This post will assume some basic level of familiarity with what an ERP (Enterprise Resource Planning) system is and what it is supposed to do.  As a very quick refresher:  an ERP system is a central system that brings together information and activity from various parts of your organization so you can make decisions or plan your business effectively.  ERP systems are comprised of modules which can, in some cases, be installed individually or as a whole system.  Examples of ERP modules are GL (General Ledger) platforms, HRIS (Human Resource Information Systems) or MRP (Manufacturing Resource Planning).  

There are quite a few ERP software companies out there and given how durable many of these software applications are or were designed to be, many from 10-15 years ago are still alive and ticking.  Some of the most popular ERP platforms out there are SAP, Microsoft and Oracle will millions of collective installations running.  There are also a large number of older packages  such as MAPICS, BAAN and 4th Shift that are supporting companies in multiple industries.  There are pros and cons to each system – we’ll discuss some of those later in this post. 

Implemented correctly, an ERP system should give your business the ability to efficiently process transactions for customers, vendors and operations.  It should also give you centralized visibility and automation in functions like finance and HR.  

How should I weigh the cost/benefit of a new ERP System?

How should I think about the pros (benefits) and cons (costs) associated with a new ERP system?  To answer this question you must first be rigorous in asking yourself why you are considering a new system.  Some examples to consider:

1.) You were recently carved out of a company and are unable to use their ERP system to operate

2.) You have growth through acquisition and have trouble with visibility or operations across the enterprise

3.) You have identified various issues that you think an ERP system can solve for you with improved automation etc.

You must think about all of the costs and risks involved in a new ERP System:

1.) $$$$.  These systems are not cheap – especially the larger tier software packages.  The initial cost is usually in the implementation, which can run into the hundreds of thousands of dollars or more. 

2.) Time.  Expect to dedicate a meaningful amount of time from your best employees to the implementation.  This means they aren’t doing other things to advance the business.  This opportunity cost is very real.  Another aspect of time is seasonality…a Q4 heavy business should get work done by August at the very latest.  Preferably May or June.  This means a compressed window to get things right. 

3.) Operational Risk.  Training hundreds of people on a new warehouse module, being unable to invoice on a new system or losing inventory visibility the day after go-live are real world examples of what can go wrong with a botched implementation.

In the end, the decision is yours to make but walk into the decision eyes wide open and make sure your cost benefit case  is bulletproof. 

 An ERP system should not be what you rely on for corporate reporting 

 One thing to keep in mind, and one of the most expensive mistakes I’ve seen people make:  DO NOT implement an ERP system for the sake of better reporting.  I hesitate to rule out an ERP system with great reporting but you should be aware that flexibility is rare and cost is high.  You’ll likely end up with an expensive outsourced partner to call each time you want to develop or modify reports, and the new idea you want to toy around with may come with such high cost and time that you don’t follow through and miss out on value.  

PowerBI, Tableau, Alteryx, etc…are all great tools that can help you get the most out of your ERP system’s underlying data tables.  You might need a database administrator (DBA), or you might just have a SQL guru in house that can do the work and generate reporting.  

Let your ERP be an ERP, let your Reporting Tools be Reporting Tools.  

Which system is right for you?

Make sure you pick a system that fits your needs, and do more work than you think reasonable on the front end of designing the future state of your system.  Don’t go with overkill but don’t pick something that won’t scale with a business that is growing or needs capabilities to scale (i.e. through add on acquisitions etc.).  I won’t spend more time here because this isn’t an article on recommending which ERP system you choose.  

Hiring the right consultants to do the job

Finally, there are a lot of great firms out there and some firms that aren’t as great – I’m referring to consulting firms that implement your ERP system.  Do your due diligence, get client references and call them and ask them to spend some time convincing you they will act like owners of the business – looking out for you and your team along the way.

Remember that no matter which firm you choose, the ultimate accountability lies with you to make sure you 1.) understand why you’re doing the project 2.) have a suitable team picked for the project 3.) understand what the future state looks like and have ample room for training and 3.) take accountability for “on the fly” changes that end up requiring more money or more time.  

Done right, a new ERP can enable you to realize tremendous value and reduce process risk and cost.  Done wrong, a new ERP can grind your business to a halt and cause large scale problems.  Be careful, think it through and don’t rush the decision.