Small to medium size (SMB) manufacturers and the ERP vendors that serve them have explored the concept of "ERP Light" for many years. However, the search for core ERP functionality not needed by small companies produces a relatively short list. A new report published by the Aberdeen Group confirmed small companies desire less complexity, yet they also require the same basic functions needed by larger companies. The Benchmarking ERP in SMB Report found SMB companies using a mere 6% less functionality than the average of 1,200 companies of all sizes.
Metrics reported give some indication ERP is generally doing the job it was meant to do for these companies. However, on average, the business benefits fell far short of Best in Class. And lacking size and scale, they pay more per user, per functionality used and per percentage point of average performance improvement.
Resources Are Limited
By definition small companies will have limited resources to devote to the implementation and maintenance of ERP. Fortunately, the price performance of ERP and the underlying infrastructure that supports it, including hardware, databases, and technology infrastructure, has improved steadily and significantly over the past two decades. In addition, new delivery models such as Software as a Service (SaaS) provide lower risk alternatives to major capital expenditures associated with acquiring and maintaining hardware. Solutions that were once beyond the reach of small companies are now well within their grasp.
Small companies achieve first "go live" milestones quickly but benefits gained are decidedly "average." Aberdeen compared time to implement across small, medium, and large companies. As might be expected, this time span grew with company size. A full 86% of small companies participating achieved this first "go live" milestone within the first year, as compared to 64% of mid-size companies and 47% of large companies. On the other end of the spectrum, none of the small company participants spent more than 2 years, but the same could not be said of mid-size (6%) and large (18%) enterprises.
While we find that small companies perform better than average, generally speaking they are what Aberdeen considers Industry Average and definitely not Best in Class. However, Aberdeen did find Best in Class performers across the full spectrum of company size, proving that true value can be achieved from ERP by companies of any size, large, medium, or small.
Need for Change of Focus
However, we also found that these small companies tend to measure success more by price and speed of the implementation rather than the business benefits derived. By placing emphasis on the cost of software and services over process and cost savings, they don''t achieve the full potential of business benefits. By focusing on speed, they can fall into the trap of sacrificing fit and functionality. They get up and running faster, and then stop short of maximizing the full potential.
This demonstrates a certain level of short-sightedness and requires a change in focus. This conclusion is further reinforced in noting that in spite of the relative "newness" of ERP implementations compared to other segments of the market, a surprising 9% indicated an ERP replacement strategy. While consolidation strategies drive the majority of this activity in other market segments, smaller companies are much more likely to be driven to this course of action by the need for more functionality than is available in their current solution
While time to implement or dollars spent are both contributing factors, Aberdeen views the value that ERP brings to the business as the most important element of success.
Aberdeen strongly recommends that small companies aggressively push beyond the limits of current implementations for added benefits and lower total cost of ownership. Where ERP has yet to be implemented, price performance of hardware and alternate delivery models such as SaaS are removing barriers of entry and making ERP well within the grasp of any company intent on establishing and maintaining a market presence or seeking a competitive edge.
Some additional recommendations:
- Set goals for your ERP implementation. Many fall short of Best in Class status because performance metrics are not established.
- Seek to automate previously manual-intensive and spreadsheet based processes. Expand your implementation to include all fundamental basics of your business.
- Don''t fall into the trap of believing an ERP implementation is ever completely done.
About the Author
Cindy Jutras is vice president of manufacturing research and service director for AberdeenGroup. In this role Cindy oversees all research programs, products and services, related to Manufacturing and ERP. Prior to joining AberdeenGroup, Cindy was a Senior Director at SSA Global and Vice President of Product Strategy for interBiz, a division of Computer Associates. She has also led manufacturing consulting groups and held a variety of positions in software design and development, project and general management for manufacturing, consulting and software companies. Cindy is the author of the original supply chain concept, Virtually Vertical Manufacturing, as well as the book ERP Optimization.