Many
business executives and IT managers rely on prepackaged enterprise
resource planning (ERP) solutions for all aspects of their
businesses from manufacturing to accounting. The philosophy behind
many ERP systems is that a suite of software tools can quickly
integrate all areas of business administration. Major vendors such
as SAP,
Oracle, and
PeopleSoft offer integrated
tools for the task.
While many businesses choose one of these off-the-shelf ERP
solutions, there are advantages to building an ERP application
in-house. Often, businesses prefer to have in-depth institutional
knowledge of how these systems work and how they interface with the
various business areas. Managers faced with evaluating any
enterprise-wide IT system must make the build vs. buy decision early
in the process. This article will give an overview of key issues IT
managers face when considering an ERP solution.
First of three parts
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This is the first article in a series on
factors to consider when selecting an ERP system for your
organization. The second installment will discuss the "human
costs" for packaged ERP software implementation, and the third
will cover strategies for evaluating ERP systems.
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Ask these questions before
deciding to build or buy
While it is typically faster to install a packaged ERP suite than it
is to build one from scratch, the required time investment depends
mainly on the level of customization your company needs and the
amount of data you have to migrate. For many organizations, the
considerations that influence the build-or-buy decision include the
following questions:
- Is your company willing to change the way it does business to
accommodate the software?
- Do you anticipate many changes as the business grows?
- Do business functions provide a competitive advantage?
Is your company willing to change the way
it does business?
The argument for packaged solutions: For many managers,
suggesting that their employees change the way that they work to
accommodate a software package is a ludicrous idea. However, many
large companies are changing their business practices to be able to
use ERP packages. Why would a company be willing to do this?
Customization to prewritten ERP packages can be expensive,
especially when software is upgraded. A company may also decide that
there is little harm in changing business practices in routine areas
that don't provide a competitive advantage.
The argument for custom solutions: The custom solution is
designed with your organization in mind so that it's less likely
your business processes will have to change to fit the ERP solution.
The costs to customize vendor packages are high—an expense that
might be avoided with a custom solution.
Do you anticipate many changes as the
business grows?
Packaged: As business requirements evolve and as the business
grows, more changes to the ERP package will be needed. Although both
customized solutions and ERP packages are often very difficult to
extend into new business functionalities, the packaged ERP suites
excel in their ability to change and grow with the business, a
flexibility advantage that is often touted by vendors.
Custom: Although a packaged ERP solution may be better at
adapting to changing business requirements, you need to determine if
this flexibility is worth the cost. Your organization may not make
fundamental changes in the future. For example, basic business
processes such as accounting finance and general ledger will seldom
undergo radical changes. Therefore your organization may discover
that a custom solution is adequate.
Which business functions provide a
competitive advantage?
Packaged: If your organization does not have a clear
competitive advantage from your ordinary business systems, an
off-the-shelf solution can offer the greatest benefit because a
packaged solution can be used right out of the box and requires very
little IT overhead.
Custom: Are there features within your ERP application suite
that may give you an edge over your competition? For example, if
your company's order processing ability gives you a competitive edge
over the other vendors, it would be foolish to install an
off-the-shelf order processing solution.
In cases where legitimate competitive advantages exist within the
main business functions, it can be suicide to customize
off-the-shelf ERP packages to maintain business methods. The cost of
upgrades of these systems can often reach tens of millions of
dollars when the application code has been customized.
Making the choice
If you build your own ERP solution, you benefit from customization,
but that advantage comes at the expense of high development and
maintenance costs. Packaged solutions are fully supported, but they
may not always be an exact fit for your organization. To make the
best choice, weigh the top considerations of your business against
the advantages of each type of system.
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