SMEs pay more but aren’t achieving full ERP benefits

That’s chief among findings in The Benchmarking ERP in SMB report, just published by analyst Aberdeen Group, which surveyed some 450 manufacturing SMEs late last year and 1,200 altogether. It suggests that while so-called ERP Lite systems have been around for years, SMEs actually require just 6% less functionality than the average of companies of all sizes – so that’s not what’s needed. The real requirement is less complexity, not less functionality, along with ease of implemenation. “Small companies achieve go live relatively quickly,” comments Cindy Jutras, vice president of manufacturing and ERP research at Aberdeen. “86% of SMEs reached this milestone within the first year, compared to 64% of mid-size companies and 47% of large companies. But results are decidedly average. “But by placing emphasis on the cost of software and services over better business process enabled by the IT along with associated cost savings, they don’t achieve ERP’s full potential. This demonstrates a certain level of short-sightedness and does require a change in focus,” she warns. She advises manufacturing SMEs to look carefully at their ERP shortlist and rank it in terms of pre-configured templates that match their requirements. “Some ERP developers deliver pre-configured processes a lot better than others, and the best are those that hide the complexity so that users can get a sophisticated system implemented quickly.” Finding those that do, she says, is down to the usual business of asking questions and checking references. “Also, look carefully at the demo: if they can’t easily deliver the configuration you want in the demo then they can’t deliver it off the shelf.” Other valuable insights include the observation that there is a modest (10%) but growing swing towards buying ERP software as a service – online ERP rental – and that manufacturers are increasingly thinking of their next ERP purchase as ERP for life, not for the usual five to eight year cycle. Just as interesting, 60% of SMEs say their number one response to business challenges is to align their business processes to ERP software, although there is confusing overlap with 49% saying vice versa. Jutras suggests that users get, “something that fits well enough to align their business processes to the software and avoid customising.” And she takes some heart from her findings that 39% are looking to eliminate customisation altogether, while 33% are specifically going for more modern ERP applications in order to improve their business processes and operations. But she bemoans the fact that very few are looking at new technology to make a bigger difference now and into the future. “For example, they’re not looking at SOA [services orientated architecture], or standards-based integration methodologies. They’re just not thinking that way,” she says. However, she agrees that it’s probably not realistic to expect already stretched SMEs to be this technology savvy, and concludes that it’s down to the ERP vendors to deliver the extra value these aspects can deliver. “Those that do that transparently will be the winners,” she predicts. Interestingly, Aberdeen’s research suggests that 14% of SMEs (manufacturers with revenues under $50 million) have no ERP at all and that a further 9% are replacing systems that are well sub-ERP. “23% are operating with serious deficiencies, meaning that there’s a huge opportunity for ERP vendors as well as the manufacturers themselves,” she says. Her bottom line recommendations: “First, set goals for your ERP implementation: many fall short of best in class because performance metrics are not established. Second, push beyond the limits of current implementations for added benefits and lower total cost of ownership. “Third, automate previously manual-intensive and spreadsheet-based processes. Fourth, expand your implementation to include all fundamentals of your business.” Copies of the report are available free at: http://www.aberdeen.com/link/sponsor.asp?cid=3818