ERP System Development Process: Key Tips

The development and implementation of an enterprise resource planning (ERP) system is an expensive measure that can take months or even years to implement. And according to the report of Panorama Consulting Solutions 2018, every fifth such project ends in failure. Today, we look at the six most notorious failures of integration of ERP-systems, in order to understand what went wrong in each case and how it was possible to avoid the deplorable outcome.

1. Woolworths and corporate memory loss

Failure anatomy. In 2016, the largest supermarket chain in Australia, Woolworths, reported a record loss due to the transition to a new ERP system. The network giant lost about 2 billion Australian dollars due to what experts called the "loss of corporate memory".

The anatomy of the failure of Woolworths is:

1. The company has changed the data collection procedure for weekly profit and loss reports for each store.
2. The daily business procedures that allowed these data to be collected were not properly documented. For this were senior staff responsible, who left the company because of the too long process of transition to a new ERP system (6 years).
3. When the system was up and running, new employees were unable to streamline the reporting process, because they did not know how to collect data for them. And this process has almost stopped for 18 months.

Tip. In the case of Woolworths, the main mistake in deploying a new ERP system is that the company could not keep experienced employees who knew how everything worked. Surely they were consulted and even asked for recommendations, but this is not enough. Successful project implementation requires the fullest involvement of knowledgeable people.

And such experts must be confident in their future. So, in the example with Woolworths, people decided to quit because they were not sure whether they would have a job in a year or not and would need them in principle after the implementation of ERP. Imagine yourself in their place: you create a system that will do your work - automatically, faster and more accurately. What is your main task? To find a new job, and quickly!

2. Washington Municipal Colleges and Irregularity of Business Processes

Failure anatomy. In 2012, the Washington State Council of Community and Technical Colleges hired Ciber to deploy PeopleSoft ERP in 34 community colleges. The project was allocated $ 100 million (which was collected from students as a 2% tax) and it was planned that it would be fully implemented by 2015.

But by 2015, only a test launch of the system at three colleges (Tacoma, Spokane and Spokane Falls) was possible, and this was a complete failure. In addition to standard problems with bugs and glitches, it turned out that business processes in schools were not standardized. Because of this, the cost of the project has increased to $ 115 million, and the duration of its implementation was delayed until 2020. And the story would have ended on this, if not the Ciber bankruptcy.

The bankrupt’s assets were bought by the Michigan HTC, which terminated the contract with the school system and sued it for $ 13 million in 2017, claiming that the unsuccessful implementation was caused by “internal dysfunction” by the colleges.

Tip. From this example, you can make three recommendations for companies that implement ERP-systems in their business:

1. Before you start developing, make sure that your business processes are standardized, that is, the same for all departments, divisions and branches. If this is not the case, first solve the problem and only then proceed to the development of ERP, since automation cannot make order out of chaos.
2. Panorama Consulting research shows that 75% of ERP implementations take longer than expected. This should be considered when developing a technical plan for implementing ERP in your business.
3. When choosing a technical partner, check not only his cases and team competence, but also the financial condition.

3. Target and “spam” data

Failure anatomy. In the period from 2013 to 2015, the Target retail chain opened 130 stores in Canada, and the company’s management decided to implement a new ERP system for effective business management in this region. Two years were allocated for the project, but at the end of the term it was never fully implemented, Target left Canada, and CBC News tagged this venture the “greatest failure”.

And this is really a huge failure, which cost Target 2 billion dollars. And all because the American retailer ignored the "alarm bells", indicating a problem with the data from suppliers. The audit showed that only 30% of this data is correct (there are no errors in the name of the goods, dates, cargo sizes, bills, etc.).

Before the introduction of the new ERP system, problems related to inaccuracy of data were solved on the spot or simply ignored. For example, back in 2012, Target had serious problems with cargo transportation:

• containers were not completely filled or the goods did not fit in them;
• the list of sent goods did not match the list of orders;
• the cargo arrived at the wrong address or was significantly delayed;
• and much more.

The company constantly experienced serious problems with logistics, against which the management decided to launch an aggressive expansion of the Canadian market and at the same time integrate the new ERP system. This is really the “greatest failure” in making management decisions.

Tip. Target experience says that before you run a project to develop and implement ERP, you need to solve the old problems of your business. And this is especially important if they concern to processes related to ERP processes.

In order not to go on the path of Target, before starting the development, think about such questions:

1. Do you have problems with logistics (delivery of goods)?
2. How often do you do random testing of reports and important data?
3. How accurate is the data you use when planning business processes and making decisions?

4. PG&E and “nobody’s” personal customer data

Failure anatomy. In 2016, Chris Vickery, a risk analyst at UpGuard (an Australian cyber-resistance startup company), discovered an open database on the network for the ERP system Pacific Gas & Electric Corp (PG&E), which contained information on 47,000 computers, servers, virtual machines and other company devices. It was a big scandal, because, according to the rules of the US Department of Homeland Security, electric power companies are part of the country's critical infrastructure.

After detecting a leak, PG&E first tried to blame the suppliers, then they said that it was “fake” data generated for ERP testing, but in the end they still recognized the authenticity of the information. An investigation showed that the database hit the network during the deployment of the asset management system: "The third-party supplier was provided with operational data of the company to fill in the "demonstration" database and test its work in actual manufacturing practice".

It’s unclear how a “demo” database got into the network. Chris Vickery believes that PG&E failed to protect the system during deployment or made negligence in granting access to information, which was used by hackers or simply curious individuals.

Tip. The history of the leakage of the PG&E database teaches us to treat production data responsibly. This is a valuable resource, the protection of which must be approached with the utmost responsibility, even if you transfer it to partners or service providers. In the case of PG&E, the best solution would be to use “fake” data (as they claimed), since transferring it to third parties does not pose any threat to you and your customers.

5. Nike and catastrophic forecasting error

Failure anatomy. In February 2000, Nike shares collapsed by 20%, and the company lost 100 million lost profits due to an error in the ERP platform forecasting system developed by i2 Technologies. Nike paid $ 400 million for this software.

When Nike discovered the problem, they first stated that the supply chain management system developed by i2 Technologies led to excessive inventory and delayed orders, which in turn led to lower profits (as we can see from past examples, partner accusations are a common occurrence in failures with the introduction of ERP). The statement led to a drop in stock prices of Nike and i2 Technologies.

The software company analyzed the software, found no errors, and sued Nike. Later it turned out that Nike’s management was not sufficiently trained in how to use the system, because of which an incorrect forecast was created at the level of factory orders. Then, according to Roland Wolfram, Nike's vice president of global operations and technology (2004), this “ripple” of inaccuracies spread to the supply chain and caused a large “wave” of inaccuracies.

Tip. From Nike's experience, you need to get two things:

1. The first is to be responsible for the training of personnel who will use the system, regardless of its level of importance to the company. At Nike, the mistake was at a rather low level in the hierarchical management structure of the company, but it was able to do harm for hundreds of millions of dollars (direct losses + stock crashes + reputation losses).
2. The second is not to blame the technical partner for failure without weighty evidence. Otherwise, you can receive in response multimillion-dollar claims for the destruction of someone else's reputation. An important point in the history of Nike is the fact that the company recognized the error, found the problem and eliminated it. And with that not abandoned software i2 Technologies.

6. HP and the "perfect storm" of problems

Failure anatomy. When in 2004 the American division of HP decided to switch to a new ERP system, its management knew everything about this process - under belt of the head of the project Cristina Hanger there were five such iterations. HP prepared an emergency plan and were prepared to reduce system performance and reduce sales. However, this did not help them - the company lost $ 400 million due to an unfortunate set of circumstances.

Following the internal investigation, HP revealed the following problems of unsuccessful ERP integration:

1. Data Integration. When switching to a new ERP, it turned out that the system does not have enough flexibility in order settings, which is why orders, the parameters of which went beyond its capabilities, stopped working.
2. Communications. Communication between departments was too slow, important messages were lost and there was no clear algorithm for working in an emergency.
3. Forecasting. The transition to the new ERP was planned for the period of falling demand, which was predicted by marketers, but actual demand was 35% higher than planned.
4. Testing. The system was tested for standard orders, but it was not properly tested for individual orders.
5. Support / training. The project team and support service were trained two weeks before the launch of the system. When it came to practice, it turned out that this time was enough for people to become confused and forget their workouts.

All this led to a loss of 160 million dollars: 40 million dollars - unfullfilled orders, 120 million - lost profit. Assuming that the cost of the project development and integration of the ERP-system reached to $ 30 million.

Tip. HP could have avoided most of the problems if they tried a new system on a small scale and only after that all services and departments were transferred to it.

ERP systems development checklist: 10 key tips

1. Take care that people who are well aware of the specifics and business processes of your company participate in the ERP system development project.
2. Make sure your business processes are fairly standardized.
3. Ensure that the technical partner does not go bankrupt during development.
4. Take care of the security of confidential data.
5. Train your staff well before starting the system.
6. When introducing a new ERP, start on a small scale.
7. Check the completeness and accuracy of the data used.
8. Develop an emergency plan of action.
9. Be prepared for the fact that the implementation of ERP will be delayed.
10. If you still have serious problems, do not rush to blame the technical partner, perhaps the problem is on your side.