Calculating the cost of a new ERP system
You may have an ERP system in place at your business such as MS Dynamics, Sage, Pronto, Netsuite, Accredo or one of the many other incumbent solutions. The reality is that this ERP system may not be serving your business as well as it did when it was first implemented. This poses two courses of action:
Continue to maintain your existing ERP system
Implement a modern ERP system and reap the benefits
Granted that committing to a new ERP system can be costly, but how costly exactly? There are plenty of factors involved in implementing a new ERP system from outright hardware purchases to installation of specific software modules. Most ERP pricing models only look at the initial capital outlay for hardware, software and implementation, but fail to account for the ongoing costs relating to running an ERP system.
As no two businesses are the same, the cost of an ERP system is variable dependent on factors such as the number of staff that you have, the scope of the project, whether customisations are required or even the deployment itself. Plenty of software vendors will allow you to buy specific modules on their platform allowing you to just purchase the core ERP module and saving on cost, however one important factor to note is expandability. Check in with your vendor to understand the costs involved with expanding your ERP system as your business needs change. Ideally you would implement the ERP system within the bounds of the out-of-box application, however unique business processes necessitate customisation which can very quickly drive up the cost of your implementation. Customisations need to be added to the ERP in such a way that the software can still be updated without breaking, otherwise each time the ERP software is updated additional coding must be done to ensure it is compatible.
Here is a list of costs you may face relating to the implementation of a new ERP system:
Hardware and related operating systems:
ERP system licensing (SaaS model or up-front)
Process planning, development and documentation
Staff training
Implementation consultation fees
Now that we have an idea what it would cost to implement a new ERP system, here are some direct benefits:
Leaner inventory, less capital tied up in stock
Increased productivity through workflow enhancements
Reduced wastage/spoilage
Less last minute changes causing wage overtime or air-freight
Increased revenue due to better customer service
Decreased time-to-market for new products, increased margins
There are also some indirect benefits that are a little harder to quantify, but still very relevant:
Increased employee retention and productivity through lower day-to-day frustrations
Better information leading to smarter in-market moves (pricing, specials etc.)
There are many different angles to look at when considering the cost of implementing a new ERP system and creating a ROI statement. Just be sure to go through the process, documenting everything as you go along to ensure that all stakeholders have visibility and can clearly understand what the project will achieve. In engaging with an ERP project consultant, such as Alt Shift, they will simplify this entire process for you. If you would like to understand how implementing a new ERP will benefit your business, get in touch with us.
How to select an ERP System
Nothing will impact a businesses ability to maintain long-term growth like the implementation of an effective ERP system. However when it comes to selecting and implementing an ERP system, if you get it wrong you’ll pay the price. Replacing an ERP system is akin to performing brain surgery while the patient is awake and solving a Sudoku. Not only are you severely overhauling every process in place within your business, but you are also attempting to continue trading like normal.
Fortunately it is possible to make this transition successfully, and in fact many companies do manage to implement an ERP system with minimal business disruption. The difference between those companies that do and do not achieve this is the careful planning, management and execution of an ERP project. The implementation of an ERP system should be treated and managed as such to ensure that the scope is understood, and that any risks of disruption are minimised. This rule applies to all, whether you’re a mom and pop shop or a gargantuan multinational.
The first step to take before embarking on the implementation of an ERP system is to clearly define the rationale behind this decision. Things you should be considering will relate to your current system and whether it can foster your business needs now/in the future. Another aspect that should be analysed are the processes within your current system and whether they support your staff. Having to perform workarounds or data entry across different spreadsheets and systems would be an example of an unscalable process that will ultimately cost your business in lost productivity. An inability to respond to your customers with accurate information in a timely manner will result in lost opportunity, and therefore lost revenue. There may be any number of factors pertaining to your unique situation that should be considered to give yourself the ROI of implementing a new ERP system.
Once you have identified the approximate ROI of implementing a new ERP system, you should then take note of some benchmarks to allow you to measure the outcome. Information you could collect about your current situation may include (but not limited to):
Inventory Accuracy %: Inventory Count in System vs. Real Inventory Count
Inventory Sell-Through Rate
Production Lead Time (if applicable)
Quote-to-Order Conversion %
Average Order Fulfilment Time
Average Lifetime Customer Value
This information will be very valuable to you in measuring the impact of your new ERP system and will allow you to set goals of where you need to be.
Once you’ve got your measurable outcomes documented down, the next key step of the process is to achieve buy-in from your staff. This is important as the end users of your current system will have the low-level insight into your business processes in practice that high-level management may not see. With this information you can start forming categories of functionalities; typically these are your mission critical functions, important functions and nice to have but not essential functions. It is a good idea to go into this exercise visualising your measured KPIs and goals to figure out what is most important for your organisation.
Given that most ERP systems will handle core business processes well, the key to selection lies at the fringes - these are the functions specific to your industry or business. At this stage you should begin engaging with software vendors with your unique business requirements. Keep in mind when engaging with vendors that you’re not looking for the product with the most impressive features, you’re looking for an ERP system that provides a solution to your requirements. Working with an ERP project specialist like Alt Shift simplifies this initial phase to one single point of communication with an unbiased view on the different ERP systems available. Your ERP consultant will work with you to provide an assessment and make a recommendation on a solution. Leveraging our relationships with the different software vendors, we will be able to negotiate a contract on your behalf to ensure you get the solution best fit for your business for the best price.
Replacing your ERP System
Your ERP system is ingrained in everything your business does, understandably the notion of replacing your ERP may send shivers down your spine. Yet if the very lifeblood of your business is affecting your agility in responding to market/competitor trends, then quickly the idea becomes a necessity. Since the implementation of a new ERP system is a massive commitment of time and resources, how can you gauge whether a replacement is required?
The first and most important question to ask yourself about your existing system is this: Does my current system support the needs of the business? Aspects you could look at to answer this question include the system’s ability to cater to the bread and butter of your business, the system’s responsiveness and your staff’s ability to leverage the system’s capabilities. Another important factor to consider is whether your current system gives a path for growth into new and innovative technologies (IoT, Business Intelligence, collaboration etc).
If you are heavily reliant on spreadsheets and workarounds in your current system, you leave a lot of headway for your competitors to out-pace you on price, lead-time and customer service. If your current system is unable to foster the growth and change your business needs to keep up, the ultimate cost is lost opportunities which therefore leaves revenue on the table.
The cloud based ERPs of today are impressively flexible and user friendly. They also offer a platform that allows your business to easily adapt and scale as needs evolve over time. The net result of a properly implemented ERP solution will aide you with achieving these objectives:
Increased customer satisfaction
Improved cash-flow and decreased outstanding receivables
Increased opportunities
Decreased costs through efficiencies
Improved sell-through rate (inventory turnover), less capital tied up in inventory
If you are coming to the conclusion that your business may need a heart transplant, get your best people together internally and start identifying the key areas where change needs to happen. After you have properly identified where your trouble lies, you need to determine the correct time to implement. Many ERP projects fall over as the business was not ready for change. However when executed properly, the implementation of a new ERP will take your business to the next level. Alt Shift is an ERP project consulting firm with many successful ERP implementations from all sorts of industries under our belt. Have a chat with us to discuss your business requirements.
Why move your business to the Cloud?
Cloud computing is quickly becoming one of the biggest and most revolutionary technological movements in business. “Cloud” is a catch-all term that encapsulates everything from storing files on a commercial service like iCloud or Dropbox, right down to remotely hosting and maintaining the entire internal infrastructure of a Fortune 500 company. At its most basic definition, cloud computing is the outsourced rental of storage or processing resources, as opposed to hosting/managing your own hardware.
Business systems such as ERP or CRM software that are hosted in the cloud tend to follow the SaaS model (Software as a Service). SaaS based licensing tends to take the form of monthly or annual payments, as opposed to the initial outlay of capital that typically is required for on-premise deployments. There is no server hardware to purchase or updates to operating systems and software, this is managed by the software or hosting vendor and is included in the subscription price. The hosting costs of an on-premise implementation that are often overlooked include backups, disaster recovery, load balancing of processes at peak times and security. The beauty of SaaS systems are the economies of scale, to the end user the delivery is similar but often at a cost saving. As a businesses needs change, the SaaS model offers scalability with the addition of users and modules being a quick and painless affair.
There are two types of cloud deployment to be aware of, single-tenanted and multi-tenanted. A single-tenanted implementation is essentially the same as an on-site implementation except that the hosting is outsourced. This, in essence, is the rental of off-site server hardware where a traditional ERP system would be run. Multi-tenanted SaaS software is one underlying application with businesses each having their own separate and secured database. Multi-tenanted SaaS software benefits from the ability to make updates and changes to the core application, and roll these out to users instantly ensuring users are always up-to-date.
When selecting an ERP system for your business, one thing to be aware of is cloud adaptations of legacy software. What vendors will do is take their legacy incumbent ERP software and port it to be used “in the cloud”. In practice these types of solutions require client side software to access the platform, or even a special server to sit between the software and the user. Using this type of system results in a less than ideal user experience, the speed and responsiveness of this type of software will never compare to that of a true cloud solution. True cloud applications need nothing but a browser on the end-users computer, and can be accessed from anywhere in the world.
Cloud deployments of business systems are an attractive proposition for businesses looking to implement new technology, however with any system decision there are a lot of avenues to be explored. Engaging with an ERP project consulting firm like Alt Shift allows you to leverage our industry experience to find the best possible solution for your business.
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Let the tool do the work.
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