Part 2 of 3: Can your small company afford ERP? Can you afford not to invest?

This is the second of a 3-part series exploring the question many small companies ask themselves: Can we afford ERP?  If you missed Part 1, click here.

What is holding you back?

ERP often gets a bad rap. Many industry observers focus on failed and expensive implementations that never seem to end, thereby tending to scare small companies away. The goal of ERP is often cost savings, but you initially need to spend money (and time and effort) in order to save money. Focusing exclusively on the cost of ERP, even the Total Cost of Ownership (TCO), will not overcome the initial reluctance to invest. Instead, any company (large or small) investing in ERP needs to cost justify the expenditure by estimating the return on that investment, either in terms of dollars or time to recoup the initial investment, or both.  These savings can be as diverse as the companies themselves.

Often the timing of the investment can be critical. Undoubtedly, many small companies were reluctant to take on this type of project and fund this level of investment during the economic downturn. With revenues down or stagnated, they could potentially wait until better times were upon them. But now, as companies begin once again to develop growth strategies, further delay involves further risk. Waiting until you can’t operate effectively without it can spell disaster.

Why is now the time?

There has never been a better time to consider upgrading your technology. Whether your goal is to support anticipated growth or simply to work more efficiently and productively, several market factors converge to signal now is the time.

Price and Accessibility

First of all, prices have come down, making ERP more affordable than it has ever been. Not only has the price of entry come down, but the process of evaluating alternatives no longer needs to be as disruptive as it has been in years past. Online materials, testimonials and demos and even trial software make it much easier to perform some preliminary qualification through your own research before you ever make contact with a software solution provider.

More Innovation and Functionality

But don’t make the mistake of thinking you already know all there is to know about an ERP product based on web site tours and old or presumed knowledge. In the past several years many of the top ERP solutions have made enormous strides in terms of underlying technology and that technological infrastructure brings better ease of use, faster innovation and more features and functions. The “horizontal” core functionality of traditional ERP solutions has become more of a commodity. “Horizontal” implies features and functions any business requires. But you also may need industry specific “vertical” functionality which means all ERP solutions are not “one size fits all” applications.

When evaluating options look carefully to see how that added functionality is delivered. Unless you are looking at a very narrow, niche solution, it is highly likely to serve multiple industries. Look not only at features,  but also determine how your specific needs are met and whether this introduces an added level of complexity to the solution. This need not be the case. Many solutions today can be pre-configured with implementation templates and best practices. Look for role-based interfaces and configurable dashboards and navigation trees that can be tailored to individuals.

More Configurability, Less Customization

Even horizontal solutions today come with more tailor-ability and configurability. Solutions that may have required heavy customization to meet your needs just a few years ago have undergone major transformations that will help you transform your own business. In the past you may have had to choose between adapting your business processes to match the functionality of the software, and adapting the software to conform to your current practices. Today user interfaces can be tailored to roles and individual preferences and business rules can be established to customize work flows and processes without ever having to muck around in the underlying software code.

 This is an important characteristic, even if you do not require any specific customization today. In a world where nothing is constant but change, plan on your business needs changing over time.

Case in Point: Bamboo Pipeline

This was the case for Bamboo Pipeline, one of the largest suppliers of plants to landscape professionals in the western United States, delivering over 10,000 varieties of plants and trees along with a full range of other landscape materials directly to job sites, often within 24 hours.

The business was co-founded by Matthew Fay and Mike Cornell in 2000. From the very beginning the company had an IT infrastructure and an ERP solution borrowed from another business owned by one of the founders, but it was what Mike Cornell, Executive Vice President described as a “blue screen” character based system that couldn’t handle the growing velocity of transactions that accompanied the fast growth of the early years of the company.  Bamboo Pipeline’s revenues had doubled on average every two years, making it one of the fastest growing suppliers of landscape materials in the USA. Annual revenues increased from $5.7 million in 2004 to $11 million in 2006. Revenues were projected to be in excess of $15 million projected for 2007 when the company, poised for national expansion, decided to replace its legacy ERP.

Mike Cornell and his team selected SAP Business One to support this explosive growth saying, “Modern ERP systems for small companies provide a non-trivial step up in providing efficiencies. There are explicit and implicit economies which free you up for growth and help you absorb change. The economic argument for it initially was to anticipate growth and also to anticipate what we couldn’t anticipate. “

While Bamboo Pipeline realized 47% compounded annual growth up until 2008, nobody anticipated the effects of the housing bust that accompanied the financial crisis that occurred late that year.

“At that point the role of ERP changed. Instead of fueling growth it instead became a shock absorber.  Anyone in business long enough knows that growth and decline in revenue are relatively predictable through sound business management. But what you can’t predict can produce a very rapid discontinuity in your business – the housing decline, shortage of commodities, tsunamis, hurricanes, a spike in prices.

In the absence of a system that allows you to see changes in the business and respond with state of the art precision, it’s like playing the game with one hand tied behind your back.

 “We were in the midst of trying to manage change and a decline in revenue. However, because our technology platform was configurable and adaptable, we were able to very quickly add a whole new line of business. While in the past we had simply sold to landscapers, our new Plants Express business (www.plantsexpress.com) allows us to sell direct to consumers through a partnership with Home Depot. We started with an eight store pilot and now we are in 30 stores. This went from 0% to 30% of our business and we launched it with $0 investment in technology and one new employee. If we had needed to buy new technology we probably would not have been able to do it. Nobody was lending money. Having it in place allowed us to launch this new side of the business. It removed labor capacity as an obstacle and provided efficiency for bottom line survival.”

As a result, Bamboo Pipeline preserved revenues throughout the downturn in the economy but improved margins each year. “Our technology driven business model, enabled by our ERP solution, was a large contributing factor.  It is why we are still in the game. If you find yourself coming out of the downturn but are still gun shy, or perhaps thinking about growth and wondering if the investment will pencil, a well-executed ERP system provides a shock absorber for macro-economic issues out of your control. We are now back in growth mode and just hired seven new employees.”

Ease of Use

Another reason the time is right is improvement in ease of use, particularly in those ERP solutions designed with the small company in mind. In some cases the complexity inherent in applications designed for large multi-national companies has been removed. In other cases it has been masked, effectively shielding the small company from dealing with many of the decisions and features that are the exclusive domain of large enterprise. And in other cases, complexity was never built in.

The added ease of use can often be attributed to more intuitive interfaces. Many have the same familiar Microsoft Windows look and feel that we are all accustomed to today and are far more easily navigated than the hierarchical menu structure of years gone by. As a result, less training will be required in terms of use and navigation. But don’t neglect the evaluation of business processes. And don’t neglect process standardization and process improvement. ERP can be the vehicle by which you both standardize and improve. This is where training is still required, regardless of how easy software is to navigate.

Deployment Options

Worried about having to build an IT staff? Maybe you don’t need to. Today there are multiple options for deployment, as well as options for the ongoing care and feeding of an ERP solution. With choices comes the potential for confusion. It is important to understand these various options.

Terms such as software as a service (SaaS), on-demand, hosted, and cloud computing are often used interchangeably, and yet each has its own implications and some of these approaches can be co-mingled.

Software is typically not bought and sold; instead it is licensed for use. It may be licensed to be used by a company, on a particular computer or by other criteria such as number of users. When installed at the company’s site, it is generally referred to as “on-premise.” In this case an internal IT department might be responsible for supporting and maintaining the solution. However, even with on-premise environments, basic functions such as backup, security, operating system and even business application upgrades can be outsourced.

In a hosted environment, applications are licensed but are hosted by a third-party. This may be in a separate instance on a separate piece of hardware (dedicated to your company), or in a separate virtual instance (also dedicated to your company) where the application is housed on hardware shared by multiple companies. In this case little or no IT support is required at your own site.

In a SaaS or on-demand model the software itself is neither licensed nor owned by the end user company. The software is delivered as a service and is paid for through a subscription for the service provided. Generally speaking few or no technical resources are required at your own site. Cloud terminology is often intermingled with SaaS, but reference to the cloud simply refers to the operating environment and not how the software is bought or paid for.

To the non-technical ERP users the most important aspect is that they are able to connect to the application and its data from any computer with a browser. If in fact this is possible, often times the end user does not know, care or need to know which of these deployment models are actually being used to deliver the application.

A web-enabled user interface is now counted amongst the “basics” of ERP. It is the most versatile, eliminates the need to install and support software on laptops and other personal computers and allows a small company choice in how the software is deployed and paid for.

One more installment will follow. Click here  if you would like to download all three parts in one report. Note: registration is required.

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