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ERP definition and solutions

ERP topics covering definition, objectives, systems and solutions.

What are the hidden costs of ERP?

Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Armed with insights from across the business, ERP pros vote the following areas as most likely to result in budget overrun.

Training—Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface. Worse, outside training companies may not be able to help you. They are focused on telling people how to use software, not on educating people about the particular ways you do business. Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system. One enterprising CIO hired staff from a local business school to help him develop and teach the ERP business-training course to employees. Remember that with ERP, finance people will be using the same software as warehouse people and they will both be entering information that affects the other. To do this accurately, they have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along. Ultimately, it will be up to your IT and businesspeople to provide that training. So take whatever you have budgeted for ERP training and double or triple it up front. It will be the best ERP investment you ever make.
Integration and testing—Testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis is another often-underestimated cost. A typical manufacturing company may have add-on applications from the major—e-commerce and supply chain—to the minor—sales tax computation and bar coding. All require integration links to ERP. If you can buy add-ons from the ERP vendor that are pre-integrated, you’re better off. If you need to build the links yourself, expect things to get ugly. As with training, testing ERP integration has to be done from a process-oriented perspective. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next, run a real purchase order through the system, from order entry through shipping and receipt of payment—the whole order-to-cash banana—preferably with the participation of the employees who will eventually do those jobs.
Customization—Add-ons are only the beginning of the integration costs of ERP. Much more costly, and something to be avoided if at all possible, is actual customization of the core ERP software itself. This happens when the ERP software can’t handle one of your business processes and you decide to mess with the software to make it do what you want. You’re playing with fire. The customizations can affect every module of the ERP system because they are all so tightly linked together. Upgrading the ERP package—no walk in the park under the best of circumstances—becomes a nightmare because you’ll have to do the customization all over again in the new version. Maybe it will work, maybe it won’t. No matter what, the vendor will not be there to support you. You will have to hire extra staffers to do the customization work, and keep them on for good to maintain it.
Data conversion—It costs money to move corporate information, such as customer and supplier records, product design data and the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated—or inspired—by the ERP implementation.