The “frictionless innovation” of ERP (enterprise resource planning) is a game changer for small businesses competing with global behemoths like Amazon. Now that cloud computing brings ERP to everyone, which software is right for you?
Like the colour revolutions that swept through the Baltic states in the 2000s, cloud computing has had a democratising effect on enterprise software. No longer strapped down to expensive servers in your own data centre, high-end ERPs (enterprise resource planning), CRMs (customer relationship management) and marketing tools can be bought on monthly subscription, on demand, and used within your browser.
ERP software companies are pitching cloud ERP to smaller businesses that have created a solid product or server and are looking for a technology platform to support their growth.
With all this powerful software on tap, CFOs need to work out which is best.
The ERP buyer's shortlist
Dr John Kapeleris, COO of supplements manufacturer ATP Science, went shopping with a shortlist of criteria. At the time, ATP Science was using Xero with a third-party inventory application, DEAR Inventory, to create wellbeing and sports nutrition products for the Australian and international markets.
However, the manufacturer – desperate to ramp up production – couldn’t obtain accurate costings of manufactured goods, and had to use a spreadsheet for material resource planning.
ATP Science’s first requirement was an integrated system that could handle finance, inventory, production planning, MRP (materials resources planning), dispatch and logistics. Inventory was a key function.
The ERP needed to provide key metrics through a dashboard so Kapeleris could maintain accurate inventory levels. The ERP also had to show manufacturing costs and profitability not just for the whole company, but individual work centres.
“We wanted to see how manufacturing is performing in terms of overheads and direct costs, gauging the efficiency of the warehouse and logistics team, and monitor in-full and on-time delivery of product to customers,” Kapeleris says. Further, the ERP had to include a CRM and customer service module so the company could respond to customer needs and requests.
ATP Science selected MYOB Advanced to replace Xero and DEAR Inventory, which satisfied all the required criteria.
In hindsight, Kapeleris says: “We didn’t ask whether the system was fully operational. The manufacturing component was still being integrated into MYOB Advanced and there were a number of teething problems. Also, we needed to be more detailed during the documentation of our existing business processes. We could [have] better aligned them with the system design and subsequently to the way that MYOB Advanced operates.”
Customise or adapt
Customisation is a common culprit in legendary ERP project blowouts. Companies incur hours and hours of professional services fees adjusting every last detail to the way they operate. However, this is often unnecessary says Lee Thompson, Oracle NetSuite group vice president and general manager Asia Pacific and Japan.
Oracle NetSuite introduced a methodology program called SuiteSucess last year for wholesale distributors. The program gives a new customer the collected best practice processes collated from NetSuite’s thousands of distributor customers. This saves time and money, as a distributor doesn’t need to spend billable time explaining to Oracle NetSuite’s engineers how it runs its business.
The ERP takes a much shorter time to set up as a result, which lowers the cost further and the distributor effectively enjoys free consulting in how to upgrade business processes to industry best practice.
Thompson has three tips for CFOs shopping for ERP: Ask for references from similar customers and see how many the vendor can provide.
“If the vendor has only three customers, then I would be concerned," Thompson says.
The speed of deployment is another flag. It is also worth checking whether the ERP was written to run online or is “fake cloud”, Thompson says. Oracle NetSuite, MYOB Advanced, SAP Business ByDesign and others were designed to run in a browser.
Older ERP software written to run on a server on the factory floor is sometimes sold as “cloud ERP” by hosting it on a virtual server. The downside is that hosted ERP needs to be updated individually at a cost to the customer.
“The benefit of cloud computing is that the vendor provides security, innovation and reliability, not the customer,” Thompson says. “The benefits are speed of deployment, lower total cost of ownership, and scale.”
Keeping an eye on ERP innovation
SAP and Oracle are two of the best known names in ERP. Ask SAP regional CFO Richard McLean what is important in choosing an ERP system, and he says it boils down to a few crucial factors.
“You have to be incredibly automated in your core processes,” he emphasises. “You need to efficiently manage the fiduciary risks in the business. And you need to manage data well to generate actionable insights to drive business performance.”
CFOs should also step back and consider the strategic importance of ERP. As it underpins a company’s operations, an ERP system needs to set a path towards digitising processes and creating what SAP calls the “intelligent enterprise”.
“That’s another key question that CFOs need to think about,” McLean adds. “With the speed of innovation driven by IoT [Internet of Things], analytics, big data, artificial intelligence, and so on, how can I ensure I get access to that technology efficiently and with a low TCO [total cost of ownership]?”
Companies that invest in cloud ERP are expecting the software vendor to drive innovation and pass it on to customers. CFOs need to decide whether they can trust their supplier to do that, in part because it will affect their own potential to bring about change. This could be the most important question for any CFO.
“Is the ERP going to give me the analytical or predictive insights to be more forward-thinking and relevant to the business? And how will I make decisions and launch new business models faster than in the past?” McLean says. On this point, Oracle and SAP agree.
“The real benefit [of cloud ERP] is frictionless innovation,” says Oracle general manager ERP/EPM John Leonard. “TCO has dropped, no question. But the real benefit is regular updates with the latest and greatest innovations.”
Upgrades are easier to implement with cloud software and give companies a way to access the R&D investments made by the ERP software company. And yet, given the complexity of ERP systems, upgrades can change the way staff work with the software and still require time and effort to manage.
Indeed, innovation is no longer a fluffy concept for staff training days. It is essential to survival. Department store chain David Jones ran an on-premise ERP and didn’t upgrade it for 23 years for fear the system would stop working.
However, it has now moved to Oracle Cloud ERP so that it can more effectively compete with Amazon, which launched its Australian retail business in November 2017.
“The fact DJs has a digital backend means they are in a far better position to compete with Amazon than if they were running 23-year-old system,” Leonard says. “I [can] promise you the CEO and CIO understand that."
Making the case
An ERP system is usually the largest technology commitment a company can make. CFOs need to satisfy not just themselves that they have the right ERP software, but also present the business case to the board. This raises the question: How to do the numbers on a project that will touch nearly every part of the business?
Sage has produced a report with analyst firm Forrester on how to measure the total economic impact of ERP. While many CFOs focus on improving financial reporting, in the study this only represented 10 to 15 per cent of the benefits. Other areas included inventory management, purchasing, sales management, customer service and manufacturing more broadly, says Sage Asia Pacific executive vice president Kerry Agiasotis.
“Often CFOs will explore software and functionality rather than focusing on drivers and outcomes,” Agiasotis says. “They need to be confident of getting a return and where it’s coming from, then focus on what they must get right initially versus the bigger picture.”
Agiasotis recommends CFOs answer vital questions before starting to evaluate vendors. For example, create your ROI hypothesis; define your KPIs (leading and lagging) for measuring success; know the obstacles in your existing software that prevent you reaching the KPIs; and confirm that the ERP has the features you require to meet your objectives.
Buying complex software takes time. It is necessary to research existing and future processes, developing technologies, shifting roles and responsibilities – not least the CFO’s own progression from operational reporting to management accounting.
However, invest in the time, get it right and with a well-matched ERP you could set your organisation up for a growth sprint into the ranks of mid-size companies and beyond.
ERP checklist: 8 questions to ask
Picking the best solution requires a good amount of research and advice. Here are some tips from Stephen Canning, CEO of JCurve, a software and IT services company that sells three varieties of ERP (NetSuite Oracle, JCurve and MYOB Advanced).
- Do you need an ERP? Is your accounting system plus a couple of add-ons good enough? Is the return on investment (ROI) of moving to an ERP justified? It’s the first and most important question.
- What is the total cost of ownership? First-time ERP buyers are often dazzled by the size of the software’s price tag. You also need to factor in the cost of support and other professional services. If you get stuck running the payroll, who are you going to call and how long will it take get a response?
- How does the cost of the ERP scale? A small company selects an enterprise-grade ERP because the technology platform will support it as it grows into a larger business. But how will the price change? If you hit your growth targets, what will the subscription cost in five years’ time?
- How will the ERP improve the reporting process? An ERP can cut reporting times for the finance team. It can even automate reporting to business managers by using customised dashboards. How easy is it to make a dashboard? Is it simply a matter of “drag and drop”?
- How will the ERP improve cash flow? Cash flow is always top of mind for CFOs and an ERP should have specific ways to improve it. Better debtor management, automated messaging to debtors, better inventory management and reporting, for example.
- How will the ERP improve month-end reporting? The last thing a CFO wants to do is manually collate month-end results. Can the ERP do this automatically, or even provide real-time reporting?
- Is the ERP set up to track sales? Sales representatives are great at selling but not always as good at updating the CRM. It can take a lot of effort in the finance department to track down exactly what was sold, the discount given and who approved it. If sales personnel can update the system on the road with a mobile app, the CFO can have more confidence that the system is up-to-date.
- Is the ERP easy to use? How intuitive is the system? Do you need to spend money on training every time you hire an employee? How much can you do yourself when it comes to configuring reports? It slows down the business and increases the TCO if you need to bring in a consultant every time you want to change a dashboard.
Enterprise resource planning: taking the leap