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What is ERP? A guide to enterprise resource planning systems

Thomas Wailgum | July 28, 2017
Enterprise resource planning (ERP) software doesn’t live up to its acronym. Forget about planning — it doesn’t do much of that — and forget about resource, a throwaway term. But remember the enterprise part. This is ERP’s true ambition. It attempts to integrate all departments and functions across a company onto a single system that can serve all those different departments’ particular needs.

 

When will I see a return on investment from ERP?

 

Don’t expect to revolutionize your business with ERP. It is a navel-gazing exercise that focuses on optimizing the way things are done internally rather than with customers, suppliers or partners. Yet the navel gazing has a pretty good payback if you’re willing to wait for it. A 2002 Meta Group study of 63 companies found that it took eight months after the new system was in place (31 months total) to see any benefits. But the median annual savings from the new ERP system were $1.6 million.

It is interesting to note that, according to the Aberdeen survey, those companies that pay the closest attention to return on investment (ROI) at the outset of an ERP engagement "reap far more rewards" than those companies that don't. The companies that Aberdeen Group identified as "best performing" were able to produce, on average, 93 percent more improvement with their ERP systems across a variety of metrics such as cost reductions, schedule performance, headcount reduction or redeployment, and quality improvements.

 

What are the hidden costs of ERP?

 

Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Armed with insights from across the business, ERP pros vote the following areas as most likely to result in budget overrun.

Training — Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface. Worse, outside training companies may not be able to help you. They are focused on telling people how to use software, not on educating people about the particular ways you do business. Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system.

One enterprising CIO hired staff from a local business school to help him develop and teach the ERP business-training course to employees. Remember that with ERP, finance people will be using the same software as warehouse people and both will be entering information that affects the other. They need to have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along. Ultimately, it will be up to your IT and businesspeople to provide that training. So take whatever you have budgeted for ERP training and double or triple it up front. It will be the best ERP investment you ever make.

 

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