Any growing manufacturing organisation may require digital technology, such as an ERP, to handle increasing business complexity. ERPs help enterprises unify and standardise disparate manufacturing aspects, such as production, logistics, procurement, and finance, resulting in facilitated management and improved business performance.
However, implementing manufacturing ERP is challenging and rarely goes smoothly. For example, some organisations significantly exceed the budgets and timeframes of their ERP projects. Others may adopt impractical or useless features, failing to bring real business value. All these scenarios reveal an ineffective ERP implementation process.
However, at Itransition, we believe that manufacturing organisations can avoid these and other ERP adoption challenges if they approach them correctly. This article specifies the main challenges of manufacturing ERP adoption and provides three tips to ensure project success.
The main challenges of implementing a manufacturing ERP
Here are some typical problems among ERP adopters in the manufacturing sector.
Exceeding ERP project budget and timeframe
According to the 2022 ERP report by Panorama Consulting, 41% of ERP projects exceed their initial budgets. At the same time, 36% of projects are completed later than expected. So, why does this happen?
In some cases, ERP adopters fail to estimate the scope of work, so it has to be scaled unexpectedly. In others, decision-makers choose irrelevant development tools, having to purchase different technologies right along the project. However, manufacturing organisations can avoid these issues with more careful estimating and planning.
Inability to achieve ERP project goals
Sometimes, an implemented manufacturing ERP fails to provide all the expected business benefits, negatively affecting the overall project ROI. According to the same Panorama report, 19% of adopters do not meet their expectations regarding the ERP implementation ROI in the short and long term.
Poor user adoption
The average cost per user is a vital price factor when developing or purchasing a manufacturing ERP. According to Software Path, the average cost per user for an enterprise-level ERP project is $9,000. Given the above, a manufacturer may waste tens or even hundreds of thousands of dollars if it fails to ensure smooth and successful user adoption.
How to ensure the success of manufacturing ERP adoption
By taking these three steps, manufacturers may mitigate most ERP adoption challenges and increase their chances of achieving business goals.
1. Conducting business analysis
An ERP project will only bring a positive outcome if a manufacturer understands its own business goals and requirements. Therefore, we recommend running a business analysis before starting a project.
In the ideal scenario, professional ERP experts with proven manufacturing industry experience should conduct business analysis. However, a manufacturer could try to initiate and run such an analysis with its own effort.
For instance, decision-makers can consult with corporate IT specialists and managers of production, logistics, and other departments, given that their work implies using an ERP. Here are examples of questions to consider during these consultations:
- What are our main pain points in terms of enterprise resource planning? How can an ERP help solve them?
- What aspects of our manufacturing process should we optimize with an ERP: inventory management, procurement, quality control, or else?
- How can we build ERP into our digital ecosystem? Should we integrate it with MES, SCM, CRM, or other corporate software?
- How can we ensure smooth user adoption among all our departments? What change management strategy can we implement?
- What budget should we allocate for an ERP project?
- Can we carry out the entire adoption process ourselves, or is it better to engage a third-party developer?
Answers to these and other questions may help establish a common understanding of a project’s goals in an enterprise. Also, it will come in handy in our next steps.
2. Defining the software requirements
After formulating business goals, it is time to define the requirements for the future ERP solution. Later, this will help a manufacturer determine and adopt a solution that best suits its particular business case. Here, we recommend considering the following parameters:
- Hosting type
Depending on its needs and available resources, a manufacturer may choose to host ERP on physical servers, in the cloud, or in a hybrid environment. In most cases, we recommend using the cloud, as the technology enables vertical or horizontal ERP scaling on demand.
We advise manufacturers to start with a minimum set of features. First, a large number of different features does not guarantee the value of an ERP by itself. In addition, it can make ERP development and adoption more risky and complicated.
To define which features have the most prominent value, manufacturers should consider those business aspects that should be improved foremost. For example, if an organization has problems with an inventory overstock, an inventory management feature may be more critical than a built-in CRM module.
Among other things, we recommend considering whether an ERP should be compatible with mobile devices. After all, this factor, like the ones listed above, may significantly affect the scale and cost of an ERP project.
3. Calculating adoption costs in advance
Now that a manufacturer has an established vision for its ERP software, it is time to calculate the cost of implementation. Giving advice here is not easy, as the price may depend on many factors.
However, ERP experts can help you make rough estimates and calculate a preliminary quote for your particular manufacturing project. Meanwhile, organisations can estimate at least an approximate cost of implementing ERP by calculating its total cost of ownership (TCO).
For instance, organisations can calculate the TCO of their ERPs by summing up the following expenses:
- Software deployment and hosting
- Hardware and licensing
- Developer team (in-house or outsourced)
- Support and maintenance
- Software modernisation
- User adoption and training
An increasing number of manufacturing organisations are considering adopting ERP to improve business efficiency and, as a result, foster growth. However, not all ERP projects are entirely successful. Some suffer from budget and time overruns, while others fail to meet the expected benefits.
Fortunately, with the right approach to ERP implementation, especially if guided by third-party experts, a manufacturer can avoid all the challenges and thus increase the chances of ERP project success. In particular, decision-makers can run a business analysis, clearly define the software requirements, and calculate the adoption costs in advance.
About the author
Roman Davydov is a Technology Observer at Itransition. With over four years of experience in the IT industry, Roman follows and analyses digital transformation trends to guide businesses in making informed software buying choices.