Four Problems with ERP

Recently, a company asked us to do an evaluation of its ERP system. Users had become increasingly unhappy with the system, and management wanted an independent assessment to determine whether they had chosen the wrong system.

After a couple of weeks of interviewing users and studying the many complaints about the system, we sat down and analyzed the causes of each problem. In the past I have found it most helpful to group ERP problems into four categories.

1. You’ve got a bad system. This category includes lack of needed ERP functionality, system performance problems, lack of scalability, system bugs, and ERP processes that don’t match business processes. For example, the system might lock up whenever two users attempt to update the same customer master record. Or, the company might be a process industry manufacturer that is trying to use a package that was developed for discrete manufacturing. These problems are usually quite easy to spot. But although they can be serious, they do not always mean you’ll need to replace the system. Sometimes a software or hardware upgrade will do the trick, or a customization may be possible.
2. You’ve got a good system, but you set it up incorrectly. These problems include incorrect configuration settings and other problems with how the implementation was performed. For example, users might be complaining that product costs are not accurate, but the company has not set up the system with cost elements that are detailed enough. Or, users might be complaining that inventory counts are inaccurate, but the system has been set up with one big “four wall” inventory bucket, instead of bin location level tracking.
3. You’ve got a good system, but you aren’t using it. Examples could be that the original implementation was incomplete, or that the implementation was broken into phases and Phase II was never started. Other times, the problem is ignorance. It’s surprising how often companies don’t know what features they have in the software they already own. I have seen companies buy additional point solutions, or modify their systems, all the while their original system could have provided the same functionality, if they had just looked for it.
4. You’ve got a good system, but you’re using it ineffectively. In this category, I lump together all kinds of problems with business practices, such as data inaccuracy, lack of user procedures, lack of training, lack of discipline, and organizational problems. The system never has a chance to perform well, because the business is not using it effectively.

Back to my client. When we looked at this company’s problems, we found that out of 15 major problem areas, the breakdown by category was as follows. (Most problems had multiple factors, so the total adds up to more than 100%):

As can be seen in this company, only 27% of the problem areas involved problems with the ERP system directly. The bulk of the problems were simply that the company was not using the system. For example, users had come to the belief that the system was mainly an accounting system, that it had been selected by the accountants, and that it was not a good manufacturing system. However, a quick look indicated that most of the manufacturing functionality had not been implemented! Ironically, the system had been originally selected because of its strength in the type of manufacturing that this company does, not because of its accounting functionality. In fact, as an accounting system I would rate this ERP package as just average.

How did the company get into this position? In this case, it was due to the fact that shortly after the system was selected the company entered into a period of severe financial difficulty, causing them to short-cut the implementation. Many system features were simply never implemented. Now, several years later, as the company is in a stronger financial condition and growing, new employees are surprised to see how poorly the system supports the business. So, their first inclination is to say that “the system stinks” (or, something to that effect). But as we just saw, the main problem is that the original implementation was never finished.

As a result of our assessment, the company has now launched a series of projects to finish the implementation and get the benefits from the system that they already have.

ERP systems are an easy target for blame. Executives would do well not to let users take the easy excuse that “the system” is the problem but look at all the factors that are required to make ERP effective.

May 2004