You Might Need a New ERP System If ...

How will you know when it's time for a new system? Trust me, you'll know.

To see how these concepts played out in our project for this client, please visit Selecting a New ERP System to Enable a Company to Grow.

This month's case study focuses on an Enterprise Resource Planning (ERP) system selection project, a type of work we've done many times for our clients over the years. Each time, the project is always a little different – there might be requirements unique to a client's industry, specific technology constraints desired by the client, a sea change in the systems market, or a change in the way all systems vendors operate.

ERP Projects Have Both Pains ...

What's common to all ERP selection and implementation projects though is one thing – pain.

Changing from one system running your business to a new one is never a cake walk – in fact, selecting and implementing a new system is a LOT of work on TOP of your day-to-day responsibilities.

Thus, companies never undertake a system selection project until they're in pain. Bad pain – or even severe pain. More specifically, the pain of staying ON the OLD system MUST outweigh the pain of moving TO a NEW system.

What are some pains associated with an outdated system? Here are some common ones, in no particular order:

1. Large recurring physical inventory shrinks traced to systems issues
2. It takes 10 business days – or more – to get good first draft financial statements
3. Numerous spreadsheet errors in financial information provided to your auditors
4. Your Excel production planning file is larger than a downloaded 1 hour podcast
5. A 5% growth in business requires a 7% increase in staff hours to do the work, including working around system limitations
6. You currently have 4,000 inventory items and nearly $8 million in inventory, and you are NOT tracking inventory using ANY system
7. Your staff are tired of the old system making their performance look bad
8. The current system does not have capabilities required for a new strategic line of business
9. Concerns exist about the long-term viability of the system's developer
10. The CEO doesn't sleep well because of the previous item

I've seen all of these pains in clients over the years. In fact, the last 4 pains listed above are motivating a system selection project we're currently doing.

... and Also Gains

There are, of course, also gains coming from a new ERP system. For example, here are some anticipated gains that can be quantified for an ERP system selection project:

1. Reduce/Eliminate Physical Inventories – Improved inventory accuracy comes from improved accuracy of receiving, picking, and shipping transactions, and from routinely scheduled cycle counts. Once inventory accuracy is sufficiently high, a physical inventory is no longer needed, saving time for a large number of personnel at various levels.
2. Reduced Stock Outs – If a customer does not accept backorders, every time inventory is not available, the gross profit on the unavailable items is permanently lost. Improved sales forecasting enables improved purchasing and inventory management, leading to fewer stock outs.
3. Reduced Picking Errors – An ERP system having Warehouse Management System (WMS) capabilities, supporting handheld scanners, and providing controls to verify the correct product was picked reduces the number of orders shipped incorrectly. Reducing customer returns, credit memos, and shipments of the correct product all eliminate work for numerous personnel.
4. Improved Operational and Financial Reporting – Dashboards customized to each group's needs, updated in real time, reduces the need for spreadsheets to calculate and report key operating and financial metrics.
5. Improved Materials Requirements Planning (MRP) and Inventory Management – Purchasing suggestions generated by the MRP module in an ERP system take into account all available information about supply and demand of each inventory item – including open purchase orders, available inventory, open production orders, open sales orders, and sales forecasts – saves time for purchasing agents. Better matching of inventory supply and demand should reduce inventory levels, resulting in lower amounts of cash tied up in inventory and also lower carrying costs of inventory.
6. Improved Customer Relationship Management (CRM) Features – Even a "lite" version of CRM – consisting of only "Persons" and "Activities" – allows sharing of contacts with customers and prospects among sales reps, CSRs, and others, as well as the ability to query prospects meeting certain criteria and send them a special offer to entice them to place an initial order.

For some clients, the gains may be tactical and consist solely of improvements such as those in this list.

For other clients, the gain may be more strategic and enable capabilities to support, say, a new product and service line projected to grow from its current 10% of total sales to 50% of total sales within 5 years.

Who Feels Pain and Who Sees Gain?

Many times, the pains associated with an outdated ERP system are felt mainly at the staff level – the people actually doing most of the day-to-day transactional work. While this pain may be communicated to, or even felt by, a company's executives, their responsibilities are more about planning and managing than transacting. Thus, executives typically feel less system-related pain than staff.

Even so, executives are more likely to see the gains – especially the "big picture" strategic gains – associated with a new ERP system. Staff will also see gains, though these are smaller gains coming from ...

• A better user interface,
• Introducing handheld scanner usage to improve efficiency and accuracy in the warehouse,
• Automating certain mundane tasks, and
• Being able to quickly review source documents supporting a transaction.

The best situation occurs when executives and staff both feel some level of pain and both see some level of gain. With shared pains and shared gains, the company is very likely to actually select and implement a new ERP system, and thus fix its many individual broken systems and transaction flows in the process.

In this month's case study, the client had a very flat organization chart, and the owner was heavily involved in day-to-day work. Thus, he was well aware of staff pains – and experienced his own pains, too – and definitely realized he could not grow the company any further with QuickBooks Enterprise.

Where Does Your Company Fit?

Do any of these pains sound familiar? If so, how bad is the pain?

Do any of these gains resonate with you? If so, how big might the sum of all gains be?

Remember – "No Pain, No Gain" is just as true in business as it is in the gym or on the playing field. We can certainly help you reduce the pains and achieve the gains associated with a new ERP system.

Sincerely yours,

Todd L. Herman