If you’re an executive at a supplier focused on contract packaging, then you need to execute hot orders in full, on time, in excellent condition, and at the right price—every time. You also may have noticed that lead times keep shrinking, SKUs growing, and customers are asking for more—for less—and they want it all yesterday.
But maybe you see this as good news.
Perhaps you see these challenges as lucrative opportunities. And if you do, you’re confident you can achieve operational excellence despite growing order complexity, if only you had the right technology to handle consumer-driven demand.
Maybe you’re looking to buy an Enterprise Resource Planning (ERP) system. Or maybe you’ve already got one. If you do, you may have found your ERP has some painful functional gaps and can’t provide the agility, flexibility, and transparency you need to keep your customers (and regulators) happy while cutting costs and growing margins.
The next logical question in your mind might be: ‘How do I fill these gaps?’
Maybe you’ve already asked yourself this, or maybe you have a consultant who’s convinced the answer is to customize your ERP. If any of this sounds familiar, read on for the gory details, because customizing an ERP is not for the faint-hearted.
Where will your money, time, and energy go?
Understand: ERP customization increases the costs and risks of implementing and updating your core systems. In fact, implementing ERP is likely to be one of the most significant capital investments—if not the most significant you make. Beyond the hefty capital required up-front, ERP customization projects will siphon your team’s time and energy for months—maybe years and will pull your focus off of strategic business concerns.
According to research by Panorama Consulting, the average implementation cost of ERP was $6.1 million during the first half of this decade, and the average implementation duration was 15.7 months. Further, more than half of organizations implementing ERP achieved less than 50% of the measurable benefits they anticipated. One nagging issue the study identified was the costs of customization:
“Unforeseen costs can lead to over-budget projects. Many of these unforeseen costs are attributable to the variable cost of software customization. Performing due diligence in initial blueprinting and requirements gathering ensures the selection of an ERP system that is aligned with key business processes. Organizations that perform due diligence during software selection generally find that the software they select requires less customization.”
Only 7% of organizations did not customize any aspect of their ERP system, and an overwhelming 63% did ‘some,’ or ‘significant’ ERP customization. Not surprisingly, softwareadvice.com cites customization as one of the four primary cost drivers of ERP.
Beware of the FERP (Frankenstein-ERP)
While customizing ERP is typically done to close gaps between a standard system and your specific functional needs, its ultimate effect may be to make you less responsive to change. A 2016 report by analyst Mint Jutrasnotes that ERP customization has traditionally been best practice. But as order execution escalates in pace and complexity, this strategy is failing to meet the needs it intends to solve:
Often the result of functional gaps, these customization’s are costly to maintain and can prevent you from taking advantage of innovation delivered by your solution provider, causing this gap to grow, not shrink. The older the software, the more customized it is, the more likely this is to prevent you from responding to the normal kind of change that is a constant in business.
The problem Mint Jutras reports is a highly customized ERP is difficult and expensive to maintain, and it prevents an organization from easily leveraging future software innovation. This risk of being caught depending on an outmoded customization strategy is forcing executives into a difficult, vulnerable position.
Maintenance is also an issue because customizations have cascading effects that one day may become overwhelming. What seems like a small change can become a major undertaking as programmers uncover the details that need to be handled for an effective and comprehensive implementation. As a result, your ERP’s ‘feature set’ will become smaller and smaller over time, while your risks will increase. Moreover, the skill sets at hand to maintain customizations are becoming obsolete as older generations of IT professionals leave the workforce and new personnel take their place with neither the skills or the desire to learn obsolete systems.
In fact, that day has already come. Gartner reports that by 2016 highly customized ERP systems will be considered legacy, and “not sufficiently flexible to meet changing business needs.” Gartner also points to blending cloud-based solutions, business process outsourcing, and on-premises applications as the way forward. In this scenario, IT’s focus shifts from customization to integration. In a report last year Gartner predicted, “By 2020, less than 20% of multinational organizations will continue to plan and adopt an ERP strategy based on a single-instance mega-suite.” With each passing year, the future becomes increasingly federated as SaaS specialists bridge the precise, costly gaps between and across ERP monolith systems. The decision to delay adopting as the market evolves rapidly around you only increases the chances that you’ll be left behind the curve.
ERP: The Cost that Keeps Costing
Past: Sourcing, scoping, and assessing the specific customizations you need drives up the initial cost and slows implementation kick-off and time-to-value.
Present: Customizations are time, labor, and capital intensive to maintain. They become more difficult as the systems move towards obsolescence. As IT professionals with the necessary skillsets to manage customizations retire, maintenance becomes more precarious.
Future: Customizations hamper your agility in the face of accelerating change and frustrate your ability to leverage emerging software solutions. Market leaders must be able to react in real-time to volatile market conditions. This handicap is not only a competitive disadvantage—it may be a very expensive, if not fatal, millstone.
The reliability of a generalist, the precision of a specialist
If this situation sounds all doom and gloom to you, fret not. Fearlessness is not the absence of fear, it’s recognizing fear and doing what needs to be done anyway.
If you see your dentist with a toothache and are uneasy when he tells you it’s time for a root canal, you might also consider seeking out the help of someone who exclusively performs root canals. This way, you maintain the trusted relationship with your dentist and benefit from a specialist’s focused experience, deep knowledge, latest methods, and state-of-the-art technology. The same approach works when you’re dealing with operational pain.
Many co-packers are struggling with the challenges that ERP solutions were not built to handle. ERP has always been focused on back-office functions. And challenges like high costs, rigid operations, scaling issues, and keeping promises to customers and regulators, are only increasing in today’s volatile consumer-driven markets. If you are uneasy with the risk and costs involved in ERP customization, a SaaS specialist solution may be the answer to compliment your generalist system.
Not only do specialist SaaS solutions facilitate agile, transparent operations, they are far more affordable than a generalist ERP and billed as a monthly operational expense. SaaS solutions also get regular feature updates and product enhancements that increase their value, functionality, and effectiveness over time. SaaS solutions are comparatively easy to implement, and often fully supported by the same teams who built them. This eliminates the hassle and cost of sourcing, vetting, and hiring a third party consulting agency. Combining the reliability of ERPs with the precision of SaaS specialist solutions helps to overcome the challenges of highly variable, complex environments.
The bottom line…
SaaS specialist systems are purpose-built to solve the kinds of problems that ERPs retroactively overextend to accommodate. Today, SaaS specialists are eating away at aging ERP generalist customizations, making Forbes’ warning from 2012 sound eerily prophetic:
“ERP’s days are numbered.”
As SaaS specialist vendors continue to fill the gaps left by traditional ERPs, they’re helping relieve the stress and frustration of supply chain executives responsible for cutting costs, increasing margins, and fixing compliance issues every day. The suppliers that will dominate tomorrow’s chaotic global markets will have the agility, flexibility, and transparency and the stability necessary to master last-mile product customization.
Ghost written for CEO, originally published on Oct 16, 2017