While Enterprise Resource Planning software used to be complex and expensive, new technologies and new means of delivery are making ERP both more affordable and more flexible.
New cloud-based offerings cut costs and complexity, making ERP available for smaller companies in the process. For those who prefer to host their own ERP software, cheaper core modules and rapid rollout technologies and methodologies are taking some of the deployment pain away.
To Auckland-based furniture and interior design company Matisse International, for instance, cloud-based ERP has been a good investment.
The company has been running a NetSuite solution for two years, says Matisse director Paul Bertenshaw. Previously, the organisation used MoneyWorks for accounting and had a bespoke database for keeping track of sales, customer and inventory data. This system worked when the company was smaller, he says, but as the organisation grew and more people got involved, he saw the need for an integrated system.
Before joining Matisse, Bertenshaw worked as a Salesforce.com system administrator at Vodafone for a number of years. One of his first tasks at Matisse was to improve inventory management, which was clearly a weakness of the business, he says. He started looking for just an inventory management system and because of his background with Salesforce.com he wanted an on-demand system. He was left disappointed by the few systems out there.
The only suitable solutions Bertenshaw found were NetSuite and an open source system, he says. When engaging with NetSuite, he realised that its modular cloud computing solution could fit the company quite well — and help him save money. The system now covers financials, CRM, inventory management and service resource planning.
The number-one benefit is reduced costs, says Bertenshaw. He doesn’t have to maintain the system or spend money on upgrading software and servers.
“Before, every time we needed to upgrade the database we had to pay an external database expert to do it,” he says. “Just not having to worry about these things is a great benefit.”
Matisse is an ecologically conscious company and its cloud computing solution ties in with that, says Bertenshaw. It helps reduce the number of physical servers needed to run the workplace environment. The inventory management module helps the company control stock levels and avoid overstocking, he says.
“We used to have a warehouse and a storage facility in central Auckland. Now, we are down to one warehouse which saves a huge amount of money.”
The reporting ability is also a huge benefit, says Bertenshaw. Before the system was in place he would spend “an awful lot of time” every week exporting data to create sales reports and sales forecasts.
“I now have all that information at my fingertips, allowing me to be more productive.”
Where he can, Bertenshaw uses the processes “out of the box”.
“We’ll change what we do to accommodate the way of the system, rather than the other way around.”
He thinks this approach has contributed to the success of the system. It would have been expensive to try to replicate how processes were done in the old system. And now the organisation gets the benefits of thousands of other users around the world, requesting enhancements to the system.
While he can’t put a figure to the ROI of the system, it has definitely helped reduce costs.
Matisse this month opened its own web store.
“The online store is run completely through NetSuite. Hopefully the revenue from it will cover some of the cost for the system,” says Bertenshaw.
The only issue with the system is that it currently doesn’t have a payroll module, so this is still run offline, he says.
Iris Enterprise Software, headquartered in the UK but with a local office in Auckland, is seeing an emerging trend of businesses rejecting the traditional vertical industry solutions and adopting flexible ERP systems, says local representative Rupert Ralston.
To get good ROI from any ERP system implementation, there needs to be a clear understanding of both the total cost of ownership and the expected returns, says Ralston. Some of the most expensive areas are often overlooked and this can drastically affect the expected ROI, he says. Factors to consider include downtime, data conversion, implementation management, parallel run, staff training and staff re-training.
Systems like IRIS Exchequer have a shorter implementation cycle, which could help keep costs down, he says.
“There are varying costs for implementations across the range of ERP systems in New Zealand,” he says. “These costs can come as a surprise, so make sure an implementation schedule and plan is always discussed.”
Ease of use of the system is also an important success factor, especially for organisations with high staff turnover.
US-based business software provider Infor challenges the traditional big ERP vendors, arguing that they take an outmoded approach to the needs of the modern organisation.
Solutions offered by the ERP giants are expensive, complex, slow to implement and too difficult to customise, claims Infor’s Sydney-based Pacific sales director, Todd Hunt. He says many Infor customers have switched from SAP and Oracle systems and moved to Infor for speed of implementation and flexibility.
Businesses are evolving so quickly today that by the time a big, complex implementation goes live, the needs of the business might have changed, he says.
Infor, which has two offices in New Zealand, is moving towards a SaaS model but, according to Hunt, the local market is a little bit different in its preferred deliver method.
“Here, businesses love to work with local people. The channel model, built on strong relationships and trust, works well for us in New Zealand,” he says.
The University of Canterbury has an enterprise system made up of Oracle’s E-Business Suite for financials, PeopleSoft for human resources, Jade student management and Cognos for enterprise reporting.
“Our system has a couple of different flavours,” says Lynne O’Donoghue, financial systems and taxation manager at the university.
The university has been running Oracle’s E-Business Suite since the mid-90s, but did a complete re-implementation of it in 2000. The system running today is essentially the same, but it has been upgraded over time.
The initial objective for investing in an ERP system was to achieve a “single source of truth” and avoid people keeping their own financial information within their departments, says O’Donoghue.
“Our objective was to get everyone right across the enterprise, using exactly the same system and getting the same information from it.”
She says the Oracle system has fulfilled those wishes. Having a reliable, well-supported system was also a big driver for the university.
“In terms of support, the Oracle E-Business Suite is probably one of the better systems we use across the organisation,” she says.
O’Donoghue’s team also utilises the community of Oracle E-Business users, both locally and globally, for additional support.
“We get ideas from other users across the world which helps us extend the use of the system, in terms of using as much functionality as possible.”
Another benefit is that it is easy to add further Oracle modules, along with in-house applications to the system, she says.
“We have added some features to it that it didn’t have, for example invoice scanning. We then use Oracle Workflow to route that invoice around the university for approval.”
O’Donoghue says that, in a way, the system really has given the organisation good ROI.
“When we put it in, we considered it to have a life of five years and we have now had it for 10 years. But what we focus more on with the ERP system is total cost of ownership and that is coming down.”
Overall, the multi-vendor ERP system works well for the university. The organisation initially looked at having one provider across the board, but it proved difficult to have all business areas ready at the same time.
“That is part of the reason why we have different solutions in place. Over time, I can see us moving towards one overall solution if that meets the business needs. There is an advantage in using one support network,” she says.
Mike Lorge, managing director of Sage Business Solutions, Australia and New Zealand, is seeing uptake across the board, irrespective of size of the organisation.
“If a business has over 10 staff and they are spending more than 30 percent of their time maintaining and updating business information, whether that’s in Excel or a legacy accounting package, the business should consider implementing an ERP system,” he says.
Reducing the administrative burden on staff — let’s say they are earning on average $50,000 per year — and increasing their productivity by 20 percent, ROI per annum on 10 staff will be $100,000 in gained productivity, he says.
“This doesn’t include the benefits associated with more streamlined processes, [for example] the ability to respond quicker to customers, maintain more efficient inventory levels, and having more accurate data about the business.”
According to Patrick Kouwenhoven, head of software solutions at Gen-i, local companies now put a stronger focus on realising the benefits of their enterprise solutions. As a result of the recession, companies’ view of return on investment has changed. Whereas five years ago CIOs were often looking for ROI over three years, now many want to see that return in six months to a year, says Kouwenhoven.
In many businesses the message is: stop spending money on things that aren’t going to add benefits quickly.
Partly because of this, Gen-i is seeing increased interest in cloud computing with some of the giants, such as Oracle and SAP, launching lighter software-as-a-service-type offerings.
“The large licensed ERP providers are now trying to pick up market share in the small business sector,” he says.
Kouwenhoven thinks we are going to see a trend were SaaS players have more impact, which among other things, will reduce the total cost of ownership of ERP systems. The SaaS model opens up ERP to smaller organisations that wouldn’t normally look at implementing an ERP system, because of cost and the required change management.
Gen-i sees huge opportunity in on-demand services and is about to launch its own cloud-based solution. The services range from SaaS to infrastructure-as-a-service, with customers paying only for what they use on a monthly basis.
Among the large enterprises in New Zealand, Gen-i is expecting many to upgrade their ERP systems in the next two years, solely because they are using old versions. These old systems don’t have the “widgets” that many companies are now looking for, such as Web 2.0 technologies and web-enabled front ends, he says.
Most of the new versions have these functionalities, enabling companies to offer their employees many of the things that they are experiencing in the consumer world, says Kouwenhoven.
One reason organisations are revisiting their ERP installations is that many initially invested in the late 1990s to deal with the Y2K threat, says TechnologyOne’s operating officer Roger Phare.
“The mass adoption of the internet caused the dotcom boom and worldwide investment in new ‘Y2K compliant’ systems bought about a new way of working,” he says.
Phare says up until the early 1990s, systems were non-integrated stand-alone applications, largely servicing target markets in distribution and manufacturing companies.
“The advance of technologies saw the emergence of organisations such as JDE, Baan, Oracle, PeopleSoft and SAP [the so-called JBOPS] with fully integrated solutions, particularly for the distribution and manufacturing industries. In the mid-90s Gartner coined this new integrated approach Enterprise Resource Planning, Phare says.
The strength of these systems was their transaction processing ability that helped streamline supply and manufacturing chains. Their downside was, first, it was hard to get information out and, second, the software was not suited to organisations whose business is primarily managing projects, programmes or activities.
After Y2K, further enabling technologies emerged, among them the web, business intelligence, customer relationship management and performance planning
“As the industry consolidated post Y2K a number of the now incumbent ERP vendors acquired or developed capability with the enabling technologies,” says Phare. “The problem was that the underlying architecture and technologies of the ERP systems were not conducive to interacting with the emerging technologies. As a result these newer technologies became ‘stacked’ on top of the ERP base — and as such have not really delivered the promised outcomes.”
Phare says TechnologyOne’s design and architecture facilitates the total integration of such emerging technologies.
Five tips to extract ERP value
Gen-i’s Patrick Kouwenhoven delivers five strategies to get the value out of ERP:
• Make sure you fully understand your business processes before embarking on an ERP implementation. This way you will know what benefits are realistic to expect.
• Use as much of the out-of-the-box functionality as possible.
• Invest in customisation of parts of the ERP system to increase competitive advantage.
• Make sensible choices around what to customise.
Be open-minded about changing your business processes and workflow instead of heavily customising the system.
• Invest in a business intelligence tool to help you access the important details from your ERP system. Dashboard reporting will help you unlock that extra value.