Quantifying Value

The Value Case for Implementing or Upgrading an ERP

Logic-Data-Team-Mark-Miracle-VP Sales | March 31st, 2023

Many companies struggle with justifying the expense of implementing or upgrading an ERP solution.  Considering all the factors, variables, and unique challenges an organization may be facing, quantifying value can be very difficult.  

While there are many case studies and value propositions available for review, how applicable they are to your specific situation is questionable.  As a result, some companies may bypass a value analysis in favor of focusing purely on the cost of the solution itself, which can have disastrous consequences if the chosen solution does not mitigate current and forecasted business challenges.

In a perfect world, an organization would be able to conduct their own value analysis based on the knowledge of their unique business challenges combined with how a well implemented ERP solution can positively impact them.  In reality, while the expert on unique business challenges is the company, the expert on how a well implemented ERP can help is generally the provider of the software.  

In the hope of helping companies identify value in proceeding with an ERP implementation or upgrade, LogicData, utilizing Infor’s value analysis tool, created a hypothetical example, the full results of which can be viewed here [white paper].  Of course, as stated above, those results are not necessarily applicable to your specific situation.   However, by using this example as a foundation your company will have a good place to start in building a value assessment.

The hypothetical case used in the analysis mentioned above is a $20 million revenue, 100 employee discrete manufacturer facing some of the common business challenges of its size and type.  Based on the configured software and implementation costs, the analysis projected a payback period of 22 months with total ROI of roughly 380% over a 5-year period.  For more details on how these numbers were calculated please reference the document through the link provided.  

Again, your specific results, could be less, or more, than what is provided in the example.  The purpose here is to start thinking about how to craft a value analysis for your company.  

First, we start with some basic information about the company that will be used in the various calculations.  Things like company size, employee count, industry, product type and mix are relatively simple.  Somewhat more complex are factors such as inventory levels and turns, days sales outstanding, cost of goods sold, maverick spend and asset utilization.  

Your company may already be tracking such metrics, but if they are not, they can be derived by utilizing the industry benchmarks cited in the example.  In some cases, your company may be well above industry benchmarks in certain metrics, while lagging behind in others.  These are the ones that determine your business challenges and should be the focus when quantifying the value.  Areas where you are lagging behind will also help you assess how your company compares to others within your industry and reflects the “maturity” stage discussed in the linked hypothetical example.

Once all of the above inputs have been determined, the next step is to consider the improvement factors that can be realized across all of the various areas within the business with a well implemented ERP solution.  The provided hypothetical example cites more than 45 productivity and efficiency improvements throughout the functional areas of the business, calculated in large part based on industry case studies and industry benchmarks.  

There is a certain amount of subjectivity in this part of the exercise as one company’s success or the related industry benchmark may not be a good reflection of how much your organization may benefit.  Ultimately, it is up to the team conducting the analysis to determine realistic improvement factors.

Once inputs have been determined, critical business challenges assessed and appropriate improvement factors established, the resulting financial benefits calculations should provide a clear picture of the value that can be gained.  That value should be a key criteria in determining whether an implementation or upgrade should take place, the budget that should be allocated and what priority should be placed on the project.  

Keep in mind that any delay represents an opportunity cost equivalent to a percentage of the total financial benefit calculated.  In the case of the hypothetical example, that opportunity cost is almost $250,000 for a 3-months delay. 

As a last note, any type of value analysis assumes that the company purchases the ERP solution that best fits their needs, uses an experienced implementation partner, and spends the time and effort necessary for successful implementation.  There are certainly examples of failed ERP implementations that returned negative value due to a variety of reasons. Not properly assessing needs and budgeting according to value is certainly one of them.

As with cost, implementation time is also dependent on the same factors mentioned above. LogicData offers multiple implementation methodologies that can be adapted to your specific needs and resource availability. Considering a very basic implementation of just the core functionality of SyteLine, and employing a LogicData managed implementation approach, time to value can be achieved in as little as 3-4 months. A full implementation of all core SyteLine functionality utilizing a standard implementation approach, and assuming full client resource availability, can generally be completed in 6 to 8 months. To determine the best implementation methodology and timeline estimate for your specific situation, please contact us.

The cost of software and implementation will vary based on many factors such as user count, functionality requirements, deployment, implementation methodology, customization, data conversion, integration, and internal resources. However, for a basic configuration of SyteLine annual subscription pricing can begin at approximately $18,000 annually for a minimum of 10 users or a one-time cost of $20,000 plus annual maintenance for a minimum of 5 users in an on-premise deployment. A primarily self-directed implementation of such a basic configuration, although not recommended, can likely be achieved for approximately $30,000. LogicData recommends our standard “train-the-trainer” implementation approach which is estimated to start at roughly $65,000 for a basic implementation. For further information on pricing specific to your needs, please contact us.