The Definitive Guide to ERP Implementation
Enterprise resource planning (ERP) solutions help companies to streamline their business operations and boost customer engagement. Despite these obvious benefits of ERP, many companies still struggle to implement ERP systems successfully. A whopping 75% of ERP projects eventually end up as failures.
Implementing an ERP system is a complex task that involves time and costs, and can affect several parts of your business operations. To harness the true potential of ERP systems, companies have to thoroughly research and understand how it works before they even get started. It is also crucial to design an ERP implementation plan.
In this guide, you will learn the meaning of ERP implementation, the different ERP implementation stages, types of ERP implementation projects, the cost of ERP implementation, common mistakes to avoid, and best practices to follow. You will also find out if you should use an ERP implementation consultant or not.
Let’s get started.
What is ERP Implementation?
ERP implementation refers to the process of gathering your business requirements, selecting and installing the ERP system, transferring your financial data from the old to the new system, configuring your users and processes, and providing training for your users on how to use the ERP software. It describes the process of planning, configuring, and deploying an ERP system.
This whole process is not a one-time event that you can complete in a short period, it is a continuous process or life cycle. Selecting the right partner for implementing your ERP system is just as important as choosing the right software.
ERP implementation refers to the required steps needed to integrate an ERP system into your organization’s processes. Companies implement an ERP system for various reasons such as reducing manual labor, streamline operations and business processes and improve customer satisfaction.
Overview of ERP Implementation Stages
There are six ERP implementation stages used by businesses, although some businesses' unique needs may require more or less. Every stage has its specific objectives. Some stages may overlap or need to be done simultaneously or vary depending on the company.
1. Discovery & Planning
The discovery and planning stage is the first stage for all ERP projects. It includes researching and choosing the ERP system, assembling a project team, and detailing system requirements.
Responsibility for handling a broad range of implementation roles falls on the team you set up for the project. Some of the roles they play include laying out the project plan and setting the target dates, planning for the adequate allocation of resources, making design and project decisions, and handling the day-to-day management of the project.
The ERP project team typically consists of an executive sponsor, application analysts, project manager, application developer, users, and quality assurance test engineer. It also consists of representatives from the various departments that will make use of the ERP system such as finance, accounting, customer support, warehouse, and others.
Your ERP project team should include the senior management of your company. They are critical to the success of the project. The role of the ERP project team is to ensure that the resources needed are made available on time and to provide the backing needed to carry out ERP implementation changes across the company.
The project team may need to hire an ERP implementation partner or an external consultant to provide the expertise needed in designing and configuring the ERP system.
Your team should also include internal specialists your company has that are actively involved in implementing the system. For example, a representative from your IT department and a report writer who will be responsible for developing customized reports for users in your company.
An early goal your project team should have is to gain a detailed understanding of the current issues your company is encountering and need an ERP system to resolve. Your team should develop an understanding of the process inefficiencies and the essential requirements needed for ERP implementation.
If your company has previously used an ERP system or developed an ERP business case, your project team needs to take into the existing analysis done. The previous attempt at ERP implementation may have led to already defined broad business issues and goals related to implementation such as improved insight into operations, faster financial close, and preparation for an IPO.
Your project team can use this information to direct more detailed analysis such as the documentation of existing workflows and to focus on developing the system.
The team may choose and acquire the ERP system during the discovery and planning stage as the company gets a clear insight into its requirements. At this stage, the project team has to decide if the ERP system should run on-premises or in the cloud.
If the option selected is the on-premises ERP system, the company has to buy and install the necessary hardware and software in the company’s data center. For cloud-based ERP systems, the company needs to pay for the subscription and access the service on the cloud via the internet.
The cloud-based ERP system is faster to implement than the on-premises ERP system. It does not require as many in-house IT employees as the on-premises ERP system.
The design stage starts from understanding the detailed requirements and current workflows and ends at the development of a detailed design for the ERP system. It involves the designing of new and more efficient workflows to replace the current ones, and other redesigns of the business processes to make it easier for the company to take advantage of the ERP system.
At the design stage, it is essential to involve users because they have the best understanding of how the current business processes work and their weaknesses. Another reason to involve them in the design stage is that it makes them more open to using the new system.
You can use gap analysis to identify unique quirks and process intricacies that may require changes to workflow or processes for better alignment with the ERP system. Customization of the ERP software is necessary to suit your company’s unique business needs and structure.
The team involved should identify the gaps and present them to its implementation partner or supplier to identify potential solutions.
After setting up clear design requirements for the project, the actual development stage can begin. The development stage involves the configuration and customization of the ERP software to support the redesign processes.
This stage also covers the integration of the ERP system with any of the company’s existing business applications that will not be supplanted by the ERP system. If it is an on-premises ERP system, it is the stage where the company needs to install the essential hardware and software needed to make the system functional.
The team handling the development stage should ensure it develops training guides that help the intended users to quickly adjust to the new system.
Planning for data migration from existing systems to the new system takes place at the development stage. Data migration is a complex task that involves extracting, transforming, and loading data from multiple systems. The data are usually in different formats, and because the data migration is done from multiple systems, there is that danger of transferring duplicate or inconsistent information.
Not all data in your existing business applications may need to be transferred to the new ERP system. Your project team should determine which data are essential for migration to avoid the blind transfer of all historical data which can lead to lots of irrelevant data entering the new system.
The testing stage may occur concurrently with the development stage. For example, the project team may need to test specific features and modules while the project is still in the development stage. It is through this testing stage that it finds fixes or makes adjustments based on the results and then retests till it gets the expected result.
Also, the project team may test one ERP module, for example, customer relationship management (CRM), while another module (human resources) is still in development. The quality assurance test engineer is in charge of the testing stage.
After carrying out the initial and routine testing of the basic functions of the ERP software, it is essential to back it up with more rigorous testing of the capabilities of the system. As part of the testing process, allow some users to test the system while carrying out their routine day-to-day activities. The system needs to be thoroughly tested before it is deployed fully.
The testing stage should also include the testing of the migrated data and introductory end-user training. Many ERP vendors will provide pre-deployment and post-deployment tools for user training. However, the company should also utilize the training materials created in the development process at this stage.
The deployment stage refers to the big day when the ERP system goes live. Your company should prepare for any potential issue and unforeseen challenge that can derail the successful deployment of the ERP system such as the potential for some befuddled employees despite the training to prepare them for the change.
The project team including temporary IT hands should be available to answer questions and fix any issues that users bring up. If you have an implementation partner, they can help with troubleshooting any potential difficulty if necessary.
Change is not easy, it takes time for users to adapt fully to the new system. While they are still trying to make sense of it all, help them to understand the system. You may not see the anticipated productivity gains in the short term but as users become more comfortable with it, you can expect a sharp rise in productivity.
Before going live, you need to migrate data such as current transactions that were not available for migration during the development stage.
Depending on how large the ERP project is, the preference of the company, or the resources available, there are three methods companies can choose for deploying the ERP software. They are the big bang, phased approach, and parallel operations.
- Big Bang – The method where a company deploys all the modules of the ERP system concurrently. All users make the switch from the legacy system to the new system one the live date. It is the fastest and cheapest option of the three methods. The big bang method is however prone to technical difficulties if not handled properly.
- Phased Approach – Under this method, users make the transaction by business unit or function. The company first focuses on specific high-priority processes or modules and then gradually adds other modules or processes later as users adapt. Although it makes it easier for the project team to improve transition with each group, it takes longer to implement.
- Parallel Operation – This method refers to when a company continues to run both the legacy system and new ERP system simultaneously on and beyond the deployment date. The advantage of this method is that it is less risky as users have a system to fall back on. However, this method can add to the overall project costs since the company is running two systems. Also, users will spend more time duplicating their work for both systems, leading to reduced productivity.
After deploying the ERP software, you still need to test and audit the system for accuracy, speed, and reliability. Prioritize the inventory and accounts receivable ledgers, and the balance sheet and income statement.
There should be enough IT support at the deployment stage to support users as they verify and modify information and business processes in the live ERP system.
6. Support & Updates
Many companies assume that ERP implementation ends after the deployment date which is not true. ERP implementation stretches beyond the deployment stage and includes ongoing maintenance and support needed to keep users happy and ensure the company reaches its desired targets.
The project team is still in charge of this stage but the focus is now on evaluating the success of the ERP implementation through user feedback. This feedback is useful for making further adjustments to the ERP system.
Companies need to budget both time and resources to identify and resolve issues and errors throughout the life cycle of the ERP system.
Your company can also decide to add new features to the system which will require additional development and configuration. Also, as you hire new staff, you need to train them on how to use the system.
If you use an on-premises ERP system, you will have to install software updates from time to time, and in some cases upgrade the existing hardware too. For cloud-based ERP systems, the ERP vendor does these periodic software updates automatically on your behalf.
After going live, it is a good practice to routinely evaluate the success of the ERP project by using key performance metrics tied to the goals and objectives of the project. They include costs compared to the budget, increase in manufacturing, inventory management, supply chain productivity, decrease in human error, increase in customer engagement, and good return on investment (ROI).
Types of Implementation Projects
According to Acumatica, there are three types of implementation projects. They are express, standard and advanced.
- Express – This type of project implementation is functional and out-of-the-box (OOB). It is best for single-entity companies that do not have complex processes and do not require any additional ERP solutions.
- Standard – This type of project implementation is suitable for single-entity or multiple-entity companies that require minimal customization and add-on solutions. It works best for companies that use a single currency and language.
- Advanced – This type of project implementation is the perfect fit for single-entity or multiple-entity companies that have multiple currencies, languages, and locations. These companies require lots of customization and add-on solutions, their business processes range from moderate to complex.
Your ERP implementation partner is usually responsible for recognizing the project type that best fits your ERP implementation. Project management is key to the success of ERP implementation. Not every project should get the same treatment due to the dynamic nature of different ERP projects.
How Much Does an ERP Implementation Cost?
The cost of ERP implementation is expensive. It is not just the one-time fee you pay for the installation of the ERP software but other associated costs.
Apart from the cost of installing the software, you have to factor in other ongoing expenses needed to operate the ERP system efficiently.
Finding a definite ERP pricing guide can be hard because of multiple factors that go into determining ERP implementation cost for a company. According to ERP Focus, small businesses spend $7,143 per user, mid-sized businesses spend $8,542 per user, and large businesses spend $7,257 per user when purchasing ERP.
The true costs of ERP implementation include both the initial and ongoing expenses such as software costs, customization, consultants, hardware, and training.
1. Software Costs
Software costs depend on the type of license, type of ERP system (cloud or on-premise), number of users, and scope of business units and applications.
Many companies may require customization for specific business processes. Customization can easily drive up the cost of ERP implementation. Sticking with only the core features you need to run your business efficiently can help lower your costs.
Many ERP vendors, especially the market leaders like NetSuite, Oracle, and SAP make use of third-party consultants for ERP implementation. Also, they charge for services such as data migration and change management. You also have to make provisions for remuneration to the implementation team you set up.
Depending on the type of ERP deployment you are using (on-premise or cloud), your ERP implementation costs may substantially include hardware costs.
On-premise ERP deployment requires you to purchase hardware infrastructure and data servers that can host the ERP system. Cloud ERP deployment does not require purchasing this hardware.
Apart from purchasing hardware, you also have to pay for the installation, maintenance, and upgrades of the ERP infrastructure for on-premise ERP deployment.
You may also have to pay support staff for hardware and networking maintenance and other services provided over time such as fixing bugs, software upgrades, and custom development.
Training is another factor to makes the ERP implementation expensive. Some ERP vendors may offer basic training services during implementation for free but others may offer it for an extra fee.
You also have to make provision for trainers, especially for new employees who have to use the ERP system but did not undertake the initial ERP implementation training program.
6. Modules or Features Not Included in the Base Price
If you get a base quote from an ERP vendor and you want to request additional modules or features not included in the base quote, you may have to pay an additional fee. Some ERP vendors charge additional fees for individual modules such as payroll, e-commerce, and manufacturing.
Small to medium-sized businesses can expect to pay between $75,000 and $750,000 for implementation. Costs for large businesses range from $1 million to $10 million.
If you can not afford to pay a large up-front ERP implementation fee, you can opt for cloud deployment which has a less expensive starting price.
Common ERP Implementation Mistakes to Avoid
Having a strong understanding of the ERP implementation process is not a guarantee that the project will not fail or your results fail to meet your expectations. There are so many risks, mistakes, and challenges that can happen.
Here are some of the most common ERP implementation mistakes companies make and how best to respond to or avoid them.
1. Continuing with Old Business Practices
The goal of ERP implementation is not to speed up a bad process with automation but to reduce duplicate efforts and manual labor. Many companies make the mistake of reverting to old business practices thus defeating the purpose of the ERP solution.
2. You Don’t Get the Support of the Executives
ERP implementation is doomed to fail even before the process starts if the upper management does not support it. The ERP implementation team should ensure it gets the full backing of the executives. Getting sponsorship as early as possible increases the chances of success.
Many executives believe that the ERP system will hurt their business in some way due to the potential downtime and implementation problems that may occur. It is the job of the project team to acknowledge the fears of the executives, address them, and manage their expectations throughout the entire process.
3. Letting Vendors Push for More Functionality Than You Need
An ERP vendor is a business devoted to making maximum profit. While the vendor will want to offer high-quality ERP implementation services to boost their reputation in a competitive industry, they also tend to push for more ERP functionality than you need to operate your business.
Your ERP vendor should not define your needs or sell you features that you do not need. You can avoid this scenario by defining your ERP requirements early in the process based on your goals and objectives. If possible, get an industry-specific ERP solution.
4. Thinking About Current Business Needs
Another mistake companies make in their ERP implementation is thinking only about their current business needs. Failure to plan for the long term is costly.
You can avoid this mistake by considering possible events such as upgrades and maintenance costs at the initial ERP implementation stage. Ensure the ERP system you are developing caters to your current and future business needs.
5. Thinking On-premise ERP Solutions Does Not Require a Huge Initial Investment
If your company lacks the funds needed to implement an on-premise ERP solution, it should look for other alternatives such as cloud ERP or open-source ERP software.
On-premise ERP systems have a high initial cost. Except you can afford it, you should get the alternatives because their initial costs are lower and they charge based on the number of users you have or the resources you consume.
6. Thinking ERP Implementation Is an Inexpensive and Fast Process
ERP implementation is not inexpensive and it’s not a lightning-fast process, it requires huge costs and lots of time for successful implementation. When setting your timelines and budgets, set realistic projections and give your project team and IT staff what they need to succeed.
ERP Implementation Best Practices
Creating a phased ERP implementation alone does not automatically result in success. You have to follow other equally important ERP implementation best practices to attain that success mark. Here are some of the best practices to follow.
1. Do Not Underestimate Planning
Planning should be the first step you take when it comes to ERP implementation. Before you jump into the design and development stage, it is essential that you do not rush the initial planning and discovery stage.
The planning stage is where you create the firm foundation on which the whole implementation project will stand. ERP implementation is a costly and long process, the planning stage is where you ensure that you have the high-level backing, adequate budget, and personnel needed for the project.
2. Do Not Underestimate Support and Training
After the deployment date, project teams make the mistake of thinking that is the culmination of the implementation process. They do not pay adequate attention to the ongoing ERP implementations that extend beyond the deployment date such as support and training.
Users of the ERP system know that the deployment date is just the start of a long ERP implementation process. What happens after the deployment date is crucial to the success or failure of the ERP system.
As a good practice, ensure you plan to allocate adequate resources for training and support. Users of the ERP system may need technical support or help fixing issues, having the right support makes it easier.
Training of the end-users is also necessary. It is essential for helping users to get comfortable with the system and any new workflows added.
3. Plan Data Migration Carefully
Companies make the costly mistake of migrating all historical data in their legacy system to the new ERP system. It does not only waste time, it also gives you double work as you now have to start sorting out the necessary and unnecessary data in the new system.
Not all information you have in the older systems is necessary, some of the information may be obsolete and not valuable anymore to your business.
See the transition to an ERP system as the “golden” opportunity you have been waiting for to clean up the junk data and organize the company’s data. It is beneficial to create a clear plan for eliminating unnecessary and obsolete information. Spend time combing through legacy data to weed out data inaccuracies and outdated information.
Communication is essential throughout all stages of ERP implementation. The team in charge of implementation should take it as a duty to regularly communicate with everyone in the company, including those who will directly use the ERP system.
Everyone in the company should clearly know the reason for the ERP implementation, the benefits and goals it will bring, and what to expect during each stage.
Two-way communication is vital. The project team should not just pass information to the user but also listen to user issues before and after deployment and use it to make the ERP implementation process or system better.
Should I Use an ERP Implementation Consultant?
ERP implementation consultants help reduce the risk of failure at every stage of the ERP implementation process. Depending on the resources you have and the complexity of your ERP project, an ERP implementation consultant may or may not be right for you.
However, having one in your project team helps you extract maximum benefits from your ERP implementation stages. They have the ERP implementation experience that members of your project team often lack.
The ERP system is a complex system that manages several aspects of your business. It is best to hire an ERP implementation consultant to handle the implementation phases effectively. ERP implementation consultants have the knowledge and skills needed to get the ERP software running.
The primary goal of the ERP consultant is to help businesses operate their ERP software including helping them understand how the ERP system can be beneficial for the company.
A consultant can help you negotiate the conflict of interest that exists between ERP vendors and your business. While ERP vendors want to sell as much functionality as they can to you, an ERP implementation consultant will ensure that you only choose the needed functionality for running your business more efficiently and productively.
When choosing an ERP implementation consultant, ensure they have experience in your industry and have helped other companies achieve ERP implementation success. The right consultant can easily communicate with all users across all levels of your business (from the executives down to the employees).
ERP implementation consultants help businesses recognize the strengths and weaknesses of their ERP products and provide suggestions to improve them for better performance.
A good ERP implementation consultant keeps you focused on your project goals, addresses the fear of switching to a new system, and provides training for users.
ERP Implementation Phases FAQ
The first phase of discovering and planning is arguably the hardest part of ERP implementation. The success of the project hinges on getting the first phase right.
You have to first recognize the limitations of your previous system to know what to look for in your new ERP system. In this phase, you will have to construct the project plan that will serve as a guide throughout the rest of the project.
Assembling the right implementation team also falls into this phase, your team must have an appropriate understanding of your business and what goals the new ERP system is to achieve. Getting everything right in the planning phase will almost guarantee a seamless ERP implementation process.
Easily, the first part of avoiding implementation delays is having a well-defined project scope. It is better to spend time developing your project scope rather than having to do that in the middle of implementation.
One way to set project scope is to use the Critical Success Factors (CSF) method. Critical success factors are a limited number of areas in which results, if satisfactory, will ensure the organization’s successful competitive performance.
Using Critical Success Factors (CSF) helps organizations specify their own critical information needs. Meeting targets in these key areas means ERP implementation will be seen as a success.
Critical Success Factors (CSF) help the implementation team to know the most important aspects they have to work on. It is also important to get the appropriate implementation resources and do your research to make sure you truly understand how much time and money it will take to implement your ERP software.
Setting realistic time and resource expectations will also help avoid delays in ERP software implementation. Most organizations spend more time, money, and resources on ERP implementation than they expect because they underestimated the cost requirements of implementing a new ERP. The key to achieving this will be hiring the implementation team.
Many ERP software vendors are usually very confident when it comes to the capabilities of the software they are selling. You will need to put them through a well-informed selection process to find out which system suits your business best.
Next, all parties meant to be involved in developing the ERP implementation must play their roles and provide objective assistance. From the executive team to the ERP vendor or system integrator to the rest of the implementation team, everyone should certainly provide input. Using consultants who will help streamline your vision for the new system is also advised.
Assertive executive leadership is also a key to avoid delays in ERP implementations. Having set project goals, you must ensure that there is no slack from the team and everyone is focused on achieving said goals. This entails active management of the scope, schedule, and budget needs of the project to ensure resources are not wasted and the implementation process follows the planned schedule.
Also, your executive sponsors should be carried along and involved in key project decisions and not just play a passive role in the implementation. In the end, they are going to take responsibility for whatever results from implementation. Inform them about ongoing decisions, project goals, and changes to business processes.
The inputs and preferences of workers are also important in avoiding ERP implementation delays. Humanware is a very important aspect of implementing ERP software, and how these people receive the changes made by the new ERP system can be the difference between smooth and delayed implementation.
Executive sponsorship is very important in the early phases of ERP implementation. It is impossible to have a successful ERP implementation without the involvement of executive sponsors.
Executive sponsorship does not just mean footing the bills. Sponsors help define expectations with the help of other stakeholders and the rest of the executive team. Executives need to answer what the aims of the ERP project are and what benchmarks will indicate the project’s health.
Finding the perfect time to implement a new ERP software is a thankless task. Implementing a new ERP takes time because you can not just put company activities on pause to fully install the new ERP system.
You also have to consider the fact that there may be momentary interruptions as minor bugs are fixed and adjustments are brought to the system.
Your staff will also need to get used to the new processes and interface so planning for any potential delays and providing enough time for user training is important in new ERP system implementation.
With this in mind, the best time to Implement new ERP software is during a period of expected slow traffic. By implementing during your slow period, you can dedicate more time and attention to the implementation.
Less traffic means there are fewer pressures on both the system and the staff, so employees are more focused on understanding the software and learning how it works.
For most companies, the slowest times are the end of their financial year. It is more acceptable than holidays and festive periods when people prefer not to be bothered by work.
When you do the ERP software implementation at the end of the financial year, you avoid auditing inconsistencies that may arise from running financial data on two different software.
The amount of time needed to fully implement ERP depends on several factors. ERP implementation can last between two months and two years depending on the size of the organization, and the amount of legacy data being transferred.
Small businesses usually take around 12 weeks while medium-sized companies need up to 6 months for ERP implementation. Large enterprises need around 18 months to complete their ERP implementation.