© 2012, Frank Scavo. All rights reserved. After the Implementation: Best Practices for Optimizing ERP Frank Scavo (949) The Manufacturing ERP Experience October 4, 2012

© 2012, Frank Scavo. All rights reserved. 2 About Frank Scavo APICS Fellow (CFPIM) President, Strativa President, Computer Economics Principal Analyst, Constellation Research Blog: Enterprise System Spectator at Advocate for end-user IT organizations

© 2012, Frank Scavo. All rights reserved. ERP Experience Life Cycle ERP Selection ERP Implement- ation ERP Use 3

© 2012, Frank Scavo. All rights reserved. 4 What is to “Optimize?” op·ti·mize: 1. to make as effective, perfect, or useful as possible.

© 2012, Frank Scavo. All rights reserved. Optimizing ERP Makes ERP… Perfect: –Fits your business Useful: –People actually use it –It is worth using Effective: –Has positive effects on your business

© 2012, Frank Scavo. All rights reserved. 6 ERP Optimization Case Study: Midsize Manufacturer Order entry process cumbersome Poor support for returned material Sales reporting inadequate Database row-locking Serialization of inventory leading to high transaction volumes Some production processing outside ERP Poor visibility and costing of WIP Manual processes for MPS/MRP Poor visibility for non- conforming material New product information and engineering changes not tightly controlled Poor response time Purchasing units of measure conversion done manually Receiving process requires re-keying of data Quality Group can’t keep up with production volumes Etc., etc. Symptoms

© 2012, Frank Scavo. All rights reserved. 7 Tracing Symptoms to Four Root Causes Wrong System System Not Installed Correctly System Not Being Used System Not Being Used Effectively Not “Perfect” Not “Useful” Not “Effective”

© 2012, Frank Scavo. All rights reserved. 8 Category #1: The Wrong System Missing functionality System performance Not scalable Bugs

© 2012, Frank Scavo. All rights reserved. 9 Category #2: Right System, But Not Installed Correctly Business processes not configured correctly System tables incomplete Product cost elements not detailed enough Inventory locations not set up Relevant system options not turned on

© 2012, Frank Scavo. All rights reserved. 10 Category #3: Right System, But Not Using It Unfinished implementation (e.g. “Phase II Syndrome”) Lack of knowledge about system features Parts of the old system still in use Side systems

© 2012, Frank Scavo. All rights reserved. 11 Category #4: Right System, But Not Used Effectively Data inaccuracy Lack of user procedures Poor disciplines Lack of training Organizational disincentives

© 2012, Frank Scavo. All rights reserved. 12 Overlapping Root Causes, Vary by Organization 1.Wrong System 2.Right System, Installed Incorrectly 3.Right System, Not Being Used 4.Right System, Not Used Effectively

© 2012, Frank Scavo. All rights reserved. 13 From Our Case Study: Analysis of Symptoms and Causes *Adds to more than 100% because some symptoms cross multiple categories Decision: Stay with Current System But Take Corrective Actions

© 2012, Frank Scavo. All rights reserved. Opportunities for Sub-Optimization Throughout the ERP Life Cycle ERP Selection ERP Implement- ation ERP Use 14 Picking wrong system Implementation mistakes Limiting scope for cost/ schedule Changing business requirements Organic growth Mergers and acquisitions Organizational restructuring New products/services Changing business model New demands from customers & suppliers International expansion

© 2012, Frank Scavo. All rights reserved. The Cost of ERP Must Also Be Optimized 15 ROI = Return Investment Benefits Cost =

© 2012, Frank Scavo. All rights reserved. Cost of ERP is Mostly in Ongoing Support 16 Source: Computer Economics, 2012 Assumptions: 100 user, on-premises ERP system Upfront Costs: ERP license, data center hdw/sfw, implementation expense Ongoing Support: ERP maintenance fees, data center hdw/sfw maintenance, ERP staff costs

© 2012, Frank Scavo. All rights reserved. 17 And, Total Cost of ERP Often Exceeds Expectations Out of 16 technologies we surveyed in 2011, ERP ranks WORST in terms cost overrun.

© 2012, Frank Scavo. All rights reserved. How Can We Optimize ERP? 1.Analyze Root Problems 2.Identify Corrective Actions 3.Identify Potential Cost Savings 4.Carry Out an Optimization Roadmap 18 op·ti·mize: To make as effective, perfect, or useful as possible.

© 2012, Frank Scavo. All rights reserved. If You’ve Got the Wrong System… Can it be fixed? – Newer version – Vendor Patch – Modification Can you work around the problem? Can you supplement the system? Do you need a new system?

© 2012, Frank Scavo. All rights reserved. If System Was Installed Incorrectly… Why? –Ignorance? –Trying to make new system look like the old –Some other reason? Can you change the set up? Do you need to re- implement?

© 2012, Frank Scavo. All rights reserved. If System Not Being Used… Why? –Old system still in use? –Lack of training? –Lack of resources to implement? –Resistance to change? Solution depends on the problem

© 2012, Frank Scavo. All rights reserved. If System Not Used Effectively… Data problems? Discipline problems? Integration problems? Incentive/Measurement problems?

© 2012, Frank Scavo. All rights reserved. Postscript: Consider Cloud Deployment Facilitate upgrades More flexible in accommodating changes in business volume or business model Sometimes include development environment for extending system, without modifications More easily leverage 3 rd party developers 23 * Source: “The Differences Between Cloud ERP and Hosted ERP and Why They Matter” Constellation Research, 2012

© 2012, Frank Scavo. All rights reserved. Midsize Companies Small Companies ERP Cost Optimization: Consolidation is Key ERP support staff are more productive in larger installations –IT staff in midsize companies support twice the number of users as in small companies –In large companies, the ratio triples Therefore, combine multiple ERP systems, versions, and instances wherever possible 24 Source: “ERP Support Staffing Ratios,” Computer Economics, 2011 IT support ERP users

© 2012, Frank Scavo. All rights reserved. ERP Cost Optimization: Minimize Code Modifications 25 Source: “ERP Support Staffing Ratios,” Computer Economics, 2011 ERP Staff Productivity Situation worse if mods cause organization to forgo ERP version upgrades 100% “Few” or “No” Mods 80% “Many” or “Extensive” Mods

© 2012, Frank Scavo. All rights reserved. ERP Cost Optimization: Consider Third-Party Maintenance (3PM) Vendor margins on software maintenance can exceed 90% Much software maintenance revenue goes to fund new development Customers who don’t plan to upgrade may do better with 3PM Savings on order of 50% 3PM providers may support customizations 26

© 2012, Frank Scavo. All rights reserved. ERP Optimization Roadmap Root Cause Problem Analysis Optimization Initiatives Cost Optimization Opportunities Typically 6-18 months Typically 5-20, depending on severity of problems and organizational capacity for change Priorities and task dependencies

© 2012, Frank Scavo. All rights reserved. 28 Optimizing ERP Can’t Wait Until “After the Implementation” Your ERP selection and implementation decisions today will dictate your optimization options for years to come For Example: Pick the right system Negotiate to keep your 3PM options open Consider cloud deployment Implement correctly Limit modifications Etc., etc.

© 2012, Frank Scavo. All rights reserved. Thank You! Frank Scavo The Enterprise System Spectator