Manufacturing AUTOMATION

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Five misconceptions about ERP


April 16, 2008
By Manufacturing AUTOMATION

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Toronto, Ont.
– There are so many misconceptions about ERP, itís a wonder that the acronym has not been replaced. Are you guilty of harbouring one of those misconceptions? Industry expert Michael Burns has the answer.

ERP misconceptions
By Michael Burns
 
There are so many misconceptions about ERP that itís a wonder that the acronym has not been replaced. Here, we take a look at those misconceptions to help understand the role of ERP in your manufacturing organization.

Misconception #1: ERP is only for Fortune 500 companies
Many people believe ERP was designed only for the Fortune 500. This misconception is partly based on not knowing what ERP does.

ERP stands for enterprise resource planning, which does not offer a clue as to what it really does. In the past, many organizations would optimize a business process for a particular department at the expense of other departments and the business as a whole. ERP is supposed to automate business processes across an organization and thus eliminate inefficiency caused by silo thinking. So, for example, SAP might automate business across the departments of a Fortune 500 company, but QuickBooks might also automate business process across the departments in a small company. Both SAP and QuickBooks are ERP systems and so are all the numerous other systems that are designed for the enterprise/large (tier 1), mid-market (tier 2) and small organizations (tier 3) across every industry. Some of these systems apply across multiple industries but none of them can apply across more than one tier of the market.

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 Misconception #2: Implementing ERP is expensive and time-consuming
A second misconception is that all or most implementations will be expensive and take years to finish. This may have been true in the early years of ERP, but it is not generally the case now. The reasons for the change include ERP being implemented in smaller companies, more reliable systems in which the problems have been ironed out, less customization and improved project management. Itís still possible to screw things up because of a poor selection process or a poor ERP implementation, which I will discuss in subsequent e-blasts.

Misconception #3: You can’t trust ERP vendors
Too many people believe that ERP vendors are not to be trusted. The reality is that just about every one of the vendors wants to become the trusted advisor of its clients, and that wonít happen if it is dishonest. These companies make their big money on the annual maintenance fees, which are like a perpetual annuity. And their clients donít want to go through another ERP implementation unless absolutely necessary.

Vendors, however, need to be honest from the get-go. They know your decision is largely based on trust and that if they misrepresent themselves, you wonít trust them. The only caveat is that you must be precise in what you ask of a vendor, but more of that later when we discuss system selection in subsequent e-blasts.

Misconception #4: Customizing your ERP means you canít upgrade
The fourth misconception is that customization will force a company not to upgrade to a newer release. This used to be true, but many of todayís ERP systems allow some customization (such as adding user defined fields) to occur outside source code, thus allowing for an easy upgrade process.

Misconception #5: Implementing ERP will lead to layoffs
Much like many employees fear that automating a process will lead to job loss, many still believe ERP will lead to mass layoffs. But the truth is that most companies retain their employees and give them more value-add jobs to do after implementing an ERP system. Often these companies will be able to grow substantially without adding new people.
However, there will be cases in some companies where things have gotten so out of hand because of system inefficiencies that some layoffs are necessary. This is the time to put your change management theories to the test. Change management is another interesting topic that is very applicable to ERP implementations, and I will discuss it in subsequent e-blasts.

Michael Burns is president of 180 Systems, which provides independent consulting services including business process design/re-engineering, system selection and risk management. Prior to 180 Systems, he was the partner in charge of the IT practice of a mid sized accounting firm in Toronto and was also the director of the Canadian mid-market consulting practice of a big four accounting firm. He is also a part-time teacher at Ryerson University and the Rotman School of Business, providing instruction in areas such as business process design, ERP solutions and management information systems.