31 May 2012
Not brain surgery
There are powerful arguments today for changing the way we think about software – even ERP and PLM systems. Brian Tinham brings us up to date
Almost everyone accepts that the cycle for replacing ERP systems is once every seven to 10 years. Everyone in the IT vendor community, that is. Manufacturing users have their own, often quite different, ideas. But why that particular timeframe for change? ERP companies will tell you it's an average, driven by manufacturers reaching a tipping point over anything from maintenance and support issues to worries over falling behind on upgrades and service packs, or missed opportunities only available with new technologies. Cynics might suggest it's nothing more than a poorly disguised attempt to frighten them into migrating prematurely.
So what's going on? Should we be budgeting not just for regular ERP upgrades, but also for implementing other potentially game-changing software in production, R&D, our supply chains and commercial departments? And, if so, what are realistic timeframes and how are the cost/benefits likely to stack up? Or should we be reminding ourselves of the nightmare that was our last system implementation – and the pain it's been ever since, in terms of getting it to work the way we were led to believe it would?
Actually, recent years have seen the numbers of ERP success stories increasing. And, yes, implementations are rarely without pain, but in recent years they appear to have been getting easier and more rewarding, helped by sophisticated business process discovery and modelling software, more flexible best-practice templates and improving implementation methodologies and support.
So, given that much of the argument against upgrades and system improvements has at least as much to do with fear as it does with cost, maybe we should be taking more notice of software vendors – who like to think of themselves as partners in waiting, not sharks circling for the feast.
Perhaps it's best to look at the dilemma another way – through the lens of the IT analyst, whose job it is to assess business systems' uptake and effectiveness by undertaking research in the user community. One of the most impressive is little-known Mint Jutras, a US-based firm run by Cindy Jutras (ex of much bigger Aberdeen Group), which earlier this year published two revealing reports: 'Is it time to purchase a new ERP?' and 'The pros and cons of SAAS (software as a service) ERP'.
Commenting on the former study, which is based on data from more than 900 respondents, Jutras observes that, for decades ERP implementations in general, and particularly ERP replacements, have been compared to brain surgery. "You just don't do it unless the patient is dying," she quips. But her research suggests that life has moved on, and that a better medical analogy might be joint replacement.
"You suffer with that knee or hip until you can't stand the pain any longer, or you simply can't function properly," she says. "Apply these same principles to your next – or first – ERP purchase. Suffer along if the status quo is good enough. But what if it's not? Sure there will be some 'recovery' time required. So, plan for it but – with careful selection and planning, and aggressive goal setting – you too can be operating pain-free and better than ever by implementing a new ERP solution."
Enough: looking at top line findings, Jutras' research shows that 62% of businesses with ERP installed are still running their first solution – potentially now a couple of decades old. But this also means that 38% have bitten the proverbial bullet and moved on to system 'n', either as an upgrade or migration to a new solution provider, or possibly, in turn, both. Mint Jutras finds that two thirds of manufacturers do change IT vendor.
As for why they changed, the reasons generally do support IT vendors' claims: 75% put lack of functionality as the top reason, followed by outdated technology (67%) and, third, an inability of their old system to scale with the demands of a growing business. All other reasons are well down the hit list. Interestingly, however, this analyst claims that when asked about their next potential ERP upheaval, the responses were more evenly spread. Inadequate functionality was still top, but at 51%; outdated technology scored 44%; lower TCO (total cost of ownership) took the number three slot at 38%; integration issues were cited by 21%; customisation problems preventing the business from keeping pace was 17%; and system limitations on business growth down at 16%.
There are, of course, other very good reasons for root and branch enterprise software change, such as a requirement to consolidate multiple systems, particularly where M&A activity is ongoing, or where plants over the years have been permitted to do their own thing. Clearly, there is significant potential for cost saving in either situation.
But for the doubters still running ageing systems, it's worth just noting some data that couldn't put the case for changing ERP more strongly – whatever the perception of difficulty – as long as good metrics and goals are established. Mint Jutras neatly divides manufacturers into world class (the top 15%, based on results, progress in achieving goals and current performance) and the rest – and there are startling differences. On operating costs, for example, world-class implementations show 19% reduction against 7% for the rest since implementing ERP. The picture for administrative costs is down 15% and 5% respectively; inventory costs are 19% lower versus 7%; and obsolete inventory down 18% against 8%.
So let's put that brain surgery debate to bed with a straw poll around the industry. IFS global industry director for manufacturing Antony Bourne speaks for most ERP vendors when he opines that the software has changed significantly. "We have developed industry-specific best practice business models and processes, as well as technologies that are far more flexible and easy to configure than once was the case," he explains. These alone, he argues, make vanilla ERP software entirely viable – meaning that a huge tranche of the effort hitherto required, and the gamble, is now toast.
"Five years ago, most software vendors offered a template per industry and you had to follow it or customise. Now, users can do their own configuration without the vendors' consultants getting involved." He gives the example of showers manufacturer Bristan Group: "As part of a recent upgrade, they took advantage of our Custom Events technology, which allowed them to create alerts based on certain things happening. Five or 10 years ago, that would have been a mod... Now, there are triggers that say 'when this happens the user-defined process kicks in'. There's no software customisation, so upgrades are not an issue."
Craig Such, managing director of Azzure IT, which offers solutions based on Microsoft Dynamics NAV (ERP) and Dynamics CRM (customer relationship management), agrees – but says there are even more benefits with modern systems. "First, Dynamics NAV is very scalable and fits companies with as few as two users up to hundreds. Secondly, it is very flexible in everything from reports to screens and the functionality. But thirdly, even where there have been code changes, Microsoft provides migration tools that export and re-import customisations. As long as they have been written by a credible partner, it's just part of the upgrade."
How flexible? Such cites one customer in the clothing industry that needed something quite different: a sales front end able to consider combinations of colours, sizes, fabrics, etc, and then drive optimised selections through production and the rest. "We customised the product without any expensive bespoke work or external code," he claims.
Communications equipment specialist HellermannTyton, which went for Sage 200 Manufacturing ERP last year, proves the point. Its supply chain director, Andrew Clark, says his company wanted a system capable of handling mixed-mode manufacturing, involving configure-to-order and make-to-stock, but also with a Windows front end and capacity to grow with the business in terms of scale and functionality, including EDI and CRM. For this company, though, vanilla ERP covered practically everything – the only exceptions being two 'mods' from the firm's earlier Sage 100 system, covering stocking policies and customer part numbers.
"Datel created an extra field for us in the standard stock item module that allows us to identify a stock policy, with different rules for each component, so that we can maintain appropriate levels," explains Clark. "They also configured a procedure that handles aliases for order processing, despatch and invoicing, while maintaining internal part numbers for manufacturing – so we don't need replicated BoMs for different customers. It also means we can change templates for documents to use the alias, our part numbers or both, as required."
But that was all it took. "You could count the number of processes we changed on the fingers of one hand. Everything was out of the box. ERP is far better than it was a few years ago," comments Clark.
Convinced? Few will actually say as much, but it's a similar story with many of the added-value quasi-departmental suites, such as BI (business intelligence) and CRM. Neither of these requires anything like the scale of company-wide involvement as ERP, so the impact on workloads and business risk is proportionately reduced. However, the fact is that the much vaunted 'time to value' is way better now than it was a few short years ago.
Additionally, APS (advanced planning and scheduling) and so-called MES/MOM (manufacturing execution systems / manufacturing operations management) software at the shopfloor level are getting easier to specify, configure, implement and also operate. No one should suggest any of these are trivial – particularly the latter – but the point is, they are now well understood by specialist vendors and consultants. Just as important, they have also been subjected to the same kinds of thinking as championed in mainstream ERP.
Even PLM (product lifecycle management) software – previously the preserve of global engineering corporations with deep pockets, considerable IT resources and a crying need to improve the speed and efficiency of product development spanning multiple sites – is making this transition. Recent introductions from the likes of Autodesk, which late last year previewed cloud-based PLM for SMEs, show that the engineering design software industry is going for the mass market.
"Our approach to PLM is a sharp contrast to the decades old technology in the market today," comments Robert Kross, senior vice president, Manufacturing Industry Group at Autodesk. "Autodesk 360 for PLM will enable customers of all sizes to achieve the full promise of PLM, with a scalable, configurable and intuitive solution. We believe it will help our customers achieve a measurable competitive advantage through better, more accessible collaboration and business information management."
PLM for the masses may have taken about a decade longer than most pundits predicted, but it's here now, and manufactures jumping on board will benefit from lessons learned, and improvements in technology and implementation thinking throughout that period.
And did you note that reference to cloud computing as an enabler? If you want to improve the cost/benefits ratio, how about considering a sexy new cloud solution for most of your business, engineering and manufacturing software – including ERP? Not long ago such a suggestion would have been laughed out of court. But now?
Huddersfield-based power transmissions firm Radicon last year signed a three-year deal with business systems firm ICM to host all its IT in the cloud, including a new SAP ERP system, but also all its servers, storage, data, email, IP telephony and service desk support.
As business manager Chris Riley put it at the time: "We're an engineering company, so why should we invest heavily in licences, servers and good business systems people when there are experts out there that can do it all for you?"
Analyst Jutras has something to say on this. "ERP holds a special place in the grand scheme of SaaS [software as a service]," she observes. "While companies seemed willing enough to let the applications that surround and extend ERP reside in a SaaS environment, they were less willing to place their systems of record in a cloud they did not own or control."
Hence the value of her research, which suggests that thinking is going through a sea change. Chief among its findings are that companies are now much more willing to consider SaaS ERP (45% of survey respondents).
Just as significant, they are far less willing to consider traditional on-premise solutions (56%). And why exactly might that be the case? It's not just 'the economy, stupid'. That's a good part of it, because start-up costs and project TCO are both lower. But how about adding constantly being kept up to date, much greater resilience and far better uptime stats – in fact, all the benefits that flow from our mature, always-on world?
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