Ready-made solutions with «Best practices» do not always eliminate the problems of customers, but often, on the contrary, injure the company. This is also relevant for the ERP market, where «boxes» are especially popular. These «injuries» can be caused by different situations. In the article we will talk about them, and also consider alternatives to ready-made solutions.
Enterprise Resource Planning is a system for planning enterprise resources necessary for sales, production, purchases and accounting for customer orders. Initially, the purpose of creating ERP was to serve the information needs of manufacturing enterprises. But later, the system began to be used in other industries: in the field of consumer goods, training, financial services, healthcare, etc.
Statistics
The international research company Panorama Consulting conducts annual research on the global ERP market.
In 2019, most organizations needed to finalize standard ERP by 25-50%, because with an increase in the scale of the company, the functionality of its system should also expand.
In the process of project implementation, 64% of respondents went beyond the allocated budgets. Reasons for non-compliance with the budget: unforeseen technical or organizational difficulties, unrealistic budget planning, adding technical requirements as the project progresses.
More than 50% of respondents paid back the cost of implementation in 3 years, and 4% of respondents were able to recover their implementation costs in less than 1 year.
When implementing ERP, 66% of organizations encountered operational failures. 46% of respondents indicated that operational gaps in their work lasted from 1 to 2 months. Another 9% claimed that the duration of operational failures was observed for more than 3 months.
As you can see, ERPs are in demand, but not everything is so smooth.
Successful cases
«1C:ERP» for the company «Medcom-MP», the leader in the wholesale trade in medical supplies.
Problem: the lack of a single analytics that would reflect all the costs of the enterprise and solve problems with the profitability of the product.
Solution: in «1C: ERP Enterprise Management 2» the subsystems for calculating the cost of production and accounting for mutual settlements with counterparties were modified.
Result:
- Set up automatic accounting of expenses and income by type of goods sold;
- Detailed reporting on the financial result, which allows you to evaluate the profitability of the product;
- It became possible to accurately estimate the cost and markup of sold products, which made it possible to exclude unprofitable goods from the assortment.
ERP for a leading enterprise in the rocket and space industry
Problem: The company is having difficulty collecting information. Its branches are distributed throughout the country, and each of them keeps records in different systems. Document flow is carried out both in electronic and paper form. Therefore, the collection of accounting and tax reporting is a laborious process that takes a lot of time.
Decision:
- Automated 2300 jobs;
- A unified accounting and reporting system has been created, which is available to all employees;
- The reporting process of the enterprise was automated, taking into account the specifics of the rocket and space industry;
- Thanks to the implementation, it became possible to integrate with six external systems;
- The terms for collecting consolidated accounting and tax reporting were significantly reduced in the first six months of using the program.
Unsuccessful cases of ERP implementation
DHL
The failed practice of implementing SAP cost Deutsche Post DHL 345 million euros — this is how the amount of income that the company lost due to an unsuccessful IT project was estimated.
The incident happened in 2015 when Deutsche Post DHL decided to update the software for Global Forwarding’s logistics departments.
The launch of the project involved changes in the company’s processes that would reduce the amount of paper work and increase the efficiency of using electronic document management. But in fact, everything ended differently. The program did not bring the expected results and, together with the loss, brought 37 million euros in costs for the removal of the software.
Hershey Foods
It was planned to introduce a single integrated computing platform that would reduce the execution time of many company processes in various areas: from order processing to company document management and personnel work regulation. The $115 million ERP system was provided by SAP.
The result of this implementation was a decrease in sales of goods in the third quarter by 12.4% and a decrease in profit by 18.6%.
Danaflex
The project of introducing an ERP system in a large Russian packaging manufacturer Danaflex failed. Litigation is underway on this issue. Danaflex requires SAP CIS and its partner, TeamIdea, to compensate for losses in the amount of more than $500,000.
As you can see, such cases are not uncommon. Difficulties in the process of implementing ERP projects are systemic, and in order to avoid them, you need to plan in advance by what methods ERP will be implemented so that everything goes well.
In addition, for the successful implementation of ERP, it is necessary to ensure that the entire company is involved in the work, and not just one specialist. This will help to speed up processes to some extent, which means that you will get benefits faster when working with ERP. It is worth noting that with the implementation of the enterprise resource planning system, many business processes will be rebuilt for it, and not vice versa. Often company leaders are not ready for such changes, as this can turn into a protracted process with complications — and it is important to take into account the stage of explaining to them that the company will benefit from this.
7 Reasons ERP Failed. And what about personal development?
ERP implementation is a risky business, we have seen it in the examples of corporations of different sizes. Therefore, managers do not have absolute confidence that the project in their business is being implemented successfully.
By the way, about 65% of managers still believe that the introduction of ERP systems is “a moderate chance to harm the business.”
But is it only the system that is to blame? There are several reasons that affect the outcome of the implementation:
- Errors in budget planning for the implementation of ERP projects.
According to statistics, about 64% of implementations go beyond the budget. This may be due to the lack of specific requirements for the system at the initial stages of its deployment.
In personal development, this indicator is lower, because here such details are taken into account, which is called “on the shore”. Due to the fact that the modularity of the system is negotiated at the first levels of development, the project budget can be determined immediately. In addition, it allows you to plan the timing and costs of training employees. And this is an important point, since the implementation of ERP is a big cost: the deployment of the system itself, license fees, consulting services, hardware and staff training.
For example, we at Sailet held a presentation for a large company from Uzbekistan, choosing between us and SAP. As a result, the cost of SAP ERP was about $6 million, and our offer for a development service, taking into account all processes, was $500,000. Bought them, no explanation, a year has passed, the system is still not working.
- Lack of personnel with the necessary qualifications in companies.
There are no those who would explain the new tasks set for the company by the introduction of the new system, and how these tasks will be implemented. It is best to talk about the goals and objectives of new processes before starting to implement the system in the business, so that later you do not have to do this in the process of training employees.
- Neglect of staff training.
Either there is no time for it, or it passes in a very accelerated mode. The employee fulfills his regular duties and at the same time tries to combine them with the process of learning «on the run». In this case, management should understand what result they should expect.
- Insufficient system testing.
Often, users do not have enough time to fully familiarize themselves with the system, evaluate all the available functionality. And in this professional rush, the opportunity to lose sight of the absence of important elements of the system increases. Moreover, this problem equally applies to both boxed solutions and personal development. All minor, at first glance, errors can lead to permanent interruptions in the system. The low speed of their elimination, in turn, will slow down the company’s business processes.
- An ill-conceived ERP implementation strategy.
When ERP is deployed without a detailed analysis of processes, without assessing possible risks, implementation can lead to the destruction of a business from the inside.
But a well-thought-out strategy of personalized development for one of our ZhasProject projects allowed the client to save more than $200,000 annually. In addition, the project not only did not damage the structure of the company, but, on the contrary, streamlined all processes.
- Over-customization.
During implementation, a rigid, limited ERP system is not subject to business processes. Business with its diversity has to adapt to the system. Due to such implementation, domestic companies lose many competitive advantages. This is due to the fact that foreign ERP, which are so actively trying to introduce into the structure of the Russian market, are simply not suitable for this. ERP-systems of non-domestic origin are developed in accordance with the global principles of efficient business conduct (without tax evasion, etc.). In Russia, the specifics of the so-called “correct” business model are still lame and far behind foreign ones.
Constant improvements can significantly delay the completion of the project and increase its final cost many times over.
According to the Standish Group, only 16% of ERP implementations are completed on time and within budget.
Implementation in 30% of cases ends ahead of schedule. The rest — cases in which the implementation project deadlines / budget are exceeded or the functionality provided for in the project is limited
During personal development, software adapts to business processes, taking into account the processes of the company. And if any changes are required, it will be necessary to add a specific module (personnel, financial, operational, etc.), and not reconfigure the entire system.
In addition, personal development takes into account not only the structure, but also the specifics of the business.
- Change of company priorities.
This can happen when a company expands, acquires customers, and for many other reasons. There are many new tasks, attention is drawn to them, many companies do not cope — then the implementation of ERP fades into the background.
This clearly shows the difference between ready-made solutions and personal development. In the case of the latter, the project is accompanied from the moment the model is formed to its full implementation. But there is an important point here — it is important to choose developers who can understand all the company’s processes and help make the system as effective as possible for you.
Summary
It is important to note that in the long term, ERP systems can help businesses improve efficiency and productivity, but a failed implementation can have the opposite effect, which is not always taken into account. When budgeting, you must consider the financial costs and time of the ERP project team members. For best results, it is important that someone in the company takes ownership of the project and communicates and works closely with the ERP provider. The key to success in implementing ERP is not to mindlessly spend money on the implementation of programs that you will not be able to use in the future, but to determine the necessary parameters in advance and to provide for various errors in the implementation of the project.
For the successful implementation of an ERP system, it is required to adjust not only the internal components. It is necessary to choose the right strategy, draw up a detailed budget, taking into account all possible risks, decide in advance on the functionality and tasks that the system will have to solve. The experience of such companies as Danaflex, DHL and Hershey Foods has shown that the implementation of ERP is a very risky process and not always successful. We were told about this by the numbers as profits that companies lost in the process of implementing ERP.
The investment does not always pay off the performance of the system. Thus, according to one of the BCG (Boston Consulting Group) reports, about 50% of ERP system users assess their financial and production investments as not meeting the expected goals. Only 30% consider the implementation of an ERP system successful.
But not always successful implementation may indicate that the functionality is being implemented in full.
Research by the Gartner Group has shown that in many cases a successfully implemented system does not fully realize its functionality due to poor use and maintenance. The reasons could be the following: insufficient preparedness of the enterprise, poorly trained personnel, lack of security policy, outdated network and electrical equipment, etc.
Thus, we returned to the fact that it is not the system that may be to blame for the incorrect operation of ready-made ERP systems, but to a greater extent, the company’s insufficient preparedness for its implementation.