7 Ways to Save ERP Implementation Costs and Reduce Risks

I have been delivering ERP implementations for over 20 years. Until recently, most of these were either Visual Manufacturing (now an Infor product) or Microsoft Dynamics NAV. During the time that I’ve been implementing ERP a lot of things have changed. The old “traditional” way was for very intense training sessions; following by gaps to […]

7 Ways to Save ERP Implementation Costs and Reduce Risks

I have been delivering ERP implementations for over 20 years. Until recently, most of these were either Visual Manufacturing (now an Infor product) or Microsoft Dynamics NAV. During the time that I’ve been implementing ERP a lot of things have changed. The old “traditional” way was for very intense training sessions; following by gaps to let customers “do 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’ve developed. I help people who want to do this (so long as you pick a different target market) because I believe the market is big enough for way, way more than just me.

It has been a significant challenge for me to figure out 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 lot of time but I believe we have created a new and better way to deploy an ERP.

My expertise now is with Dynamics 365 Business Central from Microsoft. I’m going to use that for most of my examples, but these approaches should work with almost any modern ERP. It may be that a cloud ERP system would be required, as there are some elements of this that work best because Business Central is cloud based, but hopefully you can apply these methods to any system.

I’ve been able to refine and remove the waste of typical ERP implementations in such a way that now use exclusively a fixed fee for our Business Central projects. This is pretty radical. The methods I discuss below are the “secret sauce” that we’ve determined make this work.

First a bit of background.

Traditional ERP Implementations

Traditional ERP implementations are extremely high risk, for both the partner deploying them and for the customer. This is why almost nobody offers the elusive fixed fee. The risks are just too much.

The old Dynamics NAV project costs were high because legacy methods are expensive. The typical implementation follows a number of phases originally set out by Microsoft in a waterfall project framework. Waterfall project management has been proven to be more costly than the modern “agile” approach, which is based on LEAN techniques.

The approach that has been used by virtually everyone since ERP has existed is to bill “Time and Material.” This means that customers pay for the time spent by consultants, nomatter how good or bad they are. This moves the risk from the implentor to the customer almost entirely.

The reality is that there are still massive risks for the partner with these waterfall projects. I’ve seen MANY cases where partners were sued or threatened when these projects go very badly.

I started thinking about how we needed to change this after reading a LinkedIn post that shared an article on why “Time and Material Billing is Unethical.” I was really struck 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 material that it took to cook your steak, how would you feel?

This probably sparked my first real thoughts about how to stop being a time and material business.

ERP Costs are incredibly unpredictable

One of the first videos that I uploaded to YouTube was my explanation of why traditional costing of ERP implementations was outrageously inaccurate. I’ve spent the years since figuring out ways to remove that inaccuracy.

Obviously the best way to give accurate estimates was to be fixed fee. The trouble is that traditional approach is so high risk for the partner. It makes it really scary to offer a fixed fee. if you don’t do it right, you’re in a lot of trouble. I have worked very hard to develop an approach that I think is unique.

Applying 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 be applied to projects too.

I came up with my own variations of waste in ERP projects.

First – there is time spent by the wrong resource.

This is typically 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 happens when people perform steps to “cover their butts.” A lot of project management falls into this. It also happens when consultants (compensated on hours billed) push unnecessary work.

Third – there are wasted tasks

Sometimes customers want to do things that we, as ERP consultants, know won’t work. In a traditional implementation we have no economic motivation to stop it.

Lastly – there is a “bleed” of knowledge

This is usually on the customer. Typically it’s when the customer doesn’t remember their training because they don’t spend time working in the system enough.

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 pay $200,000 for their implementation.

Once you enter the world of the cloud, where Microsoft Business Central is $100 per month per user, things change. It’s hart to tell a customer they are going to spend $2000 a month for software and still pay $200,000 for implementation.

So we did what our customers do. We set a price we thought the market would support, and we worked backwards to control our internal costs and make money doing that. Our customers are manufacturing companies. They need to estimate a cost, and then stick to it. They can’t go to their customer and say “we need to bill you more because we were inefficient in our production process.” They would go out of business over night.

The new approach to ERP implentations.

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 usually think in terms of operations managers and standard work instructions.

I applied this thinking to ERP projects. It helps that all we do is implement ERP for manufacturing companies.

Here’s are the main steps that helped us dramatically reduce the risk (and costs) of ERP projects.

  1. We just do one kind of projectFocusing exclusively on manufacturing, and in small facilities, meant that we could refine and get better with each project. We look at the process as a repetitive, repetable process. This gets rid of the up front design of the project plan etc. The project management goes away, and we reduce that waste enormously.
  2. We offset easy but tedious work to the customerWhen a $200 per hour consultant does what amounts to a clerical task, that is waste. We train the customers to do some of the tedious tasks. It turns out that these are also much better done by the customer. Business Central makes a lot of this easier because it has great tools for end users to do tasks that used to be hard. There are 2 of these in particular that are key: Reports and Data Loading
  3. We train customers to edit formsCustomers know what they want their invoice to look like. They know where they want the due date on their PO. It is way easier if we teach them to change these things than do it for them.
  4. We train customers to load data into the systemData loading is a task we assign to a co-op student after a few hours training. The fact is, when customers “get” how this is done – they do a far better job cleaning their data and things go much smoother!
  5. We keep training sessions shorter and VideoPeople forget what they are taught. It’s a fact of life. You have a lot on your plate. Also, the longer a person spends in training – the more they “zone out” and begin to lose focus. We keep training sessions short, and record all of them as videos. People absorb more and can easily review what they’ve forgotten. This means we absolutely must train remotely. Travel time is a killer (and totally waste)- so we can’t travel.
  6. We keep the project tight, and discourage changeTraditional ERP partners encourage extra work. Extra work means extra profit. Not for us. When we do a Business Central project, we discourage any changes from the original project. Our projects aren’t super restrictive – but they do limit the features we will implement in “Phase 1.” By keeping the plan tight, there is a lot less “creep” and the boss is usually much happier.
  7. We still bill for customizations, but discourage them too Customizations are the one thing we can’t predict – so we also discourage them. Given this new model, we find customers ask for a lot fewer also. They trust us more to know what we are doing. Occasionally a customization is just a no-brainer, and in those cases we support and even encourage them. Even so – we have less than half the customization we used to.

Conclusion

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 got the first few wrong, but we honored our quotes and lost our shirts. Now we’ve refined the process to the point where virtually every customer is giving us a testimonal (often as a video).

Hopefully this article can help you work with your ERP partner to figure out how to save costs and improve the project. Even if you are a company doing a time and material project, many of these ideas can still be applied. Get the ERP consultants to teach you to edit reports and load data. Avoid customization. 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. We share these techniques openly and honestly. If you want to sell to manufacturers, maybe you will have to buy me a beer or two.

We’ve been doing this approach for a number of industries.

With out of the box Business Central

  • Job Shop Manufacturing
  • Production Manufacturing (make to stock, make to order)
  • Engineer to Order
  • Project Manufacturing (a more integrated Engineer to Order)

With the PrintVIS MIS Addon

  • Commercial Print
  • Flexible Packaging
  • Folding Carton
  • Label Manufacturing

And it’s been working great. There are still areas we need to figure out, but overall it has been amazingly successful.

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