A guide to the ERP life cycle
Old ERPs don’t last forever. Legacy systems become unsupported. Your infrastructure can’t keep up with the large swathes of data you should be using for business intelligence. Major headaches and glitches in workflow start to occur and agility evaporates and your organization falls behind.
This is when you have to consider retiring your incumbent ERP and switching or upgrading. This post explores the lifecycle of ERPs to help you stay ahead of the curve. Find out when it’s time to make a change…
What is the ERP lifecycle?
The ERP lifecycle is how long a system remains usable. Research suggests that the lifecycle of ERP systems is getting shorter. Given the time and cost investment, it makes sense to try and prolong the life of your system as much as possible.
With this in mind let's dig into the stages of an ERP lifecycle.
What are the stages of the ERP lifecycle?
Broadly, ERP lifecycles tend to follow the following criterion:
- ERP rollout: your chosen software is first implemented in the workplace after going through an extensive evaluation.
- Optimization: the system is configured to business needs. This includes a customization process. this is to ensure that productivity is increased from a fluid workflow.
- Maintenance: this involves taking care of the system on a day to day basis. Creating new reports, changing the values of taxation to comply with legislation, responding to user requests.
- Extending values: running in parallel with maintenance this involves adapting to business, legislation, and technological changes as necessary.
- Decaying performance: the first signs that the system is coming to an end. Hard to update, harder to maintain. It simply can't keep up with demand.
- Reimplementation: similar to the initial rollout phase. Based on experience most businesses try and get the features they need from a vanilla ERP. This reduces customization needs, time, and cost.
It is easy to confuse system lifecycle with ERP implementation lifecycle. This is not the lifecycle of the whole system but the lifecycle of the implementation period. Normally, this lasts 6-12 months.
Evaluation and selection
The selected system goes through a lengthy evaluation before selection. This tends to involve the initial ERP RFPs being issued, followed by assessing vendor. This process includes:
- The degree of the vanilla ERP product matches current business needs and the extent of customization needed. Emphasis is placed on how much modification the source code requires. Think about core modules, accounting, and management system hierarchies. These tend to be mission critical. It is important to get them right.
- The financial health and vendor commitment going forward. It is important your chosen vendor is in good shape and that you can rely on them for support and system updates. Background checks are necessary and possibly speaking to previous and current clients. Get references. It can’t be overstated how important your vendor will be throughout the implementation process.
- Clarification of license fees and related costs. These can escalate and it is important to have the full picture at the start. This avoids nasty surprises and explaining to shareholders why cash forecast projections are not quite as good as originally thought.
Once you have been through the options and assessed, you are ready to implement your new ERP. Ensure your ERP assessment team is robust. You want a mixture of end users, compliance, and maintenance staff to give you a full 360-degree picture on your future ERP.
ERP implementation and optimization
Initially, the system rollout will conjure its fair share of problems. There will be a lack of understanding and confusion among staff. Plenty of questions will arise. Teething problems will occur and the odd software bug may creep in.
Current workflows may have to change to fit the new system. This is an opportunity as much as it is a potential issue. You want better workflows, otherwise, you wouldn’t want a new ERP. But do be prepared for unanticipated disruption and have the right people standing by to resolve issues fast.
Source code modifications, if needed, are implemented and the whole system is tested to iron out issues. Eventually, the management system, core modules, and accounting starts working as it should do. The system starts to look like a viable investment. Ensure your vendor is here holding your hand. This greatly assists implementation and cuts down on lost productivity.
After staff training and a few calls to your vendor, you should have a fully working system within 6-12 months. From here on in your ERP will be underpinning your business.
It is a good idea to ensure your vendor is there to train your staff trainers and remain on hand throughout the training process. Something will crop up where they will be needed. You will be glad they stayed on hand.
This is a big change and so prepare for the worst. Good vendors, however, will make all the difference to how quickly and successfully the new system will be implemented.
The secret is perseverance and despite the teething problems, a good ERP will be more than worth the effort.
Ongoing maintenance will be necessary and vital to your business. Once your staff takes ownership of your ERP, new reports will need configuration as will further tweaks. Different workflows, tax localization will need implementation too as business needs change and or new laws need factoring in. Ideally, the system will facilitate this easily without having to call in specialist help.
It may not be simple, in which case you’ll need to modify the source code or bring in outside help.
Often, maintenance is in part covered by the service level agreement requiring a license fee paid to the vendor. If the ERP is particularly complicated, you may need third party vendors helping to maintain the system. This additional cost needs to be factored into your accounting system.
The more complicated your system, the more time will be needed to maintain it. It is prudent to avoid this scenario if possible. You don’t want the system offline when it could be up and running underpinning your business.
Take into account that the total cost of ownership can change as the license fee escalates at regular intervals. Try and ascertain what this looks like during the evaluation process.
Other aspects that come into play is adding new modules. Business intelligence and customer service modules are good examples of this. Often modules of this type are not considered important until later on when gaps appear in the workflow. Factoring this in at the evaluation process saves a lot of headaches. Again, source code modifications may be needed to get the new modules working correctly.
Accounting systems, new regulations, updates to the system and patches need implementation too. This can be problematic if customization was extensive.
If determined that retrofitting the modules is not time or cost effective, this could be a sign that the ERP system is reaching the end of its life.
At some point, it is going to be evident that the cost and time needed to maintain the system are too much. It becomes painfully clear the system no longer fills business requirements and complexities make continued maintenance unviable.
This takes the form of staff having to use an increasing number of workarounds. The system no longer talks to other systems you use, or new systems have to be introduced to compensate.
Whichever way this plays out, it is clear that the system no longer fulfills business needs and has to be replaced.
Renewing the ERP system
In many respects, this is similar to the initial rollout. The advantage here is that the business can learn from the first implementation. The experience of using an ERP system ensures that the initial vanilla assessments will be more suited to business needs.
This results in the system being more suitable to the business requiring less customization and, in turn, less maintenance.
This saves time and cost and frees up your staff to work on other projects. Implementation of the new systems should also be faster from a training and technical point of view.
It is prudent when assessing the viability of a vendor offering to take into account the maintenance factor. Being able to easily maintain the system prolongs the life of the ERP providing more ROI.
This should be part of an assessment of any ERP system and considered a mission-critical factor.
Given the importance of an ERP system, it is good practice to ensure the team that assesses your ERP comprises of end users, compliance, and maintenance teams.
Try and implement all modules at the start of the process. Think ahead and take a holistic view. It is easier to implement modules at the start than after rollout has occurred.
Given how licensing can become an issue it is important to clarify this aspect to avoid nasty cost surprises.
If you can get your ERP system choice right, you will have a system that improves workflow and increases ROI significantly.
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