John Burks, director of IT at A.C. Legg, a producer of food seasonings, recently made the potentially painful transition from a custom-built legacy software system, which had helped run the company for many years, to a newer, standardized ERP product. The previous system had been custom-programmed on an AS400, and "it had been changed so many times you couldn't really say what it was," Burks said.
Furthermore, the company's ERP system had to meet new food safety standards, some of which were required by changes in the Homeland Security program. "We had to be able to track everything," Burks said. "And our old system couldn't track anything."
But like many IT directors, Burks found the spectrum of ERP vendors and products daunting. He looked at some enterprise-oriented packaged ERP systems but was concerned about their cost and the amount of customization that would be needed for a deployment at A.C. Legg. Fortunately, a reference through another of the company's suppliers led to a call from a vendor that had a suite of applications for process manufacturers, including an ERP package that had a focus on the food and beverage industries. After viewing demos of the software, Burks was convinced he'd found a good fit.
Not all SMBs and midmarket organizations -- companies with fewer than 1,000 employees -- are so lucky. Even though they need ERP functionality just as much as enterprises do, these companies have a harder time fulfilling their requirements for an ERP package because they lack the IT resources of larger organizations.
That lack of leadership and vision for delineating the benefits of ERP is one of the biggest challenges for an SMB evaluating ERP packages, according to Karen Patterson, senior consultant with Revolution Group, a consulting company in Westerville, Ohio, which helps SMBs deploy ERP software. Furthermore, that challenge is often made more difficult, she said, because SMBs frequently do not have a dedicated CIO who can drive progress.
Christian Hesterman, a Gartner research director who focuses on the midmarket ERP arena, said that the biggest restriction facing midmarket ERP buyers is the limits of their own IT department (that is, assuming they even have an IT department). As a consequence, SMBs often try the shortcut of one-stop shopping: They buy as much as they can from one vendor or as few vendors as possible. Likewise, they typically can't afford a long selection process that involves decision-makers from several departments or lengthy market analysis. Instead, they're usually more comfortable working with a local partner, perhaps a consultant or systems integrator, often someone they have heard of through word of mouth. "Whatever [that partner] offers has a high likelihood of being bought," Hesterman said.
Unfortunately, he noted, that kind of decision-making process tends to preclude vendors that could be ideal for a given SMB. "When you talk about ERP, most people will mention SAP and Microsoft and just a few other players," he said. "But in fact there are hundreds of vendors, many of which have packages that can be a very good fit for SMBs in specific industries."
Furthermore, those vendor distinctions can be important. "In the past, SMBs might have been served well with a generic solution," Hesterman said. "But more and more, there is a competitive advantage in having specific industry support. Such support can not only reduce the need to customize an off-the-shelf ERP solution but can also provide access to de facto industry best practices that might be embedded or in some way part of the solution."
Are there dangers in buying from less-well-known companies? Companies do go out of business or get acquired, but Hesterman said that it is rare for a product to disappear completely as long as it has "a certain minimum number of users." If someone involved in procurement at an SMB or midmarket organization is really concerned about the long-term viability of a product, he should make a point of documenting the database structure or perhaps even obtaining copies of source code in order to be able to switch to another software product if that becomes necessary.
Another risk that SMBs face -- also related to their lack of IT resources -- is the tendency to simply go to the various departments in their company and assemble a wish list of features and functions, based on input from anyone and everyone. Hesterman recommends that SMBs instead "think about what makes them different, where they are strong, and where they need the most support to be competitive." That determination, he said, should drive the ERP selection process toward an optimal choice of product.
To cut to the chase, he said, the purchaser at any midmarket organization should focus on the fatal flaws: the six to 12 functions within the business that either need improvement or would damage operations if they failed to operate smoothly. The next thing to factor in, he said, is where the company wants to go. These are the things you should try to address with your ERP investment, in terms of selecting the appropriate modules, features and functionality.
According to Hesterman, SMBs should also avoid ERP software that requires any kind of complex integration tasks -- the type of requirement that might arise in building a best-of-breed solution from multiple point products. "You should look for broad solutions that serve most of your departments and functions," he said, "and then deal with any additional needs separately."
Perspective is important, according to Bob Parker, an analyst with Manufacturing Insights (a unit of IDC). According to Parker, a former CIO at a midmarket company, "in the old days, people like me identified [themselves] as either DEC shops or System 36 shops," noting that there is no similar kind of midmarket penetration by the largest ERP vendors today. "Many companies are still successfully running their business on legacy applications while others have selected a solution from a smaller ERP vendor," Parker said. His point is that ERP is important nowadays, but it may not represent the most crucial investment for midmarket companies.
"Everyone usually has some kind of ERP function -- it is no longer a big differentiator for the business," Parker said. Today, the differentiator is in the area of applications that can provide analytics, such as business intelligence packages.
Alan R. Earls is a freelance writer.