Dedicated or off-the-shelf ERP system - which to choose?Continue reading
Every company, when planning its growth, asks itself whether its own system is an obstacle to further market exploration. If it answers this question in the affirmative, then the next step should be to replace it. And this is where the problem arises.
The wealth of offerings from software suppliers does not leave an easy choice. Because what works for a trading company will not necessarily cover the processes of a production company. And standard solutions do not always take into account the specific needs of a given company. On the other hand, non-standard add-ons and modifications, which are a response to a specific problem of a company, firstly, cost money, and secondly, reduce the stability of the system, e.g. when there is a need to update it. How do you make a wise choice between customised and standard solutions? What should you be guided by? Let us take a look at this problem.
Simple ERP system choices in the past versus today
Many Polish companies that are currently on the market owe their beginning to the change of regime. Their inception dates back to the 1990s. At that time, the choice of systems was very limited and narrowly specialised. Sales companies had industry-specific software at their disposal, as did the financial, service or manufacturing industries. This was when the term 'turnkey system', known as a 'boxed system', first appeared.
I started working in the field of business software during this period, so I am familiar with these terms, as well as the database structure based on DBF files. Everything back then was simple, including implementing systems or correcting incorrect data directly in the data files. ERP systems were limited, so transactional logic was also easy to use and administer.
Over time, companies' needs grew and systems had to evolve. Most growing companies relied on an in-house IT department to program proprietary solutions. Everything seemed to fit perfectly - an in-house programming department supported by key people in the company.
Thus, the first decade of the new century promised no problems. Companies were growing, key people were designing new needs on the fly, programmers were realising these needs and everything was going in the right direction. On the horizon, as I often write in my articles, no one expected 'icebergs'.
Unfortunately, in most cases, this was the wrong assumption.
How growth becomes a problem
For companies, such 'icebergs' were technological developments. The architecture, including the database structure used for system development, began to be a major inhibitor.
Another element was the lack of data coherence between internal, separate systems used in the same company. The lack of coherent and accessible data blocked rapid decision-making by the company's management.
The biggest problem, however, was people. The development of systems was dependent on the intellectual development of key people within the company. As IT companies grew, the demand for people with this portfolio grew. Companies were losing valuable employees. Their departure created a knowledge gap regarding the genesis of the development and processing of in-house functionality.
Most companies began to look for system consultants with two conditions: an analysis of the company's current processes with the designated development directions and a proposal for a new system.
Process analysis as the first step towards choosing an ERP system
This was the ideal time for me, as I was personally familiar with most of the 'small' systems, plus I had been exposed to integrated ERP systems since the late 1990s. It is worth mentioning at this point the foundations of the current Microsoft Dynamics 365 system, namely Concorde XAL. I was therefore the ideal person to implement these two guidelines.
Based on the information from the meetings, I created a document of the current processes throughout the company, together with a clearly defined development goal for the next 5, 10 and 15 years. Each analysis document ended with me presenting the main assumptions facing the selection of a new system to the board.
For some companies, this element ended our cooperation, with the development of processes forming part of a request for proposal to various IT companies offering integrated systems. Most companies generated the need for further collaboration and the selection of the optimal system for them. Often still at this stage I was confronted with the question - is there a boxed system for us? This question was related to an ingrained view of IT systems development over the years.
Should it be a dedicated system or a boxed system?
Below, let me provide some examples and attempt to answer this question. The search for the optimal system, as you can see below, is almost identical for every industry.
The most important thing is to find the answers to the questions during the analysis: is my business templated or unique? What will my business look like in 5, 10 or 15 years?
ERP system for a manufacturing company
One of the first companies I advised was a manufacturing company whose main raw material for production was sheet metal. Production was divided into serial and incidental. Each customer could design their product and the company visualised the dream in the form of a product. The company's product was valued in educational establishments in the European market, resulting in many prestigious awards.
This type of business from an IT point of view was based on the integration of many systems. Within a few years, the company created its own system to manage the production process, integrating it with the sales and purchasing system. The most important two elements of this system were to be in the future:
- Integration with an external WMS system, where the production system sends a request for a specific type of sheet metal, with specific physical data, and defines a verified supplier
- Integration with the Autocad system. On the basis of sales forecasts, the Autocad system would create blanks from a given sheet, so that the designed details would affect negligible production losses and minimise the number of changeovers in technological processes
Only an open-source system that would allow the business know-how accumulated over the years to be implemented and enable integration with developing external systems through its own programming code could meet these objectives.
ERP system for a pharmaceutical company
Another company came from the pharmaceutical industry. The company was involved in the production of medicines and supplements. Again, the business was based on its own production and logistics system.
The most important element of the system was the changeover matrix. Based on information from the sales department on Forecast volumes, all level 1, or intermediate, productions were aggregated. Process cost reductions were achieved by reducing changeover operations. The changeover matrix prompted the system not how many products to make, but what volume of level one production (mass) should be made to ensure that a given quantity of finished goods could be produced at zero level. It should be added that it was assumed, in future, the system should link bi-directionally to the various systems of both wholesalers and pharmacies.
It was only possible to realise these assumptions through an ERP system with the possibility of adapting its own programming code.
ERP system for logistics
Another example was a company in the transport and shipping industry. In this case, the core business was based on comprehensive customer service in the field of logistics. The company specialised in express shipments in both the domestic and international markets. Here, data was also stored and processed in its own system.
The premise behind the new system was the integration with various customer systems. On the basis of the integration with Google maps and information on planned loads from the customer's systems, the system was to determine the optimum route in terms of load completeness, taking traffic volumes into account. The designation of an efficient transport was to result in the company being perceived in the freight forwarding market as a company with a high quality service in relation to price and delivery date. In this case, such a technologically advanced and flexible box system was also not on the market.
ERP system for e-commerce
Finally, I would like to mention an e-commerce sales company. The company's offering was aimed at both B2B and retail customers. In this case, the IT department also created its own system for integrating suppliers with defined distribution channels.
The company was active only in IT products and was based on product identification through PartNumber. Through built-in tools, the system integrated with other systems, mapping the product trees of suppliers and distributors to product categories, which in the next step allowed automatic presentation in the B2B or B2C distribution channel. The company was faced with the challenge of integrating all current systems and additionally integrating in the future with shipping companies, which should deliver every product regardless of the size and safety features describing the product to any location chosen by the customer.
All of the above-mentioned examples of different companies had one more need in common, and that is that there should be one consistent financial and controlling information over all these internal processes. We should be able to view each unit of data in the system in several dimensions and planes.
Three milestones in choosing an ERP system
The decision to change the system is a very important one for the future of the company. Unfortunately, this is only the first step. To be successful, the company should keep in mind 3 very important elements.
The first milestone is, as I wrote above, to choose an external company that will audit and write down all current processes and business objectives. The report must not suggest a system, but should be used to select a system on the market.
The second milestone is to prepare the company to implement the system. This is a very important part of such an invasive change in any business entity as the replacement of a business system. Here, every company should ask itself - what sacrifices in the organisation are we prepared to make?
The third milestone is to know the most common mistakes made during system implementation. Let us learn from the mistakes of others and not make them when replacing a system in our company. Knowing the laws related to the implementation process is probably the most important of these 3 points. This point is the most comprehensive, as it concerns the 3 phases of implementation:
- The implementation analysis with the system preparation process
- The production start-up process including system stabilisation
- The post-implementation process, i.e. the service that guarantees the continuity of business processes and the future implementation of new technological solutions
I will describe the milestones from areas two and three in the next two articles due to the vastness of the subject matter.
Before inviting you to the next parts of the "Implementation" trilogy, I would like to close this article with a reflection: is your company a kind of mathematical solid defined by parameters, inside of which the same processes are and will always be present, or is your company impossible to be enclosed in a box, which is always accompanied by fixed XYZ coordinates?
We can look to our own team for the answer to this question, but from my own experience I always recommend an external auditor who will look at our company objectively and therefore not be guided by sentiment. The worst enemy when choosing a new system is to be guided by subjective feelings, which will mean that our company will still be locked in a "box" with the difference that it is girded with a coloured sash saying "New - Trendy".
It will always be a box after all.
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