Thursday, 16 February 2012

Selecting ERP Products for SMEs

‘We are expanding our business and planning to implement SAP and need your help in implementation’ my customer requested. ‘But why do you think that SAP will address your business challenge? Are you ready for SAP? Have you checked other ERPs?’ I asked him. ‘Because our competitor has bought it and as I understand SAP is the most popular product’.
Dear friends, I am often involved in such kind of discussion. The important point is not whether SAP is good or bad but do I really need it or whether we can implement it successfully?
There are hundreds of ERP products available in the market and particularly SMEs (Small and medium enterprises) are always confused about choice of the product. In this process they either buy expensive ERP product, which is not at all suitable for them or end up in the ERP which never sees end of the tunnel i.e. never gets implemented after spending lot of money and efforts.
Following are 5 most important factors which are essential for SMEs while selecting ERP,
  1. Volume of transaction – If your organization is involved in high number of transactions e.g. per week if hundreds of goods receipt, hundreds of despatches are involved or if type of raw materials, semi finish or finished goods are in multiple of thousands or if you have multiple plant or storage locations, large number of material transfer between plants, distributors and sub-contractor then you need robust proven ERP systems such as SAP or Oracle. Typically FMCG or Auto companies falls in this category
  2. Type of industry – Most of the international ERP product are originally designed for manufacturing companies and hence may not be suitable for certain industries such as Real Estate, Infrastructure or IT industry which are project based industries and not manufacturing based industries. Real Estate or construction companies have some specific business needs e.g. project tracking is more important for such organizations. Few specialized industry specific ERP systems are recommended for them. SAP has built industry specific applications on the top of standard ERP but it’s very expensive and some time difficult to manage.
  3. Highly specialized business needs – Finance, Purchase, Inventory management are considered as core business functionalities and are common for almost all industries. However few industries has very specialized business needs other than the core business functionalities. E.g. Production planning is a functionality which varies from industry to industry. Production planning requirements of industries such as auto part manufacturing and that of chemical plants are completely different. For some industries such as FMCG, Pharma, Paint etc. supply chain is extremely complex and for industries such as auto ancillary, plastic, etc material flows through multiple work stations before final product is produced where same machine is shared by multiple products. In such cases Planning modules of most of the standard ERP are inadequate and need additional products to support planning e.g. SAP has APO as a separate product only for planning or i2 is another well know product only for planning. Such products can be integrated with standard ERP. Similarly customer interaction is critical for few customers such as industries operating in retail segment. Depending on the severity of need organization can decide whether to use built in functionalities of standard ERP or to use another specialized packages such as SAP’s CRM or Oracle’s Siebel. Then there are few separate products to manage B2B business such as SAP’s SRM product suite.
  4. Maturity of the users – This is the most important point while selecting an ERP.  Branded international products such as SAP are often failed not due to bugs or lack of features but it is due to improper usage. In my long career in SAP I haven’t seen a single incidence where product has failed due to bug or improper functioning. Lack of understanding about the product is a major reason of ERP failure.  Usually Finance and Purchase department are familiar using some kind of IT system. But for users, of departments such as Production, Quality, Stores etc., finds it difficult in handling sophisticated ERP systems. Hence if users are not matured enough either hire manpower who can understand sophisticated ERP system or adopt a simple, small but proven ERP.
  5. Budget – An important factor in selection of any ERP is budget. There is range of ERP products in the market. However one should not consider ERP product only because of low price. Price along with all the above factors should be considered. E.g. If an organization in the manufacturing sector, has complex specialized business requirements, high volume of transactions then they should think about branded, reputed and robust product such as SAP or Oracle Business Suite. If they do not have matured manpower, think about hiring it. If they have constraints of large investment then there are options of phased out implementation by which they can do investment in different phases. Financial institutions such as bank are offering loan against ERP project implementation. ERP cost includes license cost, hardware cost, software cost, network cost and implementation cost. If organization has a low budget with standard business requirements and of they are not willing to take risk of ERP failure then they can consider option of cloud computing with products such as iON or Ramco Cloud computing etc.