Operational Costs of Your ERP System Can Be Reduced: By Plugging the Leaks!

Organizations continuously struggle with higher operational costs of ERP systems than originally estimated. This causes budget overruns and melting away of margins. Many initiatives have been launched to cope with this issue. But which way leads to success?

Why Are the Operational Costs of ERP Systems to High

Having recently been involved personally in reducing the operational costs of a SAP system it seems a good moment to reflect a bit on this subject. There may be several reasons why the operational costs of an ERP system are too high. I will give some:

1. The organization may have implemented more functionality than is needed.
   Expensive to implement, and expensive to maintain, with high operational costs.
2. The organization may have implemented too much details than is desired.
   ERP system changes will be frequent and expensive.
3. The organization may have not implemented all required business rules.
   You loose money through the usage of your ERP system you did not intend at all.

All 3 reasons are killing for your operational costs.

Objectives of ERP systems - Fundamentals and Background on Enterprise Resource Planning

To my knowledge the 1st thoughts on ERP seems to have been developed in the fifties of last century. In 1968 Russell Ackoff wrote his book Fundamentals of Operations Research, containing a set of objectives for an ERP system:

• Allocation
  Calculation of the optimal resource allocation.
• Inventory
  Calculation of the optimal inventory.
• Replacement
  Calculation of the optimal resource replacement time.
• Queuing
  Calculation of the optimal queue facilities.
• Sequencing and coordination
  Calculation of the optimal task sequence.
• Routing
  Calculation of the optimal routing.
• Competitive
  Calculation of the optimal anti competitor movements.
• Search
  Calculation of the optimal information acquisition, processing and distribution.

The single most important condition to be met that enables these objectives is this one. These objectives are in fact realized through abstract business models of control variables on the operational and tactical level. Any change in political environment, competition, suppliers, technology, or supply chain makes the model in some way invalid. This causes that the system will produce less than optimal results.

My conclusions:

• The ERP implementation needs to be reassessed periodically.
  Their implementation must remain specific for the situation, at all times.
• An active and plausible decision process is required.
  It is not sufficient to report the value of these control variables. On top of that, managers must be taught how to take decisions, how to act upon them, and carefully check the outcomes.

Possible Solutions for Active Reduction of the Operational Costs of ERP systems

An application systems approach provided by Gartner. It introduced its CCM approach, applications that can assist organizations in the search for gaps in their implementation of business rules.

A continuous performance monitoring approach by Consider Solutions offers a subscription based continuous monitoring of process exceptions to spot costly deviations from standard business rules.

Also Results2Match has performed work in this direction. Hans van Nes wrote several blogs on reducing the operational costs of ERP systems, and KPI considerations.

In the light of these requirements the earlier mentioned prescription based services of Consider Solutions are well worth considering. Consider provides a structured, on going, and sophisticated approach to plug your leaks. Contact Dan French, CEO of Consider Solutions, now for more information how your operational ERP costs can be reduced!

Hans Lodder - Leap Frog Improvement Expert!

I challenge the status quo. I see more solutions than others. I create more effective forms of collaboration. This leads to better results. Always.

I create a totally new experience in collaboration in organizations by breaking-through the status quo. This always leads to better results. Already some 20 years.

Want to know more, let me know how I can reach you. Send me a message, or call me at +31 6 23937263.

You know someone, who also discusses the efficiency of the status quo. Why don't you send her or him this blog? It will be appreciated!

Hans Lodder
Leap frog improvement expert

Spectacular success is always preceded by unspectacular preparation.