Hidden Profits Blog

Finding the Gold in Your Business

Hidden Profits Author:

Lynda J. Roth

As the president and founding partner of Woodland Hills-based LJR Consulting Services, Lynda advises clients on ways to improve profitability and productivity through both technology and business processes. She also works with companies and private equity firms on the role of information technology in mergers and acquisitions.



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AN ERP Success Story

Filed under: business process,ERP Selection,ERP systems,Information Technology — Lynda Roth at 7:45 pm on Monday, November 15, 2010

 

  I have posted before about some of the issues involved when selecting an ERP system and the importance of implementing the correct ERP system.  Friday, I was having coffee with my friend, Steve Ragow, who was the CFO of an automotive parts company during a period of significant growth. He related to me their experiences with ERP systems. It is such an excellent example that I thought I would share it as an example of the cost in not selecting the correct ERP system and the benefits when you do get the correct system and the process to select the appropriate system.
Before Steve arrived the company had grown from $5 million in revenue to almost $40 million and had gone through 3 ERP systems and the owner was preparing to purchase the 4th ERP system. On each of the previous purchases and on the purchase the owner was preparing to make, he was only looking at where the company was currently positioned and at what he had been emotionally convinced was the best system for the company. As we discussed here before, that is a very short sighted process to use for making such a large investment. As we all know changing ERP systems is not easy, it is very disruptive to a company.  And when done without much forethought  results in minimal increased value at best and utter failure at worst. 
Steve worked with the owner to identify the key problems the company was facing and define how the new ERP system was going to correct those specific problems. As Steve expected, the system they were planning to purchase did not address the problems they were experiencing which were:
  •  Excessive warranty returns
  • Shipping problems and late customer deliveries
  • Less than 100% customer order fulfillment
  • Over 50% of receivables that was over 120 days.
These issues resulted in an annual loss of between $4 and $4.5 million.
Based on this, Steve guided the owner of the company through an evaluation methodology which focused on business process, policy, procedures and organization first and the ERP system as a tool second. The company spent several months performing a complete review and redesign of business processes, procedures and policy to address the key problems that were eating into profit and stunting the company’s growth.
Next, Steve focused on the ERP system. Based on the requirements defined, he drafted an RFP to ERP vendors that focused solely on the key requirements. All responding vendors were mandated to follow a scripted demo that showed how their product would address the key business requirements of the company. After addressing the requirements, the vendors could also highlight functionality that their product possessed that might be relevant to the company and represent a competitive advantage for the vendor.  After each vendor demo, the selection team completed a detailed evaluation of the presentation and the ERP system they had just seen. This evaluation methodology eliminates much of the emotion and personal reaction from the product review, thus enabling the company to purchase the system that fit their needs the best.
The company implemented a new system with add-on functionality such as integration with shipping systems and warehouse scanning devices that was not even considered in the original plan. The implementation was completed in 7 months and was flawless. Since the implementation of the new business processes, procedure, policies and system the company has grown to more than $90 million in revenue.
This is a success story that many CEO and CFOs wish they had. Every CEO and CFO can have this kind of success and ROI when they follow this type of methodology. 
By resisting the urge to purchase the first system that comes along and following a methodology that addresses the business first and the technology as a tool – you too can experience this type of success! 
If you are thinking about a new ERP or any other system and like to have the success this company had, contact Lynda Roth at 818-709-6583 or info@ljrconsultingservices.com

 

Common Mistakes When Selecting an ERP system

Filed under: ERP Selection,ERP systems,Information Technology,system requirements definition,Uncategorized — Lynda Roth at 6:11 pm on Thursday, July 8, 2010

I have spoken with several prospects in the last couple of weeks all of whom are wrestling with how to select an ERP system. 

I am encouraged that they are wrestling with it and contemplating getting professional support.  Selecting and implementing an ERP system is one of the most important and expensive decisions a company will make. Unfortunately, in many cases, over 70%, the projects will fail.  Why such a high rate of failure for such an important business undertaking?  In my over 30 years of experience implementing systems, the 2 biggest reasons for failure are:

  1. Selecting the wrong system
  2. Selecting the wrong VAR or implementation partner 

Of course, there are many other reasons for the failure rate but these are the most common. 

So the next question is – if a company does an evaluation how is that they so often pick wrong?

The primary reasons are the following:

  1. Select a system based on the prior experience of an executive with a system at another company.  That may or may not be a good test of what will work in the current company.  There are several factors that impact whether a system that works well in company A will do the same for Company B.  What works for one does not necessarily work for another.
  2. Buy into advertising, popular theory or executive pressure that the company must have the biggest name in the business to be a ‘real’ system.  When ERP systems first started to be developed, it was true that the larger company systems had better functionality.  That is not true today. 
  3. Delegate the selection only to the IT department
  4. Do not document requirements at all or document requirements based on how the company currently functions not how it will function in the future.  This is a very limiting view and results in selection of systems that will not support a growing company.
  5. Select the system with the best demo instead of based on how the system functionality best supports the company’s requirements.
  6. Do not use the services of a professional ERP consultant or use a systems integrator that benefits from the selection of a particular system.

The optimum methodology to use to select an ERP or any system is the following:

  1. Create a selection team comprised of employees from all key departments and information technology.
  2. Define and document system requirements based on the future processes of the company.  Use best business process practices as a guide. Also, use new technological features to redefine processes.  For example, systems today have executive dashboards and real time information access so traditional reports are not needed as much. Also evaluate how wireless and smartphone technology can be used to replace existing manual processes.
  3. Determine the technology platform you expect to support.  For example what data base and operating system can your company best support.  Will you use SaaS, outsource the application hosting or host the system in-house.
  4. Research systems that support your industry and compare them to your documented requirements and preferred technology platform.  Select the best 3 or 4 applications for demonstrations.
  5. Work with the selected vendors to script the demonstration so they will address your key requirements. 
  6. After each vendor demonstration, score the vendor based on how well the system performed and how comfortable the team was with the user interface.
  7. Obtain cost estimates for total cost of ownership – purchase price, implementation. and ongoing maintenance costs.
  8. Make the selection based on the best balanced system.

I also recommend that if your employees do not have experience in systems selection, you should use the services of an objective, vendor agnostic consultant to guide the organization through the evaluation and selection process.

If you would like to learn about our methodology and/or get support during your ERP selection and implementation contact Lynda Roth at 818-709-6583 or info@ljrconsultingservices.com

 

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