7 Ways to Save ERP Implementation Costs and Reduce Risks
I have been delivering ERP implementations for over 20 years. Until recently, most of them were Visual Manufacturing (now an Infor product) or Microsoft Dynamics NAV. During the time that I have been implementing ERP, many things have changed. The old “traditional” way was for very intense training sessions; following gaps to allow clients to “do their homework”; followed by more intense sessions.
This article is probably as much for my competitors as it is for any end user company that is interested in implementing ERP. This is the technique that we have developed. I help people who want to do this (as long as you choose a different target market) because I think the market is big enough for much, much more than just me.
It has been a major challenge for me to find a new way to do this kind of implementation. In particular, I have wanted to apply LEAN thinking and principles to ERP for many years. It has taken a long time, but I think we have created a new and better way to implement ERP.
My experience now is with Microsoft’s Dynamics 365 Business Central. I’m going to use that for most of my examples, but these approaches should work with just about any modern ERP. A cloud ERP system may be required, as there are some elements of it that work better because Business Central is cloud-based, but hopefully you can apply these methods to any system.
I have been able to refine and eliminate the waste of typical ERP implementations in such a way that I now exclusively use a flat fee for our Business Central projects. This is pretty radical. The methods I discuss below are the “secret sauce” that we have determined that make this work.
First, a little history.
Traditional ERP implementations
Traditional ERP implementations carry extremely high risk, both for the implementing partner and the customer. That’s why hardly anyone offers the elusive fixed fee. The risks are too great.
The costs of the old Dynamics NAV project were high because the legacy methods are expensive. The typical deployment follows a series of phases originally established by Microsoft in a cascading project framework. Cascading project management has been shown to be more expensive than the modern “agile” approach, which relies on LEAN techniques.
The approach that has been used by virtually everyone since ERP existed is to bill “Time and Material”. This means that clients pay for consultants’ time, no matter how good or bad they are. This shifts risk from the implementer to the client almost entirely.
The reality is that there are still massive risks to the partner with these cascading projects. I have seen MANY cases where partners were sued or threatened when these projects went very wrong.
I started thinking about how we needed to change this after reading a LinkedIn post that shared an article on why “Billing for time and material is unethical.” I was really impressed by the arguments. The author asked a question that I think summed it up fantastically well:
If a restaurant charged you for the time and supplies needed to cook your steak, how would you feel?
This probably sparked my first real thoughts on how to stop being a time and material business.
ERP costs are incredibly unpredictable
One of the first videos I uploaded to YouTube was my explanation of why the traditional costs of ERP implementations were outrageously inaccurate. I have spent the years since I discovered ways to eliminate that inaccuracy.
Obviously, the best way to give accurate estimates was by using a flat fee. The problem is that the traditional approach has a very high risk for the partner. Offering a flat rate is very scary. If you don’t do it right, you will have a lot of trouble. I have worked very hard to develop an approach that I think is unique.
Apply LEAN thinking to ERP implementations
There is a movement to apply LEAN thinking to service activities. In general, LEAN is about removing waste from a physical product, but it can also be applied to projects.
I came up with my own variations of waste in ERP projects.
First, there is time spent on the wrong resource.
Usually this happens when someone who costs too much does something that someone who is paid much less can do or can do it faster.
Second, there are unnecessary steps
I find this to happen when people take steps to “cover their butt”. Much of project management falls into this. It also happens when consultants (compensated for billed hours) push unnecessary work.
Third: there are wasted tasks
Sometimes clients want to do things that we, as ERP consultants, know will not work. In a traditional implementation we have no financial motivation to stop it.
Finally, there is a “hemorrhage” of knowledge
This is usually the responsibility of the customer. Usually this is when the customer does not remember their training because they do not spend enough time working on the system.
Why ERP Implementations Have to Change!
When we started doing cloud-based ERP implementations with Microsoft Dynamics NAV, it was common for customers to pay $ 100,000 for the software and $ 200,000 for its implementation.
Once you enter the world of the cloud, where Microsoft Business Central costs $ 100 per month per user, things change. It’s hard to tell a customer that they are going to spend $ 2,000 a month on software and still pay $ 200,000 for implementation.
So we did what our clients do. We set a price that we think the market would bear and we work backwards to control our internal costs and make money from it. Our clients are manufacturing companies. They need to estimate a cost and then stick to it. You can’t go to your client and say “we have to bill you more because we were inefficient in our production process.” They would leave the business overnight.
The new approach to ERP implementations.
I’m more of a manufacturing expert than a technology expert. Few manufacturing companies think in terms of projects with project managers (Engineer to Order is the exception). They generally think in terms of operations managers and standard work instructions.
I applied this thought to ERP projects. It helps that all we do is implement ERP for manufacturing companies.
These are the main steps that helped us dramatically reduce the risk (and costs) of ERP projects.
- We only do one type of projectFocusing exclusively on manufacturing, and small facilities, meant that we were able to refine and improve with each project. We consider the process as a repetitive and repeatable process. This eliminates the initial design of the project plan, etc. Project management disappears and we greatly reduce that waste.
- We compensate the easy but tedious work to the client.When a $ 200-an-hour consultant does what amounts to an administrative task, that’s a waste. We train clients to do some of the tedious tasks. It turns out that these are also made much better by the client. Business Central makes this much easier because it has great tools for end users to perform tasks that used to be difficult. There are 2 of these in particular that are key: reporting and data uploading.
- We train clients to edit formsCustomers know what they want their invoice to look like. They know where they want the expiration date on their purchase order. It is much easier if we teach them to change these things than to do it for them.
- We train clients to upload data to the system.Data upload is a task that we assign to a cooperative student after a few hours of training. The fact is, when customers “get” how this is done, they do a much better job cleaning their data, and things are going a lot better!
- We keep the training sessions shorter and video.People forget what they are taught. It is a fact of life. You have a lot on your plate. Also, the more time a person spends training, the more they “tune out” and begin to lose focus. We keep the training sessions short and record them all as videos. People absorb more and can easily review what they have forgotten. This means we absolutely must train remotely. Travel time is a killer (and a total waste), so we can’t travel.
- We keep the project tight and discourage change.Traditional ERP partners encourage additional work. Additional work means additional profit. Not for us. When we do a Business Central project, we discourage any change from the original project. Our projects are not very restrictive, but they limit the functions that we will implement in “Phase 1”. By sticking to the strict plan, there is much less “drag” and the boss is usually much happier.
We continue to bill customizations, but we also discourage them
Customizations are the only thing we can’t predict, so we also discourage them. Given this new model, we find that customers also ask for much less. They trust us more to know what we are doing. Occasionally a customization is a no-brainer, and in those cases we support and even encourage them. Still, we have less than half the customization that we used to have.
We do a lot of Business Central implementations, all in manufacturing. For our size, we probably do more than any other partner in North America. This has really helped us practice and perfect these steps. We were wrong in the first few, but we kept our appointments and lost our shirts. We have now refined the process to the point where virtually all clients provide us with a test (often in the form of video).
We hope this article can help you work with your ERP partner to find out how to save costs and improve the project. Even if you are a company that does a time and material project, many of these ideas can still be applied. Get ERP consultants to teach you how to edit reports and upload data. Avoid personalization. Insist on short training sessions and saved videos.
If you are a partner, feel free to steal these ideas. If you want to reach out and ask for advice, feel free to do so. We share these techniques openly and honestly. If you want to sell to manufacturers, you may have to buy me a beer or two.
We have been applying this approach to various industries.
With Business Central out of the box
Manufacturing work shop
Production Manufacturing (make-to-stock, make-to-order)
Engineer on demand
Project Manufacturing (a more integrated on-demand engineer)
With the PrintVIS MIS plugin
And it has worked very well. There are still areas to be resolved, but overall it has been amazingly successful.