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One of the hidden costs of implementing any ERP system is the cost of customization. The focus at the initial meetings in the sales process is for both the buyer and seller to determine where the company’s present ERP software falls short and how the seller’s new solution can meet today’s needs. In the prototypical software vendor’s PowerPoint sales presentation, customization isn’t covered until slide 22 underneath the fifth bullet in a section called “customer adaptations.” The description typically says “optional.” We all know differently. It really isn’t optional at all. For the last 40 years, the history of ERP systems has taught us that customization is inevitable.
This is a topic that must be brought to the forefront. After all, anyone who has undertaken an ERP implementation knows that there will be customization/personalization required to enhance the usability or functionality of the ERP software. As a result, there will be programming costs borne by either the software vendor or the customer. And, until the customization is complete, the customer is going to incur some delay in achieving improved productivity and efficiency.
In today’s business world, what causes this need for customization? After all, other than globalization, e-commerce and machine automation, along with the inclusion of the cloud in many customer/vendor collaboration processes, most of the basic business processes for manufacturing and distribution are quite similar to practices of 20 and 30 years ago. However, it is these very items that have big impacts on what needs to be in an ERP suite.
For instance, with the supply chain now being global, additional importance is placed on certain features of ERP, such as multi-plant inventory, planning and tracking of freight and landed costs, plus having to track consigned inventory and sub-contract expenditures. Increased machine automation in some industries means that they require more analysis regarding the cost of materials versus the cost of labor. Meanwhile, there are a whole host of manufacturing corporations that are making changes to the businesses to create a competitive edge with their engineering and services. They are looking for new ERP system features which provide better information and analytics in those areas as compared to tracking detail on the shop floor.
Thus, from a “features/functions” standpoint, these differences mean next-generation systems need to be more functional in different business areas than their predecessors. To be competitive, they must be able to rely on their ERP software vendor to continue to provide additional features and extensions. Likewise, they need to assume that, as their own business and industry evolves, they themselves will want to define some modest extensions to their ERP to help themselves, and only themselves, thrive.
What is the Role of the Cloud in ERP Customization
Consider this. Since the mid 1970’s, almost every popular ERP systems installed for SME (Small and Medium Enterprises) and large corporations has required customization. Other than a few software vendors who began their multi-tenant ERP Cloud development a decade ago, Cloud ERP systems are only now surfacing and, as a group, are not yet as functional as the current On-Premise systems, developed and built out over the past 30 years. So, in addition to the growing pains inherent in business evolutions, it’s safe to say that, in the majority of cases, one should expect more, not less, customizations and enhancements of Cloud ERP solutions to be the norm.
The next generation of Cloud ERP solution users must recognize that customization is still a necessary component of user adoption and extension of the software package. It’s always been that way and simply because that ERP solution can now be on the cloud does not change that fact. The chances are slim to none that any single ERP package, cloud or on-premise, will ever provide “out of the box” 100 percent of the functionality required by 100 percent of the installed base.
What to Understand
Most everyone agrees. With Cloud ERP, an organization can reduce its IT operational costs by outsourcing hardware and software maintenance and support to the cloud provider. In addition, with the ERP system hosted centrally, updates can be released without the need for the users themselves to install new versions of the software, an important point regarding ERP enhancements. Pricing is more attractive because the “up front” costs of typical On-Premise ERP systems are deferred and spread over the life of the use of the software.
So, while Cloud ERP demonstrates cost savings in almost every area – hardware, IT personnel, etc. – it only stands to reason that more evaluation and analysis must be spent to determine how easy it is to customize and add enhancements to Cloud ERP systems. New public cloud platforms, such as Salesforce’s Force.com, offer significant advantages for IT departments to easily provide their own customizations to ERP Cloud software written natively on the public cloud platform. Recognizing that there is a significant difference, and benefit, to the open systems on a public cloud, IT management can make informed decisions on which Cloud ERP solution will provide a quicker payback and higher return on investment, especially when considering that those latent customization projects can be controlled by the customer rather than the software provider.
Pat Garrehy is the Founder, President, and CEO for Rootstock Software® and has an extensive background as a software architect and engineer. As a University of California at Berkeley graduate, he holds a BS degree in business and mathematics as well as a MBA in finance from the University of Southern California.
- Commitment – The customer’s executives and management are committed to the implementation of the new software.
- Resources – Management allocates the proper amount of resources to assure success.
- Experience – The experience of the assigned implementation team can bring efficiencies and lessons learned from previous ERP implantation to the project.
- Right Partner – The company hires a software vendor that not only has truly figured out how to have all the functionality needed in the software but has actually made that software less complex and easier to turn on.
Is Your Company Equipped to Deal with the Change of New Accounting and Inventory Management Software?
Any sort of change within an organization can seem daunting – especially when it involves large investments of money and a high learning curve such as purchasing and implementing a new accounting and inventory management system. However, if one thing is inevitable in the world, it is change, and with the right tools and attitude, a major organizational change can have very positive results. In the business world this is especially true for small companies who have been continuously growing and must embrace the changes that come with growth. You can either move forward or risk losing it all.
Investing in a new accounting and inventory management system, although seemingly expensive in terms of money and resources, is an investment that will be worth it in order to achieve future growth and profits. Oftentimes, the reluctance to change only stems from the unprecedented effects it will have on the company and not the actual investment of money and resources. But as technology continues to change and develop, more than ever before, implementing new software within your business has the potential to generate high ROI far into the future.
Below is a summary of the steps involved in a successful software change.
1. Think Why
Knowing why new accounting and inventory management software needs to be implemented is a key factor in the success of the implementation – why current processes are not sufficient and why there needs to be changes to current reporting procedures. It is important that all employees know what the goals of the proposed changes are and how they will be valuable to the employees and company as a whole. Specifically this could mean reducing data entry errors with accounting software, or reducing stock outs with inventory management software. In order to fully understand the benefits one must look at the big picture and over-arching reason for implementing a new software system. If all employees within the organization understand and agree with the reasons, than the implementation and transition to using the new software will be much smoother.
2. Think Long Term
Briefly mentioned above, looking at the big picture and long-term benefits of changing software will help confirm why it needed to be changed in the first place. Focus on the final outcomes vs. immediate impacts. Focus on how, with new accounting and inventory management software, your company will benefit by being able to do things such as; reduce accounting errors, better track products, efficiently manage inventory and serve more customers. Identify the benefits the software will have on each aspect of the company immediately and into the future. This will help provide a purpose for the new software.
3.Think Short Term
Although seemingly contradictory to the factor mentioned before, this simply means to not get overwhelmed with the details by instead focusing on one task at a time. Have a plan and follow it. Design a schedule for each stage of the process. Begin with the software search, then the proposal and sale stage and lastly the implementation stage. Knowing what each stage encompasses and the resources that need to be dedicated to each stage will make the process easier.
4. Think Same
Although implementing new accounting and inventory management software can seem like a huge change, it is important to focus on what isn’t going to change in order to realize that many things, in fact, won’t be changing. What your company actually does will remain the same with just new processes in place to compliment this. The people working in your organization will remain the same – they will now just be better equipped to accomplish their tasks. The location and infrastructure of your company will remain the same with minor changes and updates that will keep the company forward looking with modern equipment. For example, even though your warehouse will remain the same, new inventory management software will make it easier to fulfill and track orders.
5. Think Principles
Processes, technologies, and priorities might change but the underlying principles, values and culture that exist within your company will not. If you find yourself caught up in all the changes happening, take a moment to focus on the underlying principles that make your company successful and how the changes will benefit these. As a company that prides itself on customer service – will the new software help manage CRM better? As a company that is known for fast and reliable delivery – will the new software better keep track of inventory and shipments? As a company known for providing products worldwide – will the new software ensure exchange rates and different currencies are being properly accounted for? New accounting and inventory management software does not have to change current principles or practices – just improve upon them.
Remember, investing in a new accounting and inventory management system can be overwhelming, but it can also be exciting, as it will allow your company to grow into the future. Change is inevitable so the best way to deal with it is to fully understand what it means for your company and follow the steps listed above.