How to Build an ERP System from Scratch

According to the report Panorama Consulting Solutions 2018, about 23% of ERP implementations were unsuccessful. The main reasons for the failure are the purchase of an unnecessary ready-made system and inadequate planning. Today we will look at how to avoid these problems with the help of the right approach to the development and implementation of the ERP platform from scratch.

Step 1: Define the goals and objectives of the project

Many businessmen miss this step, considering it obvious: "The goal of the ERP project is to automate and optimize processes, or make everything work faster and better." That's just not the goal, but wishes. The goal must be defined and clearly outlined in time, for example:

● reduce the time of paperwork by 20% by January;
● reduce the time of registration on the site from 15 to 5 minutes by September;
● reduce the client’s waiting time from an hour to 15 minutes by August.

If we talk about the development and implementation of ERP, then ERP should be thought of as a tool needed to achieve certain tasks that your company faces. Based on this, you first need to think about such tasks and only after you decide what and how the ERP system should do.

You should define such tasks independently or with the help of specialized specialists. If you decide to do it yourself, then the simplest approach is to analyze the competitors and make it like you them, but a little better. SMART-approach will help you with this:

Step 2: Identify and engage interested parties

After you have defined the goals and objectives of ERP implementation, inform the persons involved: developers, department heads, management, partners, and others. This is important for two reasons:

1. Firstly, you need to collect the opinions and wishes of everyone who will work with the system (this should be done at an early stage of development).
2. Secondly, in this way you will avoid problems related to the incompatibility of the ERP system with the internal business processes of your company or the company of your partners.

In the article “Delivering large-scale IT projects on time, on budget, and on value” of the consulting company McKinsey there is an example of how the late notification of those involved led to big problems. It says that the management of a certain bank did not consider it necessary to involve the financial department in the process of upgrading the IT platform, and when it came to deployment, it turned out that the new system did not meet their needs. As a result, the project needed to be completed, which led to a 3-month delay and an increase in the cost of development by $ 8 million.

Step 3: Explore the current state of affairs

ERP-system will do nothing if business processes are chaotic or insufficiently standardized. For example, if you are engaged in retail sales and you do not have a clear algorithm for receiving and sending goods or you have a non-optimal dispatching algorithm, the implementation of ERP will make even more confusion.

Thus, before starting to plan the development of an ERP system from scratch, first conduct an audit of your company's business processes. If something needs to be standardized and / or modernized, do it before starting work on ERP.

Without doing this, you can share the same fate of the American retailer Target (SuperTarget), which in 2016 was forced to withdraw from the Canadian market after the introduction of the ERP system, that plunged their supply chain into chaos. Target had problems with the confusion of data from suppliers (commonplace in retail), but instead of solving this problem, they conducted an aggressive implementation of ERP as soon as possible.

Step 4: Help developers understand your business

Developing an ERP system from scratch assumes that it will be created taking into account all the features and needs of a particular business. This means that you must tell all the nuances of your business project manager or, even better, show how your company works from the inside. If you have attracted third-party developers to create ERP, then this is a prerequisite.

In other words, you need to lead developers on scripts:

1. Customer. Demonstrate how the company interacts with customers.
2. Employee. Show what happens behind the scenes of your business: who, what, how and when does.
3. Partner. Demonstrate how banks, retailers, contractors and other partners interact with your company's ecosystem.

A comprehensive study of business processes will help ERP system developers to understand the features and specifics of your company: management structure, information flows, tools and points of interaction with customers and partners.

Without this, it is impossible to create a truly efficient and useful platform. How, for example, Avon failed to do this in 2013 during the implementation of the ERP / CRM / eCommerce system, which spent more than $ 125 million. The direct sales giant did not take into account the needs of customers and partners and in fact complicated their work by creating additional bureaucratic procedures.

Step 5: Determine Your Expectations

After the development team has studied the company, invite all interested parties to the round table and indicate what you expect from the implementation of ERP. Then ask everyone to comment on this, so that each participant also identifies their expectations and concerns. During this meeting, you will need to take it all in, filter out and prioritize.

At this stage, it is important to remember that it is impossible to meet the needs of all participants, so it is necessary to strike a balance between the wishes of various parties and the implementation of the project on time and within budget. With the construction of such a balance should help the development team, which will tell you how difficult it is to implement certain functions and tools.

At the end of such a meeting, you should have:

• a list of functions that the developed ERP system will have;
• a list of roles for various participants in the system, for example, a salesman, storekeeper, marketer, head of department, customer, and trading partner;
• project implementation phases and priorities.

Step 6: Decide on a project vision

When you have a preliminary list of functions, you and your development team will get an idea of what the ERP system will look like. Now it is important to combine all these visions into one whole, which is best done with the help of visualization - wireframes.

Wireframes provide insight into the interface and data flow. Implement them in the form of a block diagram and a description of what they are needed for and what they do. In this way, you need to visualize all custom ERP usage scenarios, which usually includes a description of the four directions of system implementation.

Human Capital Management (HCM)

By creating an ERP platform from scratch, you can help the personnel department automate and improve a number of labor-intensive processes, such as performance management and compensation, employee performance evaluations, or payroll processing.

Process Analysis and Planning

ERP are designed to manage the flow of information and their automation, which allows the use of such systems for analysis and planning. To do this, you need to add the appropriate module to the system, which will collect and process data, and then visualize them in the form of tables, graphs and charts. In addition, a calendar can be embedded in the system to create and track various events and tasks.

Inventory Management

The implementing of ERP-system will optimize the process of inventory management. Many elements of this process can be automated, and information on the status of stocks will be available to all departments of the company. Thanks to this, it is possible to stabilize inventory levels or, for example, to quickly create special offers (promotions, discounts, sales) for a product that has an expiration date.

In addition, a good inventory management system will provide an opportunity to collect big data, which will help you understand what is best to sell. Such connections are not always obvious. For example, Walmart, using data from all its stores, analyzed what product is in demand before and after hurricanes. It turned out that the most hurricanes contributed to the sales of strawberry pop-tarts (+ 700%). Why? Nobody knows.

Based on this analysis, Walmart conducted an experiment: the Pop-Tarts were delivered to supermarkets along Highway 95 (along the path of Francis Hurricane 2004) (stocks used to be exhausted quickly). Indeed, these cookies were sold particularly well these days. Now Walmart is using this scheme constantly.

Making report

If the company does not use any ERP-system, reporting can take a lot of time. For example, some companies even allocate additional time for employees specifically for reporting, so that they have time to do it during the working day. In the modern world, this is an archaic way of doing business, since even with the help of the simplest ERP, you can compile all the necessary reports in a few minutes.

In advanced user ERP-systems created from scratch, you can also realize the possibility of compiling relevant reports. For example, you can use custom filters and statistical tools to compile a report on the effectiveness of an individual employee or a report on the shelf life of dairy products stored in a particular warehouse.

Step 7: Design and Implementation

When all the preparatory stages are completed and you have decided on the vision of the ERP project, you can proceed to coding. But this should be done step by step, that is, first create a MVP and implement it on a limited scale. So you test the concept with minimal risk and minimal money.

General recommendations here are:

1. Development need to be started with the most important functions or even with one function, because first you need to check the concept and only then proceed to additional features and improvements.
2. As a test site, select the department where errors will have the least impact. Usually, a small branch is chosen for this purpose, or, for example, they create a parallel order processing system and openly tell customers that it is operating in test mode. For customers to use the test version, they are offered bonuses and discounts.
3. During testing, collect feedback from all possible sources - from feedback from employees and customers to statistics on the speed of execution of orders and stock stability charts.

Step 8: Train the staff to the new system!

When introducing an ERP, management usually forgets to explain to staff the importance of using a new system, assuming that they will automatically abandon the old practices. And in vain. Practice shows that if people are not compelled, they will forget to enter data into the new system and will not use it for communication, planning and reporting.

This is because the brain does not like the new, even if this new is much better than the old. And the older a person is, the stronger is his desire to follow previously acquired habits. In order to understand how strong this desire is, it is enough to recall the elderly who are literally afraid of computers.

To get employees to use the new ERP system, follow these guidelines:

1. Show with concrete examples why the new system is better than the old one. For example, with its help you will make a report in minutes or get information about stocks in two clicks.
2. During training, give not only lectures, but also practical exercises. To form a new skill, actions need to be repeated several dozen times - first under the supervision of a teacher and then independently.
3. Set penalties for late data entry and use of third-party services duplicating the functions of the ERP system.
4. Financially encourage people who understand the importance of the new system and use it whenever and wherever possible.

In addition to staff training, you also need to spend time and money on promoting a new technology among partners. At a minimum, in order for them to start using the data entry and storage standards you need, and ideally - to switch to your ERP system.

How to Build an ERP System from Scratch key takeaways:

1. Step 1: Define the goals and objectives of the project
2. Step 2: Identify and engage interested parties
3. Step 3: Explore the current state of affairs
4. Step 4: Help developers understand your business
5. Step 5: Determine Your Expectations
6. Step 6: Decide on a project vision
7. Human Capital Management (HCM)
8. Process Analysis and Planning
9. Inventory Management
10. Making report
11. Step 7: Design and Implementation
12. Step 8: Train the staff to the new system!