Forrester estimates a global market size of just over US$20 billion, growing annually by around 3 per cent. Large vendors like SAP, Oracle and SSA Global dominate the market but New Zealand companies can also count on local suppliers such as Quanta and Greentree.
ERP software runs the core operations of a business, including finance/accounting, production, inventory, order management, procurement and human resources management.
However, warns Forrester, implementations have often been departmentalised and different applications have had varying levels of success. Financial and HR applications have been the most successful in supporting the needs of many types of businesses, while companies have struggled to implement packages that support core business operations or processes that span multiple departments or functions.
Ditching the legacy system
Though just months old, French Maid Foods claims success with its implementation of SSA's ERPLN, which covers finance, logistics and manufacturing. It says the system is meeting expected targets and was implemented on time and under budget.
The company, which employs 70 people and makes sauces and toppings for the food service industry, previously had a legacy system that could not cope with the company's growth plans, lacked support from its original supplier and did not offer functionality in manufacturing.
Finance manager Clive Bodington says in late 2004, the company began evaluating systems, and after going through a detailed scooping exercise for several systems, gave the final approval to the SSA ERPLN.
"The main objective was to implement a no-modifications robust, integrated system that will be developed and supported into the foreseeable future. The main drivers were: Cost avoidance, increased productivity, lower waste, enhanced management information to aid decision-making and provide the infrastructure to grow the business. It was also important to have a system that will meet the company's future EDI and B2B systems requirements," says Bodington.
French Maid felt comfortable SSA would further enhance, develop and support the system.
Thus, early this year, it began the implementation, aiming to go live for the new financial year. The short time frame meant there would be no time for exhaustive testing. But after a month or so of tidying up, Bodington still believes it was the right move. After initial teething issues, French Maid was able to gain the business benefits straight away, such as real-time sales and operations data to better manage the business.
"For example, our sales staff can now use the Palm [hand-held units] to access sales and margin information in real-time through a web browser. The target is to achieve an ROI of 25 per cent," he says.
Bodington accepts a few weeks more testing and training might have helped, but "Being a finance man, I found it attractive going live at the start of the financial year."
He advises other enterprises looking at similar projects to ensure they have adequate resources, including training and testing, and to communicate to all users and stakeholders of project progress and achievements. Board and senior management support is also vital.
No to complexity
Scenic Tourism Group faced similar issues when two years ago, it decided to move from an old CBA DOS-based system to an ERP system from Auckland-based Greentree International.
Scenic started in 1967 with just a few minivans, but now the tour company operates 50 coaches nationwide. Based in Auckland City, Mangere and Christchurch, some 20 reservations and quoting department staff use the custom-written Greentree system for quoting future jobs and then turning these into confirmed jobs.
Then, the operations teams in Auckland and Christchurch use the system to allocate the jobs to drivers and coaches; and use purchasing orders for any accommodation bookings and other operational spending. After the jobs are completed or the goods received, the accounts department uses the Greentree system to finalise payments and then get these live fed into the general ledger and accounts receivables.
Ajay Vagha, general manager of operations, says the company's old system lacked flexibility - it could not produce email for quotes, or create reports. Scenic was also worried about support from the vendor.
Thus, in late 2003, the company began viewing systems, preferring something simple, friendly and Windows-based, rather than a pricey high-tech system.
Supplier Endeavour Solutions proposed Greentree, saying the software could be implemented without much retraining. Both Endeavour and Greentree also would not talk them up into buying something dearer and sophisticated, Vagha continues, and the "user friendliness" of both suppliers and the product helped in the decision.
Scenic's complex tariff structure presented some challenges for the new system, but Vagha says after "minor hiccups", these were overcome. Essentially, the system performed as expected, with staff saying it is easy to use, better information and statistics can be extracted, making for better decision-making. They can also send quotes by email.
He advises companies looking to install ERP applications to get to know their own systems inside out before talking to potential suppliers. "That may sound obvious, but many people in positions like mine where we don't actually have an 'IT professional' on the payroll can be blown away by the complexities of trying to implement a new system. You may think you know your system well, like I did, but you should try and get a thorough in-depth understanding before looking anywhere else."
Tauranga-based Bay Engineers has been using an ERP system from Quanta since 1986, and is now on version four.
IT manager Craig Pope says the industrial/engineering supplies company has loyally kept faith with the system as it has met or exceeded expectations. The firm also believes it is better to use New Zealand suppliers, feeling local firms can offer better support than a multinational.
Bay Engineers has some 125 users spread across 20 sites using Quanta's distribution and financial software. The company uses it for inventory management, forecasting techniques, re-ordering supplies and sales of its own products.
Pope adds the system works well but advises potential ERP-users, "Don't skimp on training. You can never have enough."
Forrester says ERP environments present several challenges, such as a typical gap between package functionality and business needs. ERP environments are costly to maintain (typically 20 to 33 per cent of implementation costs are spent annually on maintenance). Larger vendors typically have multiple ERP packages and the integration of systems could be complex.
Thus, companies are trying to simplify their ERP systems by standardising on a single ERP vendor, reducing the need for best-of-breed bolt-ins. Industry specific functionality is getting deeper and integration capabilities are improving.
Forrester also believes service orientated architecture will transform the ERP market and such enterprise changes will drive better business process support. Big vendors will continue to dominate and market consolidation will continue, with Microsoft joining the top tier.
To make the most of your investment, Forrester advises IT professionals to invest for the long-term (10 to 20 years), consolidate their ER environment to reduce cost and integration effort; understand long-term ownership costs and avoid overkill, favour open over proprietary systems, and extend not customise.
Gartner largely agrees, reporting the ERP market has advanced from client/server technology to emerging service-orientated architectures (SOAs), Linux and open source. ERP's functionality has also advanced from general to industry-specific.
"Users who have not found their requirements met by their ERP vendor have been pushed to invest in additional suites of functionality such as that supplied by customer relationship management or supply chain management vendors. ERP vendors reacted by providing integration technology that allowed easier integration to these products," says Gartner analyst Kristian Streenstrup.
Much code is involved in ERP, he continues, so upgrades can be hard to manage. Vendors are also dropping support for systems, forcing end-users to move to other vendors or use an emerging "grey market" maintenance option.
Furthermore, newer ERP technologies may be more hype than mature, with vendors taking short-cuts on re-engineering technologies, especially where SOA maybe concerned.
"Before upgrading or investing, understand the costs (short-term or long-term) associated with the particular enhancements provided by the ERP vendors," concludes Streenstrup.
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