All men are created equal, but off-the-shelf ERP software packages are not. And choosing the right one for your business involves a lot more than you might think.
Everybody's doing it: integrating their business processes in an ERP system. In this story, you will learn * How to decide which package is right for your business * How to avoid common pitfalls * What not to worry about At his last job, Paul Rials made cake mix. As IS manager for a large food manufacturing company, he managed the manufacturing software system that kept the pipes humming and the mixers -- each the size of a cement truck-mixing.
But he had a problem.
The problem was that the company's old Mapics software was designed for discrete manufacturing. That means it was very good at tracking countable objects, like nuts and bolts, but very bad at tracking flowing materials that needed to measured.
Like cake mix.
"[The software] really couldn't handle the fact that, in inventory, I may have a hundred thousand pounds of flour in the bin plus 10 thousand pounds or so in the pipes that go from the bins to the mixers -- a pipeline of goods that wasn't necessarily discrete all the time," says Rials. Compound several inexact measurements and you may wind up with way too much flour or sugar or salt or yeast. Which is not good. Conversely, you could end up with not enough flour, sugar, salt or yeast, leading to idle manufacturing lines, missed delivery dates and irate customers. Which is also not good.
And that's not all.
The right proportion of ingredients for cake mix varies from batch to batch depending on variable factors (like the humidity) in the manufacturing area, so Rials needed his software to generate a flexible bill of materials (so much sugar, so much salt) that would take all that into account, cake mix-wise. None of which Mapics ("A classic machine shop tool," says Rials, that his company bought in the 1980s when "the blue suits [read IBM] walked your management through the shop floor, asked what you needed and then said their mainframe was a perfect fit.") was designed to do at that time. Of course, Rials' job was to make it do it anyway.
"It aged me," he says.
ERP to the Rescue?
Nobody today would choose a system that wasn't suited to his business processes, you say. After all, that's why we have enterprise resource planning (ERP) systems: to integrate key business and management functions, particularly in the manufacturing, finance and human resource areas, to provide a high-level view of everything that's going on in the company.
Before ERP software systems, when a CEO wanted the big picture he would have to get data from the heads of each business division, and then he would have to integrate the information they provided. Now the ERP software does the integrating job, allowing the business to spend less time figuring out what's going on and more time improving what's going on. Of course, ERP packages are enormously expensive, but the savings in efficiencies should also be enormous.
So you would think companies would be enormously careful about choosing the right one.
Certainly Rials was. When Rials' current company, York, Pa.-based dental equipment maker Dentsply International Inc., where he is the director of information technology for North America, went shopping for an ERP package, he assembled a team that went through Dentsply's processes with the proverbial fine-toothed comb and came up with an extensive matrix of requirements.
But, astonishingly, not everyone does that. Companies buy multimillion-dollar software packages only to find out that they don't work -- or at least don't work well -- for one of their key business processes.
Why would anyone do that? One reason may be that ERP software is so hot right now, the flames fanned by consultants and the technical press, that some companies are jumping on the off-the-shelf bandwagon before doing the kind of due-diligence work Rials did at Dentsply, just as many took a leap of faith into the client/server trend of the early 1990s before arriving at a complete understanding of cost issues and management challenges. Also, the broad functionality of ERP systems makes the selection process just that much more difficult, and every company has its idiosyncratic ways of running a business.
Tales abound of companies that pull the plug partway into an ERP project because of functional or even philosophical problems. Until the end of 1996, for example, Austin, Texas-based Dell Computer Corp. planned to roll out SAP's full R/3 suite, but it stopped after implementing only the HR modules. Jerry Gregoire, who joined the company as CIO that year, saw that a single software monolith would not be able to keep pace with Dell's extraordinary corporate growth -- the company grows by a billion dollars every six to eight weeks.
Instead Gregoire designed a flexible middleware architecture to allow the company to add or subtract applications quickly and selected software from a variety of vendors, including Glovia International LLC, to handle finance and manufacturing functions.
David Dobrin, senior director of research at Cambridge, Mass., consultancy Benchmarking Partners Inc., says he knows of a large retailer that recently sank $US55 million into an ERP rollout and then scrapped the project because it just didn't work for the business. He tells another story about a fabric manufacturer in India that selected QAD Inc.'s ERP package but wound up making extensive, unexpected (and expensive) modifications because its system couldn't handle the fact that the company priced the same bolt of cloth two different ways: one price for domestic consumption, another, four times higher, for export. Unfortunately for the Indian manufacturer, there was no way to assign two prices to the same item in QAD while maintaining an accurate inventory count. One item, two prices, said the manufacturer. Two prices, two items, said QAD. (QAD says that today it would be able to do the job.) "We heard stories of companies that started [an ERP implementation], trashed the whole thing and started over. We're not a billion-dollar company that can do that," says Karen Nevill, manager of IS for Burlington Chemical Co., a manufacturer of specialty chemicals for textile processing and industrial use based in Burlington, N.C. In December 1997 Burlington Chemical completed a year-long selection process that included producing a 30-page request for proposal, compiling dossiers on approximately 18 ERP vendors and hosting demonstrations of ERP packages by four of those vendors before choosing System Software Associates Inc.'s (SSA) BPCS package.
No, choosing the right package is not easy (or at least not simple), and choosing the wrong one can be a costly disaster. So if you can't afford to make a mistake (and who can?), veterans of the selection process provide a checklist to make sure you choose your ERP wisely.
Your ERP Package Guide
Identifying the vital considerations in ERP package selection starts with a clear articulation of the business problems being addressed, according to Larry DeJarnett, a vice president at consultancy A.T. Kearney Inc. in Plano, Texas.
DeJarnett heads an integration practice that specialises in ERP packages. In some cases, DeJarnett says, the reason a company is looking for an ERP solution is that one of its three core corporate functions needs fixing. In other words, its financial data is not integrated, or it needs to standardise its manufacturing processes across several business units, or its human resources area needs some heavy-duty reengineering. Depending upon which of the three is the critical function, certain enterprise software offerings may be better suited to meet those needs.
"Not all ERPs are created equal. Some do certain things better than others," says DeJarnett. For example, Pleasanton, Calif.-based PeopleSoft Inc.'s ERP offering started out as an HR package. According to SPEX, an enterprise software evaluation company based in Reston, Va., PeopleSoft still offers the broadest HR functionality among ERP vendors. For example, it has comprehensive pension administration features that no other ERP vendor provides.
PeopleSoft began with HR and still excels in HR. Other ERP vendors began life making manufacturing software. It's wise to take that into account -- as well as the specific business problem you're trying to address -- when picking a package. But that's only a starting place. The wise man does not choose a stool based on its one sturdy leg. If a vendor is regarded as a specialist in one area, it behooves users to scrutinise the other modules even more closely to make sure their functionality is sufficient for the enterprise's needs.
ERP Systems Have Feelings Too
Think about your CEO. What's he like? Is he a big-picture guy who doesn't want to be bothered with the details? Or does he like to drill down through all the data at his disposal to examine low-level transactions? Well, executives with a hands-on management bent may find themselves handcuffed by a package like Oracle Corp.'s Oracle Applications, which tends to provide aggregated, big-picture transaction reports rather than more granular, traceable data.
You see, not only do you have to identify the business functions you hope your ERP software will improve, you have to examine more subtle issues such as your company's corporate culture and management style. Even the most flexible ERP packages (and some, most notoriously SAP's R/3, are more dictatorial than others) are based on a model of doing business that may not mesh with yours.
Benchmarking Partners refers to these concerns as corporate control issues.
Where there is conflict, something has to give; either the software or the company must change. That is the sort of decision to present to the board of executives before you plunk down a few mil for software.
The Showstoppers
Significant as the corporate issues are, every ERP selection process eventually gets down to the search for individual features and functions and the need to identify and avoid the dreaded showstopper: a missing feature or unsupported business process that transforms an otherwise great fit into a complete mismatch.
In some cases, the showstoppers are immediately evident. Dentsply, with manufacturing and distribution units sprinkled throughout 26 countries around the world, knocked out a number of vendors based on their lack of global support. "We needed a vendor with service capability in each country -- not just a sales office," says Dentsply's Rials. Dentsply ultimately selected SSA.
Other ERP buyers, astonishingly, have overlooked their need for multilanguage and multicurrency support. If the guy on the shop floor in Hong Kong speaks only Mandarin, says A.T. Kearney's DeJarnett, "it doesn't matter that the executive speaks English." Time-to-implement has been another showstopper for many companies in light of the impending Y2K date change. A robust ERP system that demands a three-year rollout won't help much if you need it operational by Jan. 1, 2000.
Eight months ago Huck International Inc., a manufacturer of precision fasteners and fastening systems, selected BaanERP from Baan Co. NV. Brad Stout, vice president and CIO of Huck International's $US2.4 billion parent company, Cordant Technologies Inc. in Salt Lake City, says Y2K remediation was a key driver in the decision to move to ERP software. The company was faced with a choice between manually fixing its old systems to make them compliant or replacing them. Once the company identified ERP packages that would work for it, the need for speed was next on the checklist.
Who was fast? BaanERP was fast. "The time requirement was a very important factor and one that Baan could address for us," said Stout.
Huck International determined that it could roll out BaanERP to eight sites -- with concomitant savings from avoiding the most demanding manual Y2K rewrites of its existing software -- by July 1999. Other Huck International sites will implement Baan after the millennium change.
More difficult to spot are showstoppers arising from unsupported manufacturing or financial processes. Often the problem stems from the quirks of individual industries (see "Who Does What," below). "There are very few companies that don't have specialised processes dictated by their industry," says Benchmarking Partners' David Dobrin. "Users seem mostly oblivious to this.
Sometimes I just wince. Don't buy a make-to-stock [ERP package] if you're in the build-to-order business," he says. The difference between process and discrete manufacturing, exemplified by the cake mix in Rials' previous life, can be one of the biggest stumbling blocks. An ERP package designed specifically for one may not support the other comfortably. "As soon as you have any kind of complex flow [of manufacturing materials], most discrete products crap out," Dobrin says.
Sometimes IS is able to modify the packaged software and program a way around these obstacles -- the program that won't assign one item two prices, the software that can count widgets but can't keep track of corn syrup. But isn't that defeating the whole idea of buying off-the-shelf enterprise software? "The system integrators love these problems because then they have to build really big workarounds," says Dobrin.
Before You Buy
Different vendors -- and their dealers and integration partners -- can be more or less forthcoming about the design of their ERP solutions. Burlington Chemical, for example, was looking for a process package. A number of the vendors the company approached disqualified themselves immediately because of their focus on discrete packages. Others, however, were quite willing to pass themselves off as one-size-fits-all. All this provides a compelling reason for checking ERP vendors' customer references closely, with an eye for users in closely allied industries. "You have to go [to reference sites]. You can't just make a phone call," says Burlington Chemical's David McKnight, Nevill's partner from IS operations who co-managed the company's SSA BPCS implementation. "We didn't get to visit someone in exactly the same industry, but it was invaluable for us to be able to hear their experiences and the problems they ran into," he says.
And you can't just visit another shop. In addition to outside references, the CIO needs to get representatives from each applicable line of business within the company -- HR, finance, sales and so on -- and bring them into the evaluation process. This not only helps check functionality requirements, it also helps secure user buy-in down the road. Huck International hired an outside firm, PrimeSource Technologies LLC in Scottsdale, Ariz., to spend roughly one week with IS personnel and other staff members at each of its 18 manufacturing and distribution facilities in order to identify system requirements.
Once you whittle down your list of potential vendors to a manageable few, it's smart to ask for an onsite demonstration over several days to give the vendors a chance to prove that their software will work with your unique way of doing business. Of course, a bevy of consultants and systems integrators flock around the ERP industry right now to add their two cents' worth (though they typically mark that price up a bit). Many consultants offer a complete "solution," guiding users though the implementation as well as the selection of the appropriate package. Others maintain that this combination muddies the objectivity so necessary in the selection process. After all, if the consultant has a team of Oracle implementers sitting on the bench ready to go, Oracle Applications gains a certain amount of inertia toward becoming the package recommendation. At Huck International, consultants played a role in the evaluation process, but the final judgement was made by the company personnel who would have to live with the decision.
Although Huck International has made its choice, Stout is hardly done evaluating ERP options. Huck is one of several Cordant business units, and the others will monitor its rollout with an eye toward choosing their own ERP packages in a year or two. Each unit has the power to make its own choice. Thus far, Stout says the rollout has gone exceedingly well; it appears the choice was a good one for its particular business.
And that's a good thing. Because if you don't get the right ERP package, your package might get you instead.
The Only Things You Shouldn't Worry About When you're shopping for an enterprise resource planning package, the list of considerations is long. So it may be simpler to start with a few factors that practitioners say are not key concerns in the selection process. Surprisingly, one is price and the other is hardware platform.
Its not that price doesn't matter. Price always matters. But its better to pay the piper upfront than to have him pick your pocket later when the project poops out.
ERP packages are designed to handle the functions that make up the corporate backbone. Those functions are just too critical for a CIO simply to buy the cheapest package or to hand the project to the lowest bidder.
Fortunately, while sticker price may vary considerably, IS executives report that the vendors often wind up roughly level on costs once the bidding heats up.
Mark Shackelford, manager of information services and technology for Baldor Electric Co. in Fort Smith, Ark., initially settled on Oracle Corp's ERP offering. He dismissed SAP AG early in his deliberations because he thought the cost would be prohibitive. However, late in the process Shackelford brought in SAP for a functionality comparison and wound up giving it the business., SAP wanted to be competitive with Oracle, so I got an attractive offer, he says.
Similarly, Burlington, N.C.-based Burlington Chemical Co's Manager of IS Karen Nevill wound up with two products on her short list: SAPs R/3 and System Software Associates Inc's BPCS package. She says the price differential was about $US200,000, which was not prohibitive as a percentage of the entire project cost, of which the software came to only 25 per cent.
The hardware platform issue is a bit trickier, but not too much so.
Shackelford was concerned that his company would outgrow the Unix- based system most ERP vendors seem to favour, so he hosted the R/3 implementation on an IBM S/390 mainframe instead. But many ERP packages can work around potential scalability problems by running separate copies for separate geographical locations. If, for example, the workload gets out of hand, more servers and/or more instances of the software can be added to the existing set-up, while the package automates the process of consolidating the data for an enterprisewide view. Clearly, the in-house IS group will also need to have sufficient skills to keep the ERP platform running. But, overall, choosing the software that runs your business based primarily on your preferred hardware platform is like letting your dog get wagged by its you-know-what.
-- D.Slater
Senior Writer Derek Slater can be reached via e-mail at dslater@cio.com.
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