Member Article

Universal ERP: a Risk Assessment

Universal ERP is being challenged, as manufacturing SMEs prioritise ’right fit’ suppliers over ’right brands’.

As the 2000s began, big was seen as better wherever you looked. A default setting for SMEs was to want the hardware and software which the global PLCs had. ERP software was no different, and the US giants dominated by offering ‘universal’ systems across all sectors – often dubbed ‘horizontal’ solutions.

When ’one size’ was made to fit all

At the time, the logic from the global PLCs was clear:

ERP software which offered the widest generic scope could be most easily sold anywhere, and development costs saved by not including sector-specific functions. Add-on software could then be provided through a network of partners or resellers, in whichever country the client was based.

Today the desire to ‘act big’ has dwindled amongst SMEs who required agility and speed to survive and now to thrive as the economy recovers. There’s a renewal of questions about whether European companies ever received the full benefits of ‘one-size’ ERP software developed in the US.

’No universal ERP system can be successfully implemented in different countries, without resolving obstacles that are driven from national differences’ - Warwick Manufacturing Group.

’Right fit’ ERP software makes the sums simple

One lesson brought home by the economic turbulence of the last years is that the price of something doesn’t necessarily reflect its value. So while ERP software is now available at every price point – from free DIY ‘open source’ ERP systems upwards – savvy SMEs are rightly judging payback on Total Cost of Ownership (TCO).

’It is better to pay more to secure sufficient resources from a qualified vendor, than to pay less initially and incur greater costs later for a less successful conversion’ - Chuck Langenhop, CTSGuides.com.

A revealing exercise is to review TCO, over a three-year period for example – including all associated costs such as custom development, IT overheads (including staff support), renewal fees etc., and excluding any benefits that won’t be realised yet.

’While the most expensive ERP system will probably meet all or most of your company’s requirements, the TCO may far exceed the corporate budget. On the other hand, there can be both functionality and implementation risks associated with selecting the least expensive ERP solution’ - Chuck Langenhop, CTSGuides.com.

The five Ps of ERP selection today

One way to look at key ERP system considerations for manufacturing SMEs today is with these five ‘Ps’:

• Personal: businesses expect a direct, meaningful partnership with their supplier.
• Proven: solutions and their results should be readily referenceable amongst sector peers.
• Phased: solutions should support a phased roll-out with a ready choice of proven integrated modules, to support future business ambitions and/or phased payment plans. The time, cost and risk of a ‘big bang’ project requiring heavy custom development is commonly now not palatable for SMEs.
• Payback: businesses expect the supplier to present a business case clearly, based on proven benefits and a truly honest TCO.
• Protection: businesses want suppliers to have a record of longevity and committed development to their industry (i.e. other customers in that sector).

These personalised priorities put ‘right fit’ mid-market suppliers ahead of ‘right brand’ preferences and pose a challenge to the values of universal ERP.

Things to think about:

• Universal ERP software may no longer be the best solution for SMEs
• Savvy SMEs are judging payback on Total Cost of Ownership
• SMEs should think about ‘right fit’ rather than ‘right brand’

Thinking about ERP selection? Copy and paste this link http://bit.ly/1YeTKlg into your browser and read ’ERP: cost vs. return on investment’

This article first appeared on the Sanderson blog.

This was posted in Bdaily's Members' News section by Paul Bywater .