As a proud member of the SPE association, I was asked to put my last 20 years of experience in the software industry to work for you and to share my insight into the “do’s and don’ts” of software needs for your business. To this purpose, I have outlined what I consider to be the five primary mistakes made by companies when considering any new business software, as well as five reasons or strategies to consider when evaluating how software can create a very positive impact on your future.
We begin with the five top mistakes made by companies when considering new software:
- Not using integrated software to document and measure operations. While most businesses have accounting systems, very few companies measure their ongoing production activities in terms of time, speed, waste material, and then employ this valuable data to compile a more accurate, actual cost measure by job against the original cost estimate, reconciled with their financial statements. Software provides a structured tool, a consistent, integrated method of measure to do just this, with minimum effort. It is much like going on a weight loss diet – the number appearing on your scale each morning is the only measure of how well the diet is working for you. Most companies use fragmented piece-meal systems with inconsistent measures. Unfortunately, many companies fail as a result.
- Writing your own software. Sometimes the obvious needs to be stated: Plastic Processors are experts in creating plastic products and software companies are experts in creating software. While there may have been a time when hiring your programmer “brother-in-law” to write your company software appeared to be a great, cost effective strategy, or run everything on a spreadsheet, this is no longer a sustainable strategy. Software development has become a highly skilled endeavor, requiring significant investment in terms of building an IT team wherein each team member has specific skills: software architects, business process analysts, database specialists, E-commerce web designers and programmers. Sharing the cost of software is now the way to go. Creating an optimal business process in a reliable software structure, where all the benefits of new technologies such as E-Commerce and wireless devices are incorporated, far surpasses what one or two programmers can deliver or the wonders of spreadsheets. It is sometimes argued that having its own software may give a company a competitive edge. However, they should consider the competitive risk presented in having a competitor that chooses to focus his investment on making the best quality products for less and selling them through advanced E-Commerce ERP software, at a fraction of the cost of limited, internal software.
- Failing to test-drive the software and check references. Many companies will hire an outside consultant to document their requirements and then select software based upon an evaluation grid. Fees paid to this consultant can often account for up to 30% of the software investment. Other companies will base their decision on the software company brand name and/or personal relationships with the salesmen. Unfortunately, both of these methods often overlook critical steps in the decision process. Always test drive’ the software and then, check references! A simple simulation of a representative sample of your orders, from start to finish, will help you visualize how it will ultimately work for you. If the test-drive is positive, contacting long standing references or, ideally, visiting them in person, is critical in evaluating how this software company “behaves” after the software is installed. Understanding how new versions, support calls and ongoing improvement requests are handled will prove extremely important in the future. I am always amazed at how frequently major decisions are made in the absence of this simple verification procedure. Indeed, I feel strongly that this step should account for at least 50% of the decision process.
- Thinking that “Generic” ERP software is a one-stop shop for all. In a study published by the Gartner Group (October 2001), it was confirmed that in the near future, software companies will specialize and that many software suppliers will provide a complete solution. For the longest period it had been assumed that the largest ERP companies could “do it all” -this is quickly proving to be a false assumption. In the tool-making and plastic industry, it is now evident that this trend toward specialization already applies to CAD software designed specifically for the industry. Specialized software vendors, such as ones providing payroll software, production floor data acquisition software and others, now offer easy integration tools for their components. It is also true of ERP vendors, which are now focusing by Industry and down-sizing the scope of what they offer in order to work with the best specialized software available. Selecting one-stop ERP software that supposedly does it all, across all industries, is no longer a valid strategy. Unfortunately, many companies spend hundreds to millions of dollars trying to change generic ERP software into a specialized one only to discover that it did not do the job and that it had now been modified so extensively that it was no longer feasible to upgrade the software to the new version.
- Not selecting an appropriate operating system and framework for your business. Just 10 years ago, a new server and workstations cost hundred of thousands of dollars. Today, they are available within the ten thousand dollar range. Still, many companies will select an inferior setup in order to save a few thousand dollars, not fully understanding the consequences. For an additional few hundred dollars it is recommended that the Professional edition of Windows be employed for PC workstations rather than the standard edition since it is, in fact, the same architecture as the Windows Server and offers a significantly more stable work environment. Keeping the server and workstation one version behind and both in sync with the same version is also the best approach and again, more stable, since the bugs have been worked out. Assuring sufficient memory and CPU by doubling what is recommended, while never using more than 70% of disk capacity anywhere is also the norm for avoiding future problems. Those who have followed this simple rule have saved thousands of dollars in network maintenance, not to mention many frustrations.
Now that we are aware of the pitfalls to avoid when selecting a software, the “don’ts”, I will counterbalance this with an overview of the strategies which one should put into action in order to get the best software “fit” for your company. In today’s business environment, following straight line rules of best business practice is simply not enough. Creative thinking needs to be a part of any future decision-making process. I consider the following 5 reasons or strategies essential components of my “to do” list for effective, cost-efficient software selection:
- Invest in software to increase the financial value of your company. The first question a business owner should ask himself is “how will my business run without me?” If you are not quite comfortable with the answer, just think how the person conducting an evaluation to buy your business, or the financial institution that will lend you money, or a major customer that is currently considering buying your products will react to your answer. In a nutshell, your business systems and organization reflect directly on the financial value of your business. Software, much as key staff members within your organization, is an investment in your future rather than a one-time cost. Well chosen software will enable your business to measure improvements, support sound business practices, increase customer service as well as drive the value and profitability of your company upward.
- Adopt a step-by-step approach to software investment. According to a recent statement by Computer Associates, a leading IT firm, companies now adopt smaller projects because big projects had failed to materialize the expected benefits and created an incredible burden on the company. While an integrated, rather than piece-meal approach must be maintained over time, a step-by-step building block method will bring benefits that will pay for the next step and reduce the burden of cash-flow requirements as well as the stress put on your employees. Furthermore, many software companies now offer payment terms that greatly reduce the cash flow requirements for the acquisition of new software. You can get there gradually, without feeling overwhelmed and pressured.
- Use software to add value by creating special relationships. It was once considered the norm to purchase software based on internal productivity improvements within a company and, indeed, it may still be the case. However, I feel that internal production improvements will become more and more the tip of the iceberg. With the ever expanding capabilities of software, it is now possible to reduce many of the business processes and staff functions now existing between you and your customers and/or suppliers. While there was much hype in the media regarding the “dot-com wave” of the late 90′s, the practical aspects of this period have continued to evolve despite what diminished media attention might imply. For example, many companies have developed special order processing software on their web site, designed for specific major account customers, thereby cutting CSR’s, Accounting staff and Purchasing Agents out of the loop. The results are savings for both the company and their customers. The new, tight’ relationship that develops between manufacturers and their clients makes it very unlikely that the customer will ever move to a competitor. Once again, creating long term value and steady sales for your business is the key!
- Make the 1% difference count for you. I won’t hide the fact that I am a big fan of the new ISO norms, especially since they are now geared towards a continuous improvement process. Small percentage improvements in waste, returned products, inventory level, shipping costs, lead times to process an order, production work center optimization are just a few examples that can result in significant improvements in profit, cash flow and lead time. At a recent meeting in Niagara Falls, Dover Packaging explained that a 2% improvement in waste resulted in many $100,000 of savings following their implementation of an ERP system some years ago. To achieve these types of results, your base software, which will track these measures, must be in place for a few years in order to develop a solid foundation. Attempting to do this in a manual system is simply unsustainable.
- Use software to improve your quality of life. While the implementation of new software is rarely a completely stress-free endeavor, the stress experienced in the initial stages pales in comparison to the ultimate benefit and enhanced work environment attained. Software goals must be set to simplify your life, not complicate it. Simply put, any new software must be able to provide you with the information you need, when you need it -no more endless streams of phone calls or futile searches through file cabinets to find the required information. With a good structure in place, your company will become self-sustainable, enabling top management to focus more and more on issues that relate to improvements in products, marketing and relations with customers, suppliers and employees.