Episode 25: All Things ERP - Part 1
Enterprise resource planning software (ERP) is one of the largest enterprise application categories in existence because an ERP helps businesses manage day-to-day activities from a single database.
Two of OST’s resident ERP experts John Vancil and Dave Trayers discuss all things ERP in our two-part ERP series. This first installment features an overview of ERP systems and how we help companies select the right ERP solution.
The second installment focuses on tips for implementation and common pitfalls to avoid.
Andrew Powell: Hey everybody. Here’s hoping you’re holding up well. Before we found ourselves in the grip of a global pandemic, OST’s resident ERP experts, John Vancil and Dave Trayers recorded this two-part installment on ERP. In the first segment, John and Dave discussed selecting the right ERP solution for your business. Then in part two, they’ll break down tips for implementation, and discuss common pitfalls. Stay safe and enjoy.
John: Hi, Dave.
Dave Trayers: Hi, John. Well, it’s good to see you again.
John: Yeah. You, too. Been a while.
Dave: You come and visit us from Minneapolis sometimes, and you walk in the office, and your smiling face is just good.
John: Yeah. It’s better than the sun.
Dave: Yeah, absolutely.
John: So, we are going to talk about ERP today. Enterprise Resource Planning.
Dave: That’s right.
John: And maybe, we’ll start off a little bit with — why don’t you tell us about yourself a little bit, and where you’re from and what you do all at OST?
Dave: Sure. I’ve been with OST, coming up on five years. Prior to that, I was with a manufacturing company in Minnesota, and I’m, you know, as you said I’m based in the Minneapolis office. And we ran what was known as Bond. Now, in InforLN, and spent 15 years managing that ERP application. And prior to that, my career was in manufacturing, so it was kind of a natural fit how I, it’s a long story, how I kind of fell into doing the ERP work, but that’s ultimately where I ended up.
John: And we only have a half-hour podcast.
Dave: Exactly. Yeah.
John: Well, you know, at OST, one of the things we do is that we help companies with their ERP systems. We help them to implement or to migrate an ERP system. And in fact, OST’s roots all the way back to this right to the start are — in ERP, and a lot of people don’t know this, but OST started providing the infrastructure for ERP implementations around the Bond ERP system.
Dave: Yeah. And that was the ironic thing about me joining OST, when I started my career as a Bond consultant. It was actually alongside OST. So, the leaders of OST today, Meredith Bronk, she was the managing consultant.
Dave: And Jim VanderMey was putting in the hardware.
Dave: And Meredith’s husband, Kipp, he was doing the DBA install. And so, here it is what was it, 15 years later and I’m–
John: More than that, like 20 years.
Dave: Yeah. We are getting the band back together.
John: Right. Yeah. That’s interesting. So–
Dave: And you’re no stranger to ERP.
John: I’m not a stranger to ERP, you know, I’ve been at OST for 10 years now. And prior to that, I was a client of OST’s been running a bond shop. So, I was at a local furniture manufacturer here in Grand Rapids. So, I also have a long background probably in the neighborhood of 22 or 23 years at this point with ERP systems. It has been interesting.
Yeah. So, let’s talk a little bit about ERP, and maybe for those folks who aren’t really sure what we mean when we say ERP or Enterprise Resource Planning system, talk a little bit about what that means. What is it? Give us a little definition?
Dave: Yeah. And you know, my experience has been in again working with manufacturing, I think ERP is a natural outgrowth of what was known as MRP, and you still hear that term, the Material Resource Planning.
Dave: Which is focused on: what do I need to buy or make, and so forth? And I think when that evolved to include more than just material planning, and it started to do financials, and your AP and AR, inventory management, order management. I think maybe they were looking for a name for it, and said, “Well, this is the whole enterprise. So, we’ll call it enterprise resource planning”. And it’s what — it’s the software that runs the company.
John: Order to cash, right.
Dave: Exactly. And when you talk MRP, and I know the classic, right. You talk about MRP, you have an item you’re going to manufacture, and you have the pieces you need to manufacture it. And of course, they start in a raw form, and they end up in a more finished form. So, how much do we need? When do we need it? Where do we order it from? When does it join into our manufacturing process? That’s what we are talking about with MRP, right?
John: That’s right. Exactly. And you know, if you’re a small manufacturer, maybe you can get by with doing that by hand or using, you know, white boards, and things like that, but when you have multiple products and multiple production lines and all sorts of orders and millions in inventory, you need a computer system like an ERP system to manage a—although, you and I have seen some companies that have that — trying to use that white board and a spreadsheet.
Dave: Yeah. That’s right. That’s right.
John: So, what are the major parts of an ERP system if I’m talking about something like, for instance, InforLN?
Dave: Yeah. So—And then, we can talk, I guess, to that because that’s primarily the ERP system that we work in, and there’s various modules and functionalities for different aspects of the business. And so, like we alluded to, there’s material planning which is a whole module unto itself. What do I need? When do I need it? There’s financial aspects, so your general ledger, you know, accounts payable, accounts receivable, managing cash. All of those are modules and aspects of the ERP — inventory management. How much do I have? Where do I have it? Order management, sales orders, purchase orders. There are even modules for Human Resource Management.
So, hours and things like that, and different ERPs, have different strengths in different areas, and some are more focused, and maybe just for smaller manufacturers, and others for like the LN product that we work with is well-suited for large multinational, multi-site, manufacturers. Companies like Boeing use LN and other large manufacturers.
John: So, the size of the company, the complexity of the company, the type of manufacturing that they do, do those all matter as to what ERP system you might implement?
Dave: Yeah. Exactly. All of those are aspects you have to take into account, and so, for a company that’s looking to either upgrade their ERP, moving to something different because they’ve outgrown what they have. A lot of small companies–you may start with something simple. Something like QuickBooks for just their financials, but maybe they may manage a lot in spreadsheets. They get to a point where they need something more sophisticated, and they have to then use for — they may consider an ERP. And there are all sorts of flavors, as you know, and I think you’ve actually done some selections and, you know, what’s out there? There are little niche products and there are the big ones that everyone has heard of—things like SAP and Oracle.
John: Right. And I have done some selections and led some selection studies, and I think in a minute, I would like to talk a little bit about that and some important things for a company to think about.
Before we get there, the one other thing that I was curious about is: we keep hearing, you know, this idea of the cloud and we know that, you know, the cloud is providing us with more ubiquitous computing platform that’s available anywhere, anytime, and our ERP systems — do they use the cloud or are they still installed on the server over in the corner?
Dave: Yeah. And that has become the new — the direction where a lot of companies are going moving their ERP to the cloud. There was a concern, like a lot of cloud applications, I think for security and accessibility and that type of thing, and then a lot of that has been addressed. And not just for ERP, but all sorts of Cloud applications, and we are seeing that today. All the major ERP providers are offering cloud solutions. And many of the niche ERPs actually have spun up by Cloud.
The benefits for Cloud, you know, from an organization’s point of view is they don’t need that infrastructure. They don’t need servers, they don’t need the people to manage them, the databases, and so forth. Think about it from the other end, if you’re a developer of an ERP product, it’s a lot easier for you to try to break in if you actually start in the cloud. You don’t need to have an architecture of various hardware and various databases and things to support.
Dave: So, for some cases, that legacy is good. And other companies moving to the cloud is a natural fit because they don’t have any baggage that they’re trying to move.
John: Right. And we know some companies are born in the cloud these days.
John: You know, as startups they won’t install software that’s not in the cloud.
John: I know you mentioned security, and that was a big impediment to people moving to the cloud for a long time. I recently heard somebody describe it and went in a way that I thought it made sense — it resonated with me. The current state of security in the cloud, they said, “You know, these companies have built these clouds, they can afford a lot of really smart people in the security space that we can’t afford in our own individual companies, and why would we think that they can do a better job of security than we can do inside of our own walls?” And I thought, you know, that kind of makes sense.
It’s always a little scary. It’s somebody else’s, you know, thing that they own, that you’re using, but it made sense to me.
Dave: Right. And there’s still a — some education, some comfort that people need their — especially if smaller organizations can be suspicious for not being able to look in the back room and see their server, to wonder about — well, it’s out there. I don’t control it, and the irony is it’s probably more vulnerable when it’s inside their four walls than when it’s out in the cloud. But getting them comfortable with that idea I think is — and it’s not unique to ERP, it’s cloud computing in general.
Dave: Getting people to pass those suspicions.
John: And I think — and you mentioned small companies, and I think that’s true, and I think that oftentimes, it’s a lack of experience within the company that provides that concern. You know, a larger company has a lot more experience that they have, you know, been pieces of the company out in the cloud and–
John: And you know that opportunity to work there for a little bit.
Dave: Exactly. But one last thought on the cloud. And again, it’s where companies need to get comfortable with it. When you have an ERP system, or so, we just say, an application on premise, in-house, the ability for you to customize and change and tune it to work to your needs is a lot easier than when you’re on a cloud application. In the early days of cloud applications, you could not do any of that. What we are seeing these days is it has been — that has been recognized by the manufacturers by the vendors of these ERP solutions, and they’re providing the ability to tune and tailor the application to work to the specific needs of the company.
But that has also been a hindrance to people here. While it goes to the cloud, I can’t customize it anymore. I have to have it the same as everyone else, and I can’t live with a generic bit of software.
John: But really, I mean, that’s actually a good thing, right, because we know — we’ve seen it so many times that companies that highly customize an ERP system, they’ve really created themselves a big pile of technical debt.
John: Right. And that technical debt, it costs a lot of money to dig out from under that, and eventually, you’re going to have to go to a new ERP or a different one, and then you have to redo all that, or get rid of it. And so, it’s actually, in some ways, it’s good.
Dave: It is good.
John: That you’re kept from customizing and use the term extend–
John: And that really describes it better than customi—you’re not writing your own programs anymore, you’re building things on top of what the ERP software manufacturers provided, you know.
Dave: And so, there are two points there. The first is that the software manufacturer has recognized the need to be able to provide. I’m using your quotes “customizations” with what many call extensions. So, that way they can tailor the functionality without actually making it custom, so it can still be upgraded and so forth.
The other thing that that provides is that you don’t need a programmer per se, who really understands the code to go and make these changes. It used to be in the old days, if you needed another field to describe your part number, some attribute that you wanted, it took a programmer to actually go in there and modify the database and do all of that. These days, it’s less technical to go in and add what some call the customer defined field, and it can be done almost as fast as I just described it. And that’s really empowering for organizations to be able to have that control back.
John: I agree. Look at us talking about the old days. I did not really think I would be talking about the old days.
Dave: I’m glad this is a podcast and you can’t see the gray hair.
John: So, if ERP systems are different based upon the type of manufacturing you d, process discrete, that sort of thing, the size of your company, clearly then, you know, at some point, if you’re going to implement an ERP system, you have to choose one.
John: And you mentioned before that I had done some implementation studies and I have both here at OST and before. And so, I thought maybe I would talk just a little bit about some things that are — to me, front of mind, when I help somebody to select an ERP system.
Dave: Front of mind.
John: Front of mind. Front of my mind.
Dave: Oh, I see.
John: First and foremost, and I think this actually applies to any enterprise software that you’re going to implement. So, important that you have executive buy-in and support for a project. The executives have got to think that this is important and be willing to put their weight behind. Don’t you agree?
Dave: Yes. I do. And the irony is that many times, it’s the users and supervisors and so forth, the people who interact with the system on a day-to-day basis, they’re the ones that see the need. But that’s not sufficient, if you don’t have buy-in from the top.
John: Right. And the investment that’s required because it’s not a light investment to bring in an ERP system.
Dave: What is the typical time that we’ve seen for — to do an upgrade or implement an ERP?
John: Oh, my gosh. Depends on the size of the company by months–
John: A focused effort. So, once you have executive support and you have a decision from the company to drive forward, then you have to figure out what’s out there on the market, and then you have to map that to what your needs are. So, logically, working backwards, one of the things that we always focus on is okay, what are the needs of the company? We will do a gap analysis and we’ll ask a lot of questions. Where are the holes? What are the things that cause you difficulties in your day-to-day? Where are the communication gaps? Where are the things that can be helped? And we’ll build a whole analysis really — a gap analysis and use that to develop what the requirements would be for an ERP system before we’ll even go and look for an ERP system.
John: And then, we have to make that decision to RFP or not.
John: How do you feel about RFPs, Dave?
Dave: Yeah. That’s the bane — having an RFP, you’re dealing with procurement.
John: Typically, right. That’s an instrument of procurement.
Dave: Yeah. You know, it is–
John: Not that there’s anything wrong with procurement, but the folks of procurement really don’t know all the details of what they’re being asked to buy, right?
Dave: The problem I see with an RFP is that it really takes the ability away from the different software vendors to talk about what makes them different. Because an RFP basically makes them all the same.
John: Here’s everything–
Dave: Exactly, right. Here’s everything I want you to show me, and there’s no room — in the RFPs I’ve seen, there’s very little room to say, “Yes, but we are — we do it better or it’s different, and so forth. Let me show you some other functionalities.” Because it can be very narrow and focused.
John: So, then that drives your decision to yes’s and no’s, whether something has some functionality or does not, and price.
John: So, you lose all of the nuances around capability, lose all the nuances around the experience of the people who are going to implement, their approach, all that’s gone, right?
Dave: Right. Some of the best that I’ve seen has been when the software vendor is able to take information from the prospective client, you know, some of their data, some of their actual scenarios, and show—this is how our system will address these things in the advantages that you will get from that.
John: Yeah. That is exactly the way that I always try to approach one of these is that when we’re going to have demonstrations we want the vendors or the people who write the software, we want them to do demonstrations with our data and with our processes. So, we always develop these day-in-the-life scripts, and the data behind them and give them to the vendors. Because the vendors will come in and they have pre-prepared scripts and demonstrations already, and you can be a furniture company who makes things out of wood, and the demonstration from the ERP company will be of a disk drive manufacturer, you know, out west some place. And it does not map to your business at all.
Now, the vendors don’t always really like to see us coming when we’re asking them to do these demonstrations based on data in our process, but I think it’s really important.
Dave: But it’s also very telling if a software vendor is like, “Yes. Give me your data and I can spool something up and give you a demo”. That’s telling you how easy it is to work with their software. If they can pivot and say, “Oh, you’re a furniture manufacturer dealing with wood. Oh, sure. I can work in that realm”. That’s something good. That software may have an advantage over somebody else, that’s all. We might need a couple months to set something up.
Dave: You know. So, how does — if so, you know, even though the demonstration, how does a prospective client evaluate, you know, this versus that? And is there a financial aspect to that?
John: Well, sure. There’s going to be a financial aspect for certain, you know, there’s going to be a budget going in, hopefully. Hopefully, people have talked about what they want to invest in this, and hopefully, they’ve remembered that the budget isn’t just for buying the software and the licenses and that because there’s an implementation cost and consulting costs that are going to be on top of that, you know–
Dave: Both internal and external.
Dave: Many times, they think about the external — the consultants. What about the internal resources — my key individuals that I need to participate on this project?
John: Probably the biggest impediment that I’ve seen in my time to a smooth implementation or big migration from ERP is the fact that companies will try to just add the implementation on top of what employees are already doing. And they’ll say, “Oh, you know, you can have a friend of my best, and so I can’t give them to you full time, but you can — for two hours a week. And it’s impossible to do it in any way that is reasonable or effective, when you do that. You need to focus team. And that does mean, sometimes, you taking your absolute best people away from running the business to implement the software, but if you try and do it without that investment and without that focus, it can be a real struggle.
Dave: That’s right.
John: Yeah. We have seen that a few times.
Dave: We have. And it’s frustrating for everyone and especially for, you know, the users themselves, because we aren’t making progress, or there — sometimes it’s the stick method from management. You need to be there and do all of this ERP implementation stuff, and you need to do your day job.
Dave: Right. Yeah. There’s 24 hours in a day, and if that’s not enough for you, you can work at night too.
John: That’s right.
Lizzie Williams: OST, changing how the world connects together. For more information, go to ostusa.com/podcast.