Frank Scavo - Metalforming Magazine

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After the Implementation:
Best Practices for Optimizing
ERP
The Manufacturing ERP Experience
October 4, 2012
Frank Scavo
frank@constellationRG.com
(949) 442-0114
© 2012, Frank Scavo. All rights reserved.
About Frank Scavo
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APICS Fellow (CFPIM)
President, Strativa
President, Computer Economics
Principal Analyst, Constellation Research
Blog: Enterprise System Spectator at
http://fscavo.blogspot.com
• Advocate for end-user IT organizations
© 2012, Frank Scavo. All rights reserved.
2
ERP Experience Life Cycle
ERP
Selection
ERP
Implementation
© 2012, Frank Scavo. All rights reserved.
ERP Use
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What is to “Optimize?”
op·ti·mize:
1. to make as effective,
perfect, or useful as
possible.
© 2012, Frank Scavo. All rights reserved.
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Optimizing ERP Makes ERP…
• Perfect:
– Fits your business
• Useful:
– People actually use it
– It is worth using
• Effective:
– Has positive effects on
your business
© 2012, Frank Scavo. All rights reserved.
ERP Optimization Case Study:
Midsize Manufacturer
Symptoms
© 2012, Frank Scavo. All rights reserved.
 Order entry process
cumbersome
 Poor support for returned
material
 Sales reporting inadequate
 Database row-locking
 Serialization of inventory
leading to high transaction
volumes
 Some production
processing outside ERP
 Poor visibility and costing
of WIP
 Manual processes for
MPS/MRP
 Poor visibility for nonconforming material
 New product information
and engineering changes not
tightly controlled
 Poor response time
 Purchasing units of measure
conversion done manually
 Receiving process requires
re-keying of data
 Quality Group can’t keep up
with production volumes
 Etc., etc.
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Tracing Symptoms to Four Root Causes
Wrong
System
System Not
Installed
Correctly
Not “Perfect”
© 2012, Frank Scavo. All rights reserved.
System Not
Being Used
Not “Useful”
System Not
Being Used
Effectively
Not “Effective”
Category #1: The Wrong System
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Missing functionality
System performance
Not scalable
Bugs
© 2012, Frank Scavo. All rights reserved.
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Category #2:
Right System, But Not Installed Correctly
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Business processes not configured correctly
System tables incomplete
Product cost elements not detailed enough
Inventory locations not set up
Relevant system options not turned on
© 2012, Frank Scavo. All rights reserved.
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Category #3:
Right System, But Not Using It
• Unfinished implementation (e.g. “Phase II
Syndrome”)
• Lack of knowledge about system features
• Parts of the old system still in use
• Side systems
© 2012, Frank Scavo. All rights reserved.
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Category #4:
Right System, But Not Used Effectively
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Data inaccuracy
Lack of user procedures
Poor disciplines
Lack of training
Organizational disincentives
© 2012, Frank Scavo. All rights reserved.
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Overlapping Root Causes,
Vary by Organization
1. Wrong System
2. Right System, Installed
Incorrectly
3. Right System, Not Being Used
4. Right System, Not Used
Effectively
© 2012, Frank Scavo. All rights reserved.
12
From Our Case Study:
Analysis of Symptoms and Causes
100%
73%
75%
50%
25%
27%
33%
40%
Decision:
Stay with
Current System
But Take
Corrective
Actions
0%
Wrong System Right System, Right System, Right System,
But Installed But Not Used But Not Used
Incorrectly
Effectively
*Adds to more than 100% because some symptoms cross multiple categories
© 2012, Frank Scavo. All rights reserved.
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Opportunities for Sub-Optimization
Throughout the ERP Life Cycle
ERP
Selection
ERP
Implementation
• Implementation
mistakes
• Picking
wrong • Limiting scope
system
for cost/
schedule
© 2012, Frank Scavo. All rights reserved.
ERP Use
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Changing business requirements
Organic growth
Mergers and acquisitions
Organizational restructuring
New products/services
Changing business model
New demands from customers & suppliers
International expansion
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The Cost of ERP Must Also Be Optimized
Return
Benefits
ROI =
=
Investment
Cost
© 2012, Frank Scavo. All rights reserved.
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Cost of ERP is Mostly in Ongoing
Support
Implementation Plus
3-Year Ongoing Support
Ongoing
Support,
79%
Up-Front
Costs,
21%
Implementation Plus
10-Year Ongoing Support
Ongoing
Support,
93%
Up-Front
Costs,
7%
Source: Computer Economics, 2012
Assumptions: 100 user, on-premises ERP system
Upfront Costs: ERP license, data center hdw/sfw, implementation expense
Ongoing Support: ERP maintenance fees, data center hdw/sfw maintenance, ERP staff costs
© 2012, Frank Scavo. All rights reserved.
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And, Total Cost of ERP Often Exceeds
Expectations
Out of 16 technologies we surveyed in 2011, ERP ranks
WORST in terms cost overrun.
© 2012, Frank Scavo. All rights reserved.
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How Can We Optimize ERP?
1. Analyze Root Problems 
op·ti·mize:
To make as effective,
perfect, or useful as
possible.
© 2012, Frank Scavo. All rights reserved.
2. Identify Corrective Actions
3. Identify Potential Cost
Savings
4. Carry Out an Optimization
Roadmap
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If You’ve Got the Wrong System…
• Can it be fixed?
– Newer version
– Vendor Patch
– Modification
• Can you work around the
problem?
• Can you supplement the
system?
• Do you need a new system?
© 2012, Frank Scavo. All rights reserved.
If System Was Installed Incorrectly…
• Why?
– Ignorance?
– Trying to make new system
look like the old
– Some other reason?
• Can you change the set
up?
• Do you need to reimplement?
© 2012, Frank Scavo. All rights reserved.
If System Not Being Used…
• Why?
– Old system still in use?
– Lack of training?
– Lack of resources to
implement?
– Resistance to change?
• Solution depends on the
problem
© 2012, Frank Scavo. All rights reserved.
If System Not Used Effectively…
•
•
•
•
© 2012, Frank Scavo. All rights reserved.
Data problems?
Discipline problems?
Integration problems?
Incentive/Measurement
problems?
Postscript: Consider Cloud Deployment
• Facilitate upgrades
• More flexible in accommodating
changes in business volume or
business model
• Sometimes include
development environment for
extending system, without
modifications
• More easily leverage 3rd party
developers
* Source: “The Differences Between Cloud ERP and Hosted ERP and Why They
Matter” Constellation Research, 2012
© 2012, Frank Scavo. All rights reserved.
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ERP Cost Optimization:
Consolidation is Key
Small Companies
ERP users
IT support
Midsize Companies
• ERP support staff are
more productive in larger
installations
– IT staff in midsize
companies support twice
the number of users as in
small companies
– In large companies, the
ratio triples
• Therefore, combine
multiple ERP systems,
versions, and instances
wherever possible
Source: “ERP Support Staffing Ratios,” Computer Economics, 2011
© 2012, Frank Scavo. All rights reserved.
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ERP Cost Optimization:
Minimize Code Modifications
ERP Staff Productivity
100%
80%
“Few” or
“No” Mods
Situation worse
if mods cause
organization
to forgo
ERP version
upgrades
“Many” or
“Extensive” Mods
Source: “ERP Support Staffing Ratios,” Computer Economics, 2011
© 2012, Frank Scavo. All rights reserved.
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ERP Cost Optimization:
Consider Third-Party Maintenance (3PM)
• Vendor margins on software
maintenance can exceed 90%
• Much software maintenance
revenue goes to fund new
development
• Customers who don’t plan to
upgrade may do better with
3PM
• Savings on order of 50%
• 3PM providers may support
customizations
© 2012, Frank Scavo. All rights reserved.
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ERP Optimization Roadmap
Root Cause
Problem
Analysis
Cost
Optimization
Opportunities
© 2012, Frank Scavo. All rights reserved.
Priorities and task
dependencies
Optimization
Initiatives
Typically 5-20,
depending on severity
of problems and
organizational capacity
for change
Typically 6-18 months
Optimizing ERP Can’t Wait Until
“After the Implementation”
Your ERP selection
and implementation
decisions today will
dictate your
optimization options
for years to come
© 2012, Frank Scavo. All rights reserved.
For Example:
• Pick the right system
• Negotiate to keep your
3PM options open
• Consider cloud
deployment
• Implement correctly
• Limit modifications
• Etc., etc.
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Thank You!
Frank Scavo
949.442.0114
frank@ConstellationRG.com
Twitter: @fscavo
www.ConstellationRG.com
The Enterprise System Spectator
http://fscavo.blogspot.com
© 2012, Frank Scavo. All rights reserved.
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