An ERP system costs 2% to 3% of the annual revenue of a large company (classified as companies with revenues over $1 billion) to operate. While that seems like a small number, it’s actually massive. For instance, in HP’s case, that share of revenue was $30 million, and when the company couldn’t use its ERP system, it lost over $120 million in order pileups and $40 million in revenue losses that quarter.
To make sure you don’t lose millions in annual revenue and become an unfortunate ERP statistic, let’s look at five common mistakes people make when choosing ERP for a manufacturing company and stop them at the door: ERP fatigue, undefined scope or requirements, focusing on money in the wrong ways, fixating on functionality, and putting under-qualified workers on the job.
Around 55% to 75% of ERP implementations fail during the first year because of software selection mistakes, unsuitable consultant recommendations, and team-related issues. Some companies even make the beauty pageant mistake of picking the best-looking software, regardless of functionality. As a result, they settle on the first ERP option they like and then find it doesn’t work for them—which leads to failure.
To stop that from happening, create a core team of people consisting of senior managers, IT specialists, and department-relevant people to narrow down three to four software options that suit your company’s needs. Once you’ve done that, get each vendor to give a mini demonstration to your team, which will help them select from the top two or three choices.
Undefined Scope or Requirements
Not understanding what you want and require from your ERP software can make the implementation process cost three to four times what was expected. In fact, system modifications required to improve usability lead to overspending 65% of the time.
This can cause issues with re-engineering your systems and integrating them into the software you bought. Plus, your company may also not have access to the features you need, which can extend the go-live date by 30%.
So, defining the scope of your software system before paying for it is essential to staying on schedule and not spending millions on modifications you should’ve got in the first place. You accurately define your scope by performing an in-depth analysis of the needs of your business.
Focusing On Minimizing Costs Instead Of Maximizing Value
Many companies try to save money by minimizing the hard costs (the total cost of ownership) of getting a new ERP system, such as hardware and software licensing fees. However, hard costs can always be brought down during the negotiations phase.
For instance, the company Interface needed to replace its legacy systems with ERP software that would best cover its processes. The upfront cost of the software with everything they needed was massive, but by doubling down during the contract review and negotiations stage, Interface lowered the upfront cost of the software and secured significant savings.
So, instead of focusing on cutting costs and keeping within the set budget—only to make massive modifications that cost millions and lead to operational disruption—it’s more efficient to get the right software, no matter how much it costs, on the first try.
Involving the Wrong People
Many ERP projects fail because senior management puts the wrong people on the job. They usually assign whoever is available, and these people may not have the skill sets and knowledge to re-engineer the company’s business processes.
Plus, some ERP teams don’t have the right people on board, such as:
- Steering committee: This group is made up of senior executives who are responsible for ensuring that ERP implementation aligns with business goals and strategy and making sure the project reaches completion.
- Core team: They re-engineer the company’s business processes, test the system, and provide training on how to use it.
- Project managers: They make sure the project stays within budget limits by managing deliverables, risks, and tasks. Project managers also ensure the project is launched on time.
So, to ensure you purchase the right software, you should find the right people for the software selection team. You can do that by finding employees who understand what you need from an ERP system and the problems your current system is experiencing. You should also conduct a skill-gap analysis to determine whether your team needs to hone specific skills or if you need a consultant or an ERP-specializing company to help with the negotiation process.
Focusing Solely On Functionality
While paying attention to functionality is essential when you’re choosing an ERP system, other factors are almost as (and sometimes even more) important. These include user experience, data accuracy, usability, and analytics.
If the software you’ve chosen has all kinds of bells and whistles but is difficult to use, it might set back your go-live date. This could cause disruptions that lead to missed deadlines, budget overages, and frustrated stakeholders. Similarly, what’s the point of spending millions on an ERP system only to get incomplete and inaccurate data?
So, when choosing an ERP solution for your company, perform an in-depth analysis of each option you’re considering, look at software demos to understand whether the system offers what you’re expecting, consult with your core team, and then settle on one option.