Restructuring ERP System: When Is a Transition Worthwhile?

1. What is an ERP system?
2. 4 reasons why restructuring the ERP system is so important
3. These factors should be considered in an ERP system restructuring
4. ERP System restructuring in 8 steps
5. These challenges can arise when restructuring an ERP system
6. The benefits of a successful ERP system restructuring
7. These tasks are performed by external consultants during restructuring

Your ERP system is the core of your business processes. If it stutters, it affects the efficiency and productivity of your company. Yet introducing a brand new system or even restructuring the old system can feel daunting - especially in financial terms. In this article we'll show you why it's nevertheless important to restructure an ERP system and what factors to consider.

What is an ERP system?

Enterprise-Resource-Planning is a term coined by research company Gartner in 1990. Contrary to common belief though, an ERP solution is not a standalone application. Instead, it is a system comprising various modules, each covering a specific business requirement or process. These include:

• Finances: The foundation of just about every ERP system. It manages the ledger and all financial data.
• Purchasing: It manages the purchasing of raw materials and finished goods.
• Production: This module helps companies coordinate all processes required for product manufacturing. It also monitors the number of items in work and finished.
• Inventory Management: It displays the current inventory down to the SKU level and updates these numbers in real time.
• Order Management: The module monitors customer orders from all channels and tracks their progress to delivery.
• Warehouse Management: It controls warehouse activities such as goods receipt, picking, packing and shipping.
• Customer Relationship Management: It tracks all communication with customers, supports lead management and improves customer service to boost sales.
• HR Management: This module manages employee data and performance evaluations.
• ERP E-Commerce: It enables retailers and brands to manage the back and frontends of their online stores.
• Marketing Automation: This module manages marketing measures across all digital channels. It also allows companies to optimise and personalise their messaging.

Each of these modules transmits information to the central database - the key component of an ERP system. An AI supported ERP software is Haufe X360 , which supports you in complex requirements. This database offers insight into all departments. It also enables managers to evaluate and compare the performance of different departments. This way, they can understand the impacts of business decisions. Furthermore, an ERP system enables the automation of business processes and improved internal control.

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On our comparison platform OMR Reviews you can find more recommended ERP systems. We present over 300 solutions that are specially tailored to the needs of small and medium-sized companies, start-ups and large corporations. These ERP systems offer comprehensive support in all business processes. Take this opportunity to compare the various ERP solutions, drawing on authentic and verified user reviews:

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4 reasons why restructuring the ERP system is so important

There are numerous reasons why you should restructure or even replace your ERP. Here are some:

1. Growth: Company growth is one of the most common and motivating reasons for an ERP transformation. The restructuring ensures that you have all the functionalities you need to support your new business requirements and processes. Some indicators that your company is growing are:

• More business closures
• New products or services
• New business ventures
• New markets: Expanding to new markets can bring new business requirements, like new tax regulations or the integration of foreign languages.

2. New leadership: It's common for new leaders to introduce new measures. Maybe they want a better overview or prefer a system they used in the past. In these cases, a restructuring of the ERP system or the introduction of a new system may be necessary to match their preferences and the company's goals.

3. Regulatory considerations: For companies it is crucial to comply with regulations. ERP solutions help ensure this. This is especially true for complex accounting and tax laws and constantly changing global trade regulations. To meet these requirements, many companies decide to restructure or even replace their ERP system.

4. Outdated technology: An old system is generally a custom application that a company has been using for years. Because of these customisation, many companies hesitate to upgrade or restructure their ERP system. This can lead to a number of issues:

• There aren't many vendors that support outdated systems.
• Employees are forced to create a workaround as the system doesn't support current business processes.
• Employees who are familiar with the system could leave the company or retire. As a result, no one is able to train new employees or fix errors in the old software.

These factors should be considered in an ERP system restructuring

Goals: Why are you restructuring your ERP? As simple as this question is, many companies can't answer it clearly. But if you keep unneeded features, you waste your resources. Therefore, you need to clearly define your goals for the restructuring.

The team: Restructuring your ERP system requires time and effort from your employees. Therefore, you need to put together a reliable team that has enough motivation, expertise and time.  Providing staff for the ERP project is particularly challenging. This is because normal business operations and restructuring must happen at the same time.

Scope: What is included in the restructuring and what isn't? While ERP restructuring is a great opportunity to improve processes, don't try to change everything all at once.

Budget: Create a complete and accurate budget for your ERP project. Make sure that the restructuring isn't dependent on the costs, but on the expected revenues. In the end, the return on investment will determine whether it was a good decision. Also evaluate honestly what you can handle on your own and where you need expertise from consultants.

Infrastructure: It's quite possible that restructuring your ERP system will put demands on your infrastructure. Are investments in new servers required? Or in computers and mobile devices? Do you want to migrate to the cloud?

Change Management: The often forgotten but essential factor is change management. A restructuring or introduction of a new system brings changes. Screens and menus that look different, processes that operate differently and new ways of collaboration and communication. Management has to prepare the organization for this. You will need to inform your employees about what will happen when and why, and clarify the benefits of the ERP changeover

ERP System restructuring in 8 steps

Whether you're restructuring or replacing an ERP system - careful project planning is crucial. This checklist helps you implement a successful ERP transformation:

1. Assemble a preliminary project team: Bring together people from various departments to determine whether software upgrades or a system restructuring might be worthwhile. Involve end users like warehouse employees, supply chain managers, marketing coordinators and sales experts, to understand the challenges of your current system.

2. Create a business case and get management approval: If a restructuring is necessary after this initial assessment, document the value your company can achieve with a new solution. Then present this to the executives to get their approval, which can take some time.

3. Identify the requirements: Define what the ERP solution must include to deliver the value you've documented. This should also include 'nice-to-have' features that you might be able to do without.

4. Identify potential solution providers: Research providers who have proven to solve similar tasks (this could also be your current provider). Also, reach out to other companies in your industry to find out what ERP they use.

5. Preselect the best providers: Request detailed proposals and demos. Ask questions, evaluate timelines, check references, carefully compare costs and learn how each provider intends to support you.

6. Decide on a provider: Now pick a provider that you trust and that can meet your requirements at a reasonable cost.

7. Create an implementation plan with realistic project milestones: The ERP transformation often involves several phases - from database upgrades, data integration, customizations, user training to go-live planning. Therefore, you should create a realistic implementation plan to track your ERP project.

8. Execute the plan together: Create a working atmosphere in which all stakeholders can express concerns, identify emerging risks and work together on solutions.

These challenges can arise when restructuring an ERP system

1. Project planning: Companies often underestimate the time and budget required for an ERP implementation.According to Statista two of the most common causes of budget overruns are adding unplanned features to the system and underestimating staffing needs.

To avoid these problems, you need to develop a clear and realistic plan from the start. The project plan should consider potential stumbling blocks and minor cost overruns and address them in advance. This will simplify the decision-making process and keep the ERP project on track.

2. Project management: ERP implementations are linked to several phases that bring critical tasks. To keep all elements in view, meticulous project management is required. Also, all groups that are involved in developing and using the system need to be included. This can pose a huge challenge as each department has to balance its responsibilities for the ERP project with other priorities.

For a successful implementation, you need project management that realistically assesses expectations, milestones, and the timeframe. Additionally, communication between the parties involved should take place in a timely manner.

3. Data integration: One of the main advantages of an ERP system is that it provides a single, accurate data source for the entire company. A crucial step in the ERP introduction is therefore data migration. However, this can prove to be much more difficult than expected. Information might be scattered widely across the company - in accounting systems, department-specific applications, spreadsheets, and maybe even on paper.

A well-planned data migration can help ensure that the entire implementation project stays within the time and cost frames. It also provides an opportunity to remove outdated and redundant data that's laying dormant in the company's older systems.

4. Cost overruns: ERP projects are notorious for busting the budget after implementation. Many companies underestimate the work involved in restructuring an ERP system, leading to excessive expenses. This is particularly true when the ERP solution requires significant customization to meet the needs of the business. Also, you need to factor in the costs for external consultants, data migration (10 to 15% of the total project costs) and training expenses. To avoid exceeding the budget, you should consider these factors and set realistic costs.

5. Continuous optimization: The restructuring of your ERP system doesn't end when the system goes into operation. The solution needs to be constantly developed to support new business processes and technologies. Therefore, the project team needs to continue looking after the ERP even after its introduction to solve problems and manage new requirements.

ERP systems once implemented are often used by companies for more than ten years. Therefore, it is essential to regularly check whether the system still meets business requirements.

The benefits of a successful ERP system restructuring

Profitability

Restructuring your ERP system to improve operations leads to more productivity - and therefore to cost savings and higher profits. If you're weighing up whether to restructure your system, you should look at the ROI.

Increased efficiency

With the evolution of technology, it gets more sophisticated. Newer ERP versions provide better reports, faster data processing, and more automation. The latter saves large companies a lot of money since they have many operational tasks to handle. Also, they can use their resources in the right place at the right time thanks to better reports. In many cases, these efficiency improvements offset the costs incurred during the restructuring process.

Lower implementation costs

If you don't regularly update or restructure your ERP system, you'll end up with an outdated system. IT companies nowadays charge their customers based on the current system they're working with. So if there's a large gap between your current system and the future system, the costs of implementation will be higher. On top of that, switching from an old system to a much newer version leads to high downtime.

Lower training costs

There are no huge differences between consecutive versions of a software product. Therefore, the training need is limited and can be handled with a smaller budget. If on the other hand you're switching to a much newer version of a certain software, you'll have to spend a lot of time and money training your employees. This leads to increased downtimes and productivity losses - one of the reasons why you should restructure your system and keep it up to date.

These tasks are performed by external consultants during restructuring

The switch of your ERP system involves a lot of critical tasks. To ensure the success of the ERP introduction, external consultants can be consulted. They are responsible for the following tasks:

• Analysis of the existing system to identify strengths and weaknesses and to pinpoint optimisation potentials
• Daily maintenance of the ERP system, installing new upgrades and testing for bugs
• Documentation of the state of the ERP restructuring
• Supporting technical teams with change management and technical skills
• Creation of ERP specifications and cost estimates for programs based on requirements
• Participation in decision-making to optimize and improve technology management
• Instructing employees on how the system works and how to use it most effectively.

Do you have questions about restructuring your ERP system or would like to learn more about the topic? We at OMR Reviews not only educate our readers about the digital and marketing scene.  You can also find reviews from real users on our site to make your software buying decision easier.