The ERP Life Cycle: From Birth to Death and Birth Again
Written By: Andy Klee
Published On: September 10 2005
I've seen the ebb and flow of enterprise resource planning (ERP) from the vendor point of view for sixteen years. I've often discovered that people have a hard time grasping what comprises the cycle. A few months ago I had a creative flash, and decided we could tell our story visually with an ERP life cycle graphic. figure 1
Figure 1: ERP Life Cycle
I chose the names of each phase carefully, along with the brief explanations. In this article, I'll expand (and expound) upon the graphic, to give you my view of each phase.
Raise your hand if you don't already have an ERP solution. Okay, I see that only a few of you haven't already been through this, but let's pretend this is your first time through the ERP selection process. Here are the six stages of a typical IT project:
- Wild enthusiasm
- Total confusion
- Fear and uncertainty
- Search for the guilty
- Punishment of the innocent
- Promotion of the uninvolved
Here's the takeaway: Is it worth thousands of your staff's hours to evaluate a package to the nth degree, or is there another way to do it?
If I called the shots, I would bring someone in, and have him or her conduct a one day workshop with all the executive vice presidents (VP) in my firm to hammer out the key requirements that really make a difference. This is the time to ask hard questions about how much functionality (and customizing) you really need. Here's an example of what I mean: Who cares if the pricing module does "best pricing" at this point? It's better if we find out if the pricing module supports adding price components that respond to characteristics of the item, the customer, and the order quickly and with relative ease.
I would then issue a request for proposal (RFP) to ten prospective vendors, and ask them to respond with screen shots and text describing how to handle each key requirement. (Screen shots are good for those of us that fall asleep reading boring text.).
Okay, let's then "rank and frank" meaning, rank the responses, and speak frankly with the ERP software vendors. Tell the top three that they have one day to demo their stuff and have those VPs and key IT staff in the room for those demo days. Talk functionality and technology. And just as importantly, talk corporate cultures. Is this vendor someone you want to do business with? Will they be responsive when you've got a dead-in-the-water situation? Does the vendor have a culture that wants to do a fantastic job taking care of their customers? Can they give you examples where they've done that before?
Okay, are we after a perfect fit here? No. A 90 percent match will work. And don't even think about trying to make up that last 10 percent with customizations. That's the most slippery slope there is because it can become very costly, and there is always the worry that the customizations won't work as they were intended.
Did you decide to just let your software vendor do the implementation without interviewing other consulting firms? Oh. Did they tell you that they were the best, because they wrote the software?
With all the turmoil in today's ERP market, many of the best consultants are former employees of an ERP software firm. Many of the best have gone independent and set up their own shops, or aligned themselves with a larger group of independents. I'm not suggesting that you turn your implementation over to "Joe Consultant," who has never managed and staffed a large project before, but do yourself a favor and invite at least one independent firm to the "evaluation dance." You may find that they offer the same caliber of consultants but without the "big firm" markup.
And a word on training. This is mistake clients often make when they implement a new ERP solution. Do week after week of classes at the vendor's headquarters—prior to getting your hands on the software—sound familiar? Do the donuts and ice cream breaks really make up for all the lost productivity?
To prevent the unnecessary loss of productivity, here's what I recommend to clients. First, ask your consultants to give your implementation team an on-site, four or five day overview of the entire software solution, encompassing financials, logistics, and manufacturing (assuming those are the areas you are implementing). Have them do some simple transactions all the way through, so you get an integrated view of the entire solution. By the end of that week, you should have a pretty good idea of how the design-to-build, procure-to-pay, and order-to-cash cycles work.
More detailed, module-specific training can be delivered just-in-time. Suppose you have a team working on the order-to-cash portion of your implementation. They might start by educating the consultants on how your team currently does business (the "as-is") and together they can explore how they could do business in the future (the "to-be"). At some point in these discussions, the need for more training will emerge, and the consultants can schedule several days of hands-on training, at your site. The objective is to give you enough training to get started setting up the model of how your business will run with the new software. Ask them to save the more advanced topics for later; you'll have enough on your hands just trying to absorb the basics.
Implement—Phase II and Beyond
Okay, you've now gone live with a portion of your total solution (unless you did the big bang approach where you go live with financials, logistics, and manufacturing all at once). After a rough go-live period, which is inevitable when it comes to large changes, things have settled down for six months, and it is time for phase II.
Depending on how phase I went, you might need to find a few new team members for phase II. If phase I went badly, some of your best internal resources will probably have embedded themselves in places where you can't get to them. In other words, you'll lose valuable expertise that could have been used for the phase II, but because your personnel were frustrated by the process, they've removed themselves from the implementation. If this is the case, this might also be a good time to reevaluate your consulting firm. If you weren't happy with them during phase I, you aren't likely to be happy with them in phase II. At the very least, get one or two other estimates for phase II.
Remember all those promises that you made to your key business users and executive VPs? "Bob Buyer" wants to have automated approval routing for requisitions. "Sally Sales" wants that sales-on-a-personal-digital-assistance (PDA) thing she was promised, so that the salespeople can take orders on it. "Ed Exec VP" wants that business intelligence (BI) scorecard so he can "drill and grill."
So this is one of the longest phases—at least several years will pass before the value of the implementation has been fully extended. The reason? These "extensions" requested by your key business users and executive VPs might start small, but as you build value, you may want to go further, and when you consider all the functionality entailed in a true supply chain management (SCM), customer resource management (CRM), and BI system, all of which can be tied back into your core ERP system, it becomes a lot of project work. And these days, most companies want to pace themselves and get a return for each product extension along the way.
During this phase you'll grow to know and "love" the vendor's help desk. This is where you call in and talk with a new employee, hired by the vendor to meet your needs, who knows very little about the software or how it is used in the real world, but he or she has a good list of snappy responses like "That's very interesting, I didn't know it could do that." or "Can you send me screen shots for that?" or even the "I-don't-know-but-I'll-find-out-and-get-back-to-you" or any number of unhelpful catch phrases akin to the fast food counter-type question "Would you like fries with that?"
After a few such calls, you may take the high road and realize that you are giving back to the ERP community by providing training for a new employee, which, you might rationalize, is important, even if he or she isn't your employee. Or you'll just stop calling and fix the problem yourself, even if the coding changes never make it back to the vendor.
We are now five to seven years down the road from that rosy dawn of the new age of when you first implemented your ERP solution. We're in maintenance mode now. We just want another five to ten years of life out of the system. We know that our business needs have changed over time, so we'll go ahead and do the necessary enhancements and integrations to add incremental functionality.
Once in a while an "old-timer," one of your employee's who has been there for the whole project, will whip out his return on investment (ROI) calculator, and try to figure out if this whole project actually made sense. One day, someone notices that you've been paying 22 percent of the current software price (not 22 percent of the discounted price you paid) for annual maintenance. Hmmlet's see. That's about $100,000 for W2s and $100,000 for 1099s, and $100,000 for Vertex updates... Gosh, that sounds like a lot. Here you may want to consider a third-party maintenance firms, and some have a good track record of keeping their clients running on the software at a fraction of the former maintenance fees.
You figure that going to a third party maintenance firm makes sense, so you investigate the alternatives and select the firm that fits your needs. Your ERP vendor's sales representative stops calling you, but not before he sends you a "nasty-gram" telling you that you'll have to pay 150 percent of back fees to get back in the club and update your system. You whip out your trusty ROI calculator, and realize that after four years you'll have enough saved up to buy a new solution anyway.
Your business is changing, and you maybe tempted by the cool new technology out there that you have to have. Wait and give it a few years to settle down before you take the plunge. Remember CommerceOne and Ariba?
Time passes. The dollar savings are adding up. The business needs continue to change. The house of cards that is your ERP system held together with Band-Aids is starting to come apart. It's time to appoint a new ERP czar to head up the next swing through the ERP life cycle.
Ready for another ten to twenty years? This time we're really going to do it right!
About the Author
Andy Klee is the President of Klee Associates, Inc. Established in 1998, after Klee's decade-long career with JD Edwards, Klee Associates publishes the JDEtips, SAPtips and ORAtips journals, which are read by thousands of IT staff and key business users at over 600 SAP, Oracle and JDE clients. The premiere issue of ORAtips is available at http://www.oratips.com/. Klee also runs successful consulting, training, permanent placement, and third party maintenance practices. Learn more at http://www.erptips.com/.