Chapter 7 – How to Select ERP Without Losing Your Mind (or your job)

The True Cost of Selecting and Implementing ERP Software

What will your ERP software and implementation really cost? What are the hidden costs? Have you budgeted for all possibilities? There may be some you haven’t. Read Chapter 7 to learn more…

The ERP Advantage – you’ll be able to:

  • Streamline operations and get company-wide visibility.
  • Get access to information anytime, anywhere to improve decision making and speed response times.
  • Easily adapt to new manufacturing methods, changing customer requirements, and evolving business strategies.
  • Get new products to market more quickly and profitably.
  • Optimize inventory and production resources to increase efficiency.
  • Improve quality and customer satisfaction.

 ERP solutions help you with:

  • Service management — Manage your entire customer lifecycle.
  • Lean manufacturing — Adopt lean processes across your enterprise and value chain.
  • Quality management — Improve quality to increase productivity and reliability.
  • Financials — Get greater financial visibility and insight.
  • Manufacturing — Tame the complexity of your manufacturing supply chain.
  • Process manufacturing — Optimize your process manufacturing to protect profit.
  • Wholesale and distribution — Make your extended supply chain more responsive.

The cost of software systems implementations can be divided into five components.

  1. Selecting a System (soft cost).
  2. The time it takes you to define your system requirements, research different packages, and all other steps required to select an appropriate system.
  3. The quoted price of software (hard cost).
  4. This is easily defined as it will be within the software vendor’s proposal.
  5. The cost of training and implementation services (hard cost).

This should also be defined within the software vendor’s proposal, but is commonly understated by both the vendor and the company implementing.

The cost component that is usually the last considered is your internal labor for implementation.

Why would a vendor be tempted to understate the cost of training?

They want to make sure the total quoted price is under your budget. As the software price is fixed, they may reduce services offered to lower their bid.

Also if a smaller amount of training is estimated, the perception is that the software is easier to learn.

The cost of infrastructure and hardware (hard cost)

The customer can also understate the cost of training. They are attempting to keep the total project under budget but it could be because they do not have the previous ERP implementation experience. They are using the vendor’s quote as a measuring stick of how much training will be required.

You can easily shop this component. However, it may be worth a little more to work with a hardware vendor that has experience with the specific software system. This experienced vendor can minimize finger pointing between hardware and software.

Problems should be lessened, but if the “more experienced” vendor does not deal in enough hardware volume, you will pay a premium for this “peace of mind”.

Internal costs (soft cost)

The cost component that is usually the last considered is your internal labor for implementation. In budgeting and forecasting ROIs for the new system purchase, this is commonly the area paid the least attention.

Please Note: The most expensive component of implementing a new system is your time.

Either directly or indirectly, all employees at a manufacturing facility make parts. While you are implementing software, you are not doing your “real” job and therefore costing your company money.

An average implementation of an ERP system takes between 6 to 12 months. If you are not able to do your “real job” for 6 to 12 months, how much does it really cost?

About Andy Pratico: 

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Over the past 30 years, Andy Pratico (ex-APICS Chapter President) has worked with hundreds of manufacturers. During this time he has seen many implementation success stories, but sadly even more failures. To help companies increase their probability of success, Andy presents common sense workshops on how to select ERP systems. In addition, he authored “How to Select ERP Without Losing Your Mind (or your job)”.

Andy provides common sense advice on how to uncover the truth about ERP’s so you can make your own informed decision.

Here’s what Andy’s audience and clients are saying about him…

“Thanks for your hard work on that presentation. I liked your low pressure approach and your affectionate cynism for the ERP industry. Very enlightening and fun. I particularly liked how you did not attempt to sell anything.”

Lee BurdenPacbrake Company

“Andy has an uncanny ability to provide a simplified story line to what is often a highly complex topic. If you believe ERP to be the life-support system of any manufacturing environment, then you’ll need to consider Andy as the ‘oxygen’ behind that system”

Robert Kheir, MBA, CPA, CMAOntario CPA Association

“Congratulations on the well-delivered presentation. Usually, I attend these to roll my eyes at the triviality of the ideas discussed. In your case, the presentation actually covered all the key points anyone needs to remember about the ERP selection process. It should be of much value to all attended, as it was to me.”

Alec Pestov3B Research and Consulting

“Thanks for the informative presentation on ERP evaluation. Your comments about focusing all facets of evaluation on a company’s idiosyncratic and non-negotiable requirements were spot-on! This is the key take-away for prospective ERP buyers. You did a nice job. Thanks, Andy”

Jonathan Gross, LL.B., M.B.A. Vice President and Corporate Counsel, Pemeco Consulting