyond its limits. Eliminate old, outdated, standalone systems and, as much as possible, consolidate your data into a single database (single version of the truth) with built-in business intelligence for multinational performance.
- In the digital economy, businesses must often integrate systems across business units as well as with customers and suppliers. Confirm that you have cloud integration capabilities and expertise with supplier networks.
- Avoid project scope creep. It’s common to discover needs and opportunities during an ERP implementation, so it’s important to manage change orders to avoid delays and cost overruns.
- Confirm that you have consistent expertise across all your locations. You need training, implementation, and support – often from a combination of local management, software distributors, consulting firms, and your software partner.
A new ERP system investment includes your company’s time commitment, business process and implementation consulting, software, and cloud services as well as computer, tablet, and phone equipment – so it’s important to control the project and the costs.
Here are some key areas to track:
- Keep the focus on the total cost of ownership (TCO). Manage your total costs – and benefits over time to minimize expenses and maximize the return. Remember that ERP system implementations will have a big impact on your business.
- Match the business direction and do not force unnecessary process changes. In many cases, companies are pressured to change how they operate to fit their software, increasing both implementation and operating costs.
- Focus on the routine business processes that provide significant value to the company. Managing customer orders, updating pricing, adding new products and services, changing manufacturing details, and onboarding new employees are examples of such routine processes.
- Avoid customizations and capitalize on a configurable user interface, dashboards, alerts, workflows, business intelligence, and mobile capabilities. With these capabilities, you can streamline work for all your departments as well as make fast, cost-effective adjustments as needed.
- System hacks and data breaches are expensive. When using the internet, use a secure cloud ERP solution where appropriate – confirm that your software and service suppliers support a range of secure software deployment options.
Once your initial implementation is live, you will still need the flexibility to add additional capabilities for your business. Many changes can drive these opportunities, such as new locations, product and service lines, and acquisitions.
Digital transformation also provides additional opportunities for you to team up with customers and suppliers to redefine how business is done in your industry. Often, these projects include new technologies, such as machine learning and artificial intelligence (AI), as well as integration with equipment and vehicles using Internet of Things (IoT) technology to improve speed and efficiency.
In every ERP project there will be unexpected issues – so expect them in yours. But, by following best practices for a successful ERP implementation, you can identify and address them as they arise to effectively manage your risks and costs.