ERP Implementation Plan: 5 Key Phases

Implementing an enterprise resource planning (ERP) software, an integrated suite of business applications, isn't as simple as downloading some files and going live instantly. Depending on the system requirements, it can take weeks, months, or years to fully roll out an ERP software. And that's if everything goes right. Understanding the key implementation phases can help you prepare an effective plan for your workplace.

What is ERP Implementation?

ERP implementation is the process involved with installing and setting up new ERP software, migrating your data from the previous system, and training your staff to use the new tools properly and as intended. An enterprise resource planning implementation project is essentially a change management for your organization, as it considers all approaches to prepare, support, and help your team members and decision-makers in making organizational change.

Implementation methodology actually starts in the pre-deployment phase--where you receive technical consulting on your specific needs compared with the industry best practices. Project management helps your project team define your project scope to create schedules, monitor timelines, and accomplish milestones. Finally, system implementation and configuration is the process of deploying the software as you envision it, such as on-premise or cloud-based.

Some ERP implementations are rather swift--this means an ERP solution is almost entirely functional "out of the box". This streamlined approach means software requires little to no customization. Other business requirements, such as including add-on modules, may require a phased rollout and more involvement from your implementation team.

If your business is looking to purchase ERP software, you need to consider the implementation process in order to avoid hidden costs and potential delays.

What are the ERP Implementation Phases?

There are six main phases of ERP implementation, though depending on the exact methodology there may be fewer or additional phases ranging from four to twelve. Some steps have different names, though they lead to the same overall process. The broad phases can be categorized as follows:

Within each phase of the ERP implementation process are some necessary steps to ensure a smooth transition to a new ERP system.

Steps of a Successful ERP Implementation

Once you've selected an ERP, the 5 key steps to actually implement software are:

1. Installation
2. Configuration
3. Customization
4. Data Migration and Conversion
5. Integration

At times these steps may run concurrently, and at times they may not be able to begin until the previous step has been completed. When used correctly, each step is intended to streamline the implementation process so you can start using your software faster and with lower costs. Some steps not mentioned (but equally important) include pre-deployment business and technical consulting, identifying your project scope, and training on your new ERP system.

1 Installation

Installation seems like the easiest way to start implementation, yet there are a few things to consider before getting started:

• Find the right hardware: Your legacy systems might run fine on your existing hardware, but a new, modern ERP might need additional server space. Your ERP implementation partner will determine these specifications based on precise minimum hardware requirements and your desired business functions.
• Prep the hardware. Ensure there is adequate disk space for the software, make sure the on-premise network is configured, and back up the server before making any changes.

2 Configuration

Configuration is the process of adapting the raw functionality of ERP software to your specific security requirements, workflows, and business needs. For example, security requirements involve user permissions which can allow varying levels of access to employees depending on their department and job level.

The second process of configuration is making your software support your workflows without disruptions. System testing, while a significant time investment, can reveal issues and ensure your software performs as intended. This requires a multi-step process--such as inputting company details, defining the chart of accounts and inventory levels, setting up banking integrations, and more. Even with the right ERP there are dozens, or even hundreds hundreds, of system configurations.

3 Customization

Customization refers to instances where you are augmenting or altering the underlying software code to include extra functionality. When it comes to ERP software, systems already cover a wide variety of functions in different business departments, like accounting and human resources (HR). However, any desired customization should be decided upon before implementation, in order to avoid delays or additional user training post-go-live.

Software providers handle most customization since the vast majority offered is not open source ERP software. In situations where base system setting modifications and configurations do not provide the necessary functionality to meet requirements, it can be worthwhile to make the investment in customization.

Customizing and configuring	Only configuring
Frequently creates reliance on original programmers	Easier to source external support
Often leads to pockets of undocumented code	Predeveloped documentation generally available
Can be relatively expensive	Economies of scale can lower cost
Highly tailored	May not fully provide optimal functionality

4 Data Conversion and Migration

Importing your existing data from a legacy system is the next step in any successful implementation. One major challenge is the lack of a single, standardized format for data. The underlying database tables that track financial records--for example-- will differ from one ERP system to the next.

Manually inputting or reformatting data can be tedious and cost-prohibitive. ERP software providers may have the experience needed to assist you by using automation for data migration to speed up the process.

5 Integration

Finally, the ERP implementation life cycle reaches the integration stage, which determines how your new system will communicate with your existing software platforms. For instance, if you maintain a legacy CRM software when implementing new ERP software, your business should desire customer data changes made within the CRM to be reflected in the ERP system.

Real-time integration lets changes in one system be reflected immediately in the other. This is accomplished through the use of a common database. Alternatively, many programs provide APIs (application programming interfaces), which pre-configures a set of usable instructions that allow for changes in one program's database to be triggered by actions in another.

Benefits of ERP Implementation

There are a number of top-level business benefits associated with a well managed ERP implementation plan:

Shorter Implementation Timeframes

Successful ERP implementation can take months or even years, no matter how much planning and research you do. A poorly managed ERP implementation can and will take a long time to execute, with delays caused by hardware insufficiencies, unexpected business process adjustments, or ill-planned training. Proper planning can shorten delays and ensure user acceptance by key employees.

Cost Management (and Reduction!)

ERP implementations require planning, employee input, and the allocation of resources to execute. Each represents an opportunity for costs to swell, if not properly managed. The total price of implementation may not account for individual user subscriptions, training, or hardware upgrades. Contracting with an experienced ERP vendor offers a way to put a definitive cost on implementation services so you can plan your budget better.

Software Support and Training

End-user training can be another hiccup during implementation. How experienced are your employees with technology? Do they need multiple training sessions to understand the new system, or can they learn as they work? Answering these questions will reveal whether your ERP software is capable of growing with you.

Preservation of Data Security

A change in ERP comes with business continuity risks--including a data security risk. Best practices to ensure data security have been worked out over time with existing systems. A well-executed implementation will make sure the right user permissions and security measures are carried over and improved upon.

However, while this can increase the total time for setup and costs, it provides a safety net for your business by getting as much vendor assistance as possible. Any installation issues can be identified and addressed by a professional rather than your overworked team.

Cost of ERP Implementation

How much does a typical ERP implementation cost? This completely depends on the size of your business, the scope of the software being implemented (such as the number of applications required at setup), the number of user licenses (end users requiring access), and other services your business may choose to pay for (such as data migration).

Over the course of ownership, a small business ERP software can range between $25,000 to $150,000. Meanwhile, a mid-sized business or large enterprise can expect to spend anywhere from $150,000 to $500,000. However, the actual cost to operate ERP software is only a small fraction of the overall implementation costs.

When implementing an ERP system, your business should budget for:

• Licensing costs
• Basic services (standard implementation, training, basic data migration)
• Customizations (if any)
• 1st-year support

SaaS options, or cloud ERP software, are usually billed on a subscription basis, and support is generally included in your monthly or yearly subscription. Whatever support route you decide on, you can anticipate an increase of about 3% to 5% each year when it comes time to renew.

Examples of ERP Implementation Failures

While ERP software can offer a lot of benefits to your business, there are risks to consider. Famous cases of failed ERP implementations include:

• Hershey: In 1999, Hershey had a mishap syncing their SAP ERP, CRM, and supply chain applications, leading to an 8% stock dip. Source: Pemeco.com
• Nike: In 2000, Nike incorrectly implemented a demand planning software that was intended to match supply with demand and shorten their manufacturing cycle. This led to $100M in lost revenue. Source: CIO.com
• Hewlett Packard: In 2004, Hewlett Packard attempted to move all of their North American divisions into a single consolidated ERP system. A botched rollout led to $160M in backlogged orders. Source: ComputerWorld.com

In all these cases, minor issues led to expensive consequences. How does a company avoid these failed implementations? A few quick tips:

• Filter out providers who aren't focused on your needs. Establish trust with your provider by reading real reviews, testimonies, and case studies, to ensure they are experts in your industry.
• Insist the software vendor provides you with a detailed ROI justification report. The software provider should show you the opportunity cost of improving your efficiency, project your revenue based on the improvement to your decision making, and overall help visualize the financial impact the ERP implementation will have on your organization.
• Conduct demos in-person or through guided meetings. Rather than watching a YouTube video, make sure a provider can walk you through a program step by step and answer questions and concerns you may have.

Keys to a Successful ERP Implementation

• Verify vendor certifications and training. On top of ensuring that they are an authorized seller of the software, many ERP providers need to stay current with various changes in end code. Make sure that your provider has an ongoing relationship with the provider so they are up to date on new patches and releases of your ERP.
• Ensure the support staff is qualified. Usually, a smart sales team can be the deciding factor in a business deciding to choose one provider over another. However, once the ERP software has been purchased, any future interaction your business will have with that company will be for support. It's important that your vendor's support team is just as competent as their sales department.
• Follow up on references. An accomplished ERP vendor will be more than happy to provide you with references of happy customers. This gives you the opportunity to ask the questions you may be afraid to ask the vendor directly.