Enterprise resource planning (ERP) has moved out of the old factory building and into shiny new headquarters. Though its roots are in large-scale manufacturing, ERP has evolved to address other functions and sectors, especially small and medium-sized businesses (SMBs), that require integrated systems in order to compete on a global playing field.
This new generation of ERP is more than a traditional accounting package -- it's "the brains of a company," managing all facets of operations, said Ray Wang, an analyst at Forrester Research Inc. in Cambridge, Mass. Most ERP systems have a central database with different modules -- supply chain, human resources, inventory, payroll and more -- that share access to common data. This collective brainpower is especially valuable to SMBs, which often run a disparate set of rusty legacy applications: personnel waste a lot of time keying in the same information over and over.
Finding the best ERP system
For SMBs, the most significant criteria in selecting an ERP system is finding the proper fit of software to business processes, said Cindy Jutras, vice president of manufacturing and ERP research at Boston-based Aberdeen Group, Inc. A recent Aberdeen report on benchmarking ERPs in SMBs found that the average small company uses only about 26% of its available ERP functionality because of integration and customization challenges. "SMBs don't need a lot of features," Jutras said, "but the right functionality."
Since the typical life span of an ERP system is 10 to 15 years, it needs to scale upward as an organization grows. But scalability can also mean the ability to scale downward for SMBs. "Companies need to ask themselves, 'Am I buying a piece of software that [can] be configured in a way that is appropriate for a smaller business?'" said Barry Malter, president of Advantage Technologies, an Armonk, N.Y., consulting firm. "You don't need a nuclear bomb to clean a kitchen."
The underpinnings of ERP technology should be an adaptable service-oriented architecture and openness that allows interoperability with other applications. Post-implementation agility is especially important for SMBs. Other "must-have" SMB ERP features include workflow tools, integration to desktop applications, customizable dashboards, a suite of standard reports and performance metrics, and multilingual and multicurrency functions, according to David Caruso, principal of David Caruso & Associates.
It's an ERP system buyers' market
With ongoing mergers and acquisitions, the tumultuous SMB ERP space can be a confusing maze of vendors, but it's now a buyer's market, with revamped pricing and licensing options and an unprecedented level of discounting. ERP solutions for SMBs include SAP Business One from SAP AG; Oracle Corp.'s E-Business Suite Special Edition; and Microsoft's four ERP products, Dynamics AX, GP, NAV and SL, known for their broad platforms and ease-of-use. Longtime SMB vendors also include QAD Inc. in Summerland, Calif., MAPICS Inc. in Alpharetta, Ga., and Epicor Software Corp. in Irvine, Calif. Made2Manage Systems' ERP for the wire and cable industry, and Friedman Corp., for window, doors and cabinet manufacturers, are two examples of the numerous specialized ERP products on the market. And IFS AB is strong in defense and medical manufacturing.
Another ERP option for SMBs is a subscription-based, hosted solution from San Mateo, Calif.-based NetSuite Inc., which offers more control over costs and equipment expenses. Also, Software as a Service (SaaS) ERP systems, such as what's offered by Salesforce.com Inc., can provide rapid implementation and ease of use, as well as lower cost of ownership.
ERP buyer beware
But the SMB ERP landscape is littered with horror stories. For SMBs in particular, adding a time-consuming ERP implementation -- typically four to six months -- to an already overflowing plate of responsibilities is a big hurdle. "Large enterprises can dedicate specific people or departments, or hire consultants to lead the project," said David Cieslak, principal of Arxis Technology Inc., a Simi Valley, Calif., consulting firm. "But often SMBs struggle with dedicating resources to a software project."
SMBs don't need a lot of features, but the right functionality.
Cindy Jutras, vice president of manufacturing and ERP research, Aberdeen Group Inc.
Small companies are used to desktop tools, where you "figure it out yourself," Aberdeen's Jutras said. "But most ERPs are not as intuitive, and so if an SMB applies the same mentality to an enterprise application, they will never take it to the limit." Many SMBs find it difficult to give up dependence on manual-intensive and spreadsheet-based processes.
SMBs also need to look at the total cost of ownership. The cost of data conversion, intensive training expenses and integration and testing fees can mean unexpected strains on resources and bugets. External software, services and maintenance, and IT expenses can represent up to 75% of the total cost of an ERP. Add unrealistic expectations and "scope creep" (the original scope of the project slowly expands) and you have nothing to show after your investment, said Wes Trochlil, president of Hamilton, Va.-based consulting firm Effective Database Management Inc.
Indeed, according to the Aberdeen report, more than a third of companies never even calculate the actual ROI of their ERP implementation, leaving the value of the project uncertain.
Making the most of it
It's not all bad news. Brian Leffler, vice president of TTI Instruments, a Williston, Vt.-based distribution company of industrial process controllers and instrumentation, was using a cluster of aging, inefficient systems with little remote-access capability and costly paper invoicing. TTI underwent a 12-week ERP conversion process, consolidating four operational systems into NetSuite, tying it with Payflow Pro (now owned by PayPal) and a UPS shipping link, thus connecting the entire customer lifecycle. TTI now saves $6,000 a year on invoicing alone.
Of course, "You can't get everything you want. We absorb the pain of what it doesn't do for the things it does do," said Leffler, who is still tweaking TTI's ERP system. In the end, Leffler said, evaluating ERP software can be like comparing Ford, Dodge or Chevy pickup trucks. "They'll all eventually take you where you want to go. But you need to figure out the system that's best for you."
Cindy Atoji is a Boston-based freelance writer specializing in business and technology. Let us know what you think about this tip; email email@example.com.