Ed JordanThere’s no doubt that an Enterprise Resource Planning system (ERP) can bring immeasurable benefits to a manufacturing company. As the backbone of any organization, ERPs play a crucial role in keeping all back office operations running smoothly.
However, it can be easy to underestimate the time, effort and resources needed to successfully implement and maintain an ERP. Analysts have found that roughly 75 percent of ERP projects fail. Time and time again, businesses have been led astray by common misconceptions about ERPs. The result? Costly mistakes and lasting damages.
Unfortunately, no company is immune to the devastating impacts of an ERP failure. Here are a few famous examples of what can happen when an ERP implementation doesn’t go as planned.
- In 2000, Nike lost $100 million in sales after a failed supply chain project. The company was hit with a series of lawsuits and also saw a 20 percent dip in its stock.
- Right before Halloween in 1999, Hershey’s couldn’t deliver on $100 million worth of chocolate because the company’s ERP implementation failed. The stock dropped by eight percent due to the operational disaster.
- A buggy ERP implementation left nearly 27,000 University of Massachusetts students unable to register for classes or collect financial aid checks back in 2004.
The good news is that ERP failures can be avoided. Use the lessons learned from ERP failures of the past to ensure a brighter implementation future.
Lesson No. 1: Expect Extended Timelines and Plan Accordingly
A successful ERP implementation doesn’t happen overnight. In fact, nearly 59 percent of ERP projects end up taking longer to implement than originally projected, according to a report from Panorama Consulting Solutions. One of the biggest mistakes IT executives within the manufacturing space make when it comes to ERPs is relying on a new system to perform functions by a certain date. Rushing to meet deadlines should never be part of the implementation plan, so remain flexible when it comes to the project timeline.
Not only is it critical to plan for additional time to get a new or upgraded ERP system running properly, but it’s important not to underestimate the time needed to properly maintain it going forward. ERPs are not a one-time investment — as a business grows, so does the increased complexity of its ERP. Make sure you’re prepared to handle the time and resources needed to provide continual IT support and maintenance for an ERP.
Lesson No. 2: Set Realistic Budget Expectations
An ERP can be a very powerful tool for your business, and with that comes increased costs. ERPs require massive amounts of time and labor, as well as additional costs in the form of licensing, maintenance, development and hardware fees. Underestimating how much an ERP will cost your business can be detrimental.
Considering the fact that 74 percent of ERP projects experienced costs overruns in 2016, accurate planning and evaluation are key. To ensure the implementation process is smooth and cost efficient, benchmark against the ERP deployments of similar organizations and ensure your scope is as comprehensive as possible. It’s also important not to overlook the smaller costs that may come up along the way, such as staff training, bug fixes and data conversion.
Lesson No. 3: Be Patient and Prepared to Problem Solve
Addressing bugs is a necessary part of any successful implementation — and it’s not a step where you can afford to make assumptions. To avoid any major disruptions to your organization, use a phased approach to deploying a new or upgraded ERP. Rather than immediately switching to a new or upgraded system, give your organization enough time to properly test it before your existing system or process is dismantled.
Panorama’s study found that approximately 88 percent of companies will end up customizing their ERP, which requires additional time to implement and test. It’s also important to note that while customizations may work properly in the short term, there’s a chance you may face difficulties in supporting customizations in the long term. Customizations within your ERP system may require additional resources or third-party support to deploy upgrades or ensure compliance with evolving industry best practices.
Lesson No. 4: Know What You Really Need
ERPs are instrumental in the back-end management of a company, but they are not a solution to every business challenge. These systems play a very specific role and are not equipped to take on every task, such as collecting a payment or sending an invoice. For these types of business functions, it may be more efficient to opt for a third-party solution that can integrate with existing ERPs.
Make sure an ERP system can handle the specific tasks you need before jumping into an implementation. By keeping an ERP’s limitations in mind, you will have a better chance of ensuring you are managing your back-office systems and data in the most efficient way possible.
Setting the Stage for Success
It can be easy to get overwhelmed by the challenges in getting an ERP project up and running. While ERP systems can come with their fair share of complexities and pain points, having a thoughtful and strategic approach makes all the difference. By learning from some of the most common ERP mistakes, you can drive efficiency and security in your business and improve operations management.
Ed Jordan is the chief financial officer at Billtrust.
