Six Things to Consider before Undertaking "D.I.Y." ERP Implementation
Historically, an investment in a true ERP system, one that ties together all the functional areas of a company, represented a significant investment of time and money on the part of the client. In the Small to Medium sized Business (SMB) manufacturing sector one of the more prevalent estimates for software and implementation costs used in determining how much an ERP system would cost was to budget 1.5 to 3% of the company’s annual revenue, depending on the size of the company. The complexity of the business would then determine the length of the implementation time, with simple implementations taking as little as 6 months and complex implementations taking a year or more. For example, a moderately complex MTO metal fabrication company with $20 million in revenue could expect to budget between $300,000 and $600,000 for their ERP project and expect an implementation time frame between 9 and 12 months.
Recently, as the distinction between true ERP solutions and lower end “point” solutions has become blurry some ERP software providers, in addition to discounting software pricing, have built “programs” to reduce the cost and time of implementation. At a high level, these programs rely heavily on virtual training and pre-defined process documents that are intended to walk the client through a largely self-directed implementation process. Generally, the implementation partner provides a set number of hours to be utilized on an ad-hoc basis by the client as they run into issues. While this methodology may seem enticing from a client cost and implementation time perspective, there are a number of important factors to consider before proceeding with this type of an approach.
1. How do your business objectives align with the solution you are choosing?
A complete ERP solution is by nature complex. ERP is considered as a solution when there are systemic business issues within an organization that are preventing growth, profitability and/or customer satisfaction which would be improved by implementing better procedures based on an excellent computerized platform. Alternatively, simpler point solutions that address smaller areas of the enterprise, such as inventory management or shop floor scheduling, may be more appropriate if a root cause issue has been identified in one specific area of the business. It is important to ensure that the root cause of the problem, not a symptom, has been identified in this case. Too often, companies base their decision on the cost of the solution rather than basing it on the issues that need to be fixed resulting in too narrow of a solution that misses the broader problems.
2. Do your employees have the capability to implement the solution?
A reduced cost implementation methodology will rely heavily on your employees to drive the project, learn the software, and design how it will be used in your environment. If the software solution is a specific point solution applied in one area of the business, the answer may be yes, the employees in that department can carry the project. If the solution touches every functional area of the company and requires the business processes of one area to align with one another, the answer is likely no. Even a simple ERP implementation utilizing a knowledgeable partner will require significant time and effort from the company’s management team, and it is highly unlikely that those team members will have the technical knowledge and expertise from a solution perspective to optimally implement.
3. How will you leverage your resources to ensure an implementation in a reasonable time frame?
As mentioned earlier, even a relatively simple, full ERP implementation with minimal business process complexity will take approximately 6 months, and that assumes that your internal team will be devoting approximately the same amount of time to the project as the implementation partner. In the case of a “do-it-yourself” approach, the time required by internal staff will increase significantly, so either more resources will need to be pulled from their general company duties during the implementation, or the implementation timeline must be extended appropriately.
4. What is your potential opportunity cost in taking responsibility for your own ERP implementation?
Logically, if you pull resources from your functional areas to focus on the implementation of an ERP, those resources will not be available for your core business. While this will happen during any implementation, in a “do-it-yourself” approach this issue is magnified. So, while you may be saving implementation cost, that savings may be more than offset by your opportunity cost.
5. Will a “do-it-yourself” implementation optimize my investment?
You’ve established that you have a business issue and you need to resolve it. If a new ERP appears to be the solution and you’re going to invest a significant amount of money and time, your hope is that the investment will, at least, help fix your issue and give you significant other benefits as well. A complete ERP system will interact with every facet of your business and can help you improve efficiency, profitability and customer experience dramatically. It makes sense to rely on an implementation partner that has the expertise to ensure you get the most out of your investment.
6. Does the Solution align with my current business model or will many changes need to be made?
Best practices aside, most companies have at least a few unique ways of doing business. Even with ERP systems that are designed specifically for a particular industry, there are generally some modifications that need to be made to match the system to your individual business needs. Depending on the necessary changes, internal resources may not have the expertise to properly design the solution and lack the depth of familiarity with the ERP system to be able to configure it to fit.
All of those considerations aside this is not to say that the scaled down implementation approach will not work. It is just critical that you have addressed these considerations before proceeding with your selection and implementation approach. Once a path has been chosen, it is difficult, if not impossible, to change course, so it is extremely important to conduct your due diligence prior to making a decision.
From a personal perspective, LogicData, over the past 30 years, has conducted more than 250 ERP implementations in the manufacturing space, and we would estimate that less than 5% of those implementations could have been implemented with a “do-it-yourself” approach.
If you have relatively simple requirements, with an adept technical staff that has the time to devote to the project, a “D.I.Y” approach may be the right choice for you. However, please be cautious in letting third party costs be the predominant driver in deciding on your solution and implementation approach. The money you save in picking a simple product and scaled down implementation may be overshadowed by internal staff costs and shortfalls in implemented functionality.