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 • • • • • 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 3 What is to “Optimize?” op·ti·mize: 1. to make as effective, perfect, or useful as possible. © 2012, Frank Scavo. All rights reserved. 4 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. 6 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 • • • • Missing functionality System performance Not scalable Bugs © 2012, Frank Scavo. All rights reserved. 8 Category #2: Right System, But Not Installed Correctly • • • • • 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. 9 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. 10 Category #4: Right System, But Not Used Effectively • • • • • Data inaccuracy Lack of user procedures Poor disciplines Lack of training Organizational disincentives © 2012, Frank Scavo. All rights reserved. 11 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. 13 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 • • • • • • • • Changing business requirements Organic growth Mergers and acquisitions Organizational restructuring New products/services Changing business model New demands from customers & suppliers International expansion 14 The Cost of ERP Must Also Be Optimized Return Benefits ROI = = Investment Cost © 2012, Frank Scavo. All rights reserved. 15 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. 16 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. 17 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 18 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. 23 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. 24 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. 25 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. 26 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. 28 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.