Avoid These Most Common ERP Implementation Mistakes
Enterprise Resource Planning (ERP) is a powerful engine that helps companies to run their day-to-day operations without any hiccups. By implementing ERP, companies can improve their productivity, streamline their processes, and reduce costs.
While ERPs are essential for the smooth functioning of a company, they are also cost-intensive.
Typically, an ERP implementation costs $7,143 to $7,257 per user depending upon the size of the business, industry, number of users, in-house or third-party implementation, the transaction volume, and the scope and complexity of the implementation.
The total cost of implementation could include license fees, number of users, training, customizations, maintenance plans, and much more.
Hence, it is crucial to avoid any pitfalls in the process of implementation. Any error during the implementation stage could lead to expensive repercussions for the company in the future. Take Nike, for example. The sportswear company lost $100 million in sales and took a 20% dip when its ERP upgrading project went wrong.
Let’s look at how companies reduce such colossal losses by avoiding the common ERP implementation mistakes.
How to avoid these common ERP implementation mistakes
The implementation problem starts with haphazard planning. The primary purpose of an ERP is to improve or redesign business processes. However, companies tend to overlook this aspect of investing in ERP. To avoid haphazard planning, companies must conduct an audit of all processes and policies to find out which ones would benefit from ERP. They should consult the employees who work in these processes to understand the pain points and challenges they face to understand if ERP can solve them. Sometimes the processes are not documented, due to which companies fail to leverage the full potential of the ERP.
Take Australia’s supermarket chain Woolworth, for example. The company had failed in its data collection procedures. The employees had not documented their processes, and the senior management had left by the time the transition took place. By then, the company had lost all its legacy knowledge, and the ERP implementation failed severely. It took 18 months for the managers to start receiving their customized profit-loss reports of their individual stores. Companies often do not include the key users in the decision-making process. They either hire new people or make it a part-time responsibility. This leads to several implications in the future.
Companies set unrealistic expectations with respect to costs and timelines. Hence, it’s essential that they look beyond the features and also be realistic about the time and costs. Companies must factor in the delays and escalating costs while planning the implementation. ERP is an expensive investment, so it is important to exercise caution and ensure that the ERP aligns with their needs and requirements. Educating oneself about the technology will give better clarity while choosing the right ERP.
Wrong ERP Vendors
Companies often get enamored by the shiny features promised by the ERP vendors. Terms like pre-configured industry solutions and cloud-based ERPs might sound attractive. But here’s the hard fact - some ERP vendors set higher expectations and under-deliver. Hence, companies should be skeptical and ask the ERP providers questions related to the technology, success story, and customer support before making a decision. Always ask the vendors to furnish references of the last three companies they worked with before. Companies must also conduct an independent check to understand the reputation of the vendor in the industry. Remember, ERP implementation requires business acumen and strong technical expertise. A single lapse from the vendor could derail the entire project and even lead to litigation and financial losses. So, companies have to be prudent while choosing the right technology.
Lack of Efforts on Change Management
Eric Kimberling, the chief executive officer and founder of Third-Stage Consulting, says that change management is the first thing to be removed from the ERP implementation process when it goes over-budget. He calls it a big mistake. When companies introduce ERP, they must be prepared for change management. However, only for very few organizations, organizational issues or training become the topmost priorities. Hence, companies must prepare themselves for change management. They should train their employees so that they can adapt to the ERP system smoothly and quickly. It is also crucial to have continuous communication with the employees about the new change, so they are up to date about the project’s progress.
Lack of Maintenance Plan
The company’s work does not end with implementing the ERP. They must allocate a specific budget for ERP maintenance. Not having a maintenance plan can limit the company’s scalability and impact the operations as the functionality would remain the same. There should be a maintenance strategy so companies can utilize the ERP to its best ability and stay relevant. Companies must sign a maintenance contract with their ERP vendors, schedule maintenance regularly, and keep the business up and running.
Eric Kimberling says that 90% of ERP projects are a failure because companies do not follow the best practices. Setting up a proper ERP implementation plan and avoiding the common pitfalls will help companies to save costs on ERP failures and achieve the goals for which they had invested in an ERP solution.