How to Bite the ERP Bullet

BEATING BACK BLOAT
The great fear about implementing any ERP system, whether cloud-based or on-premises, is “bloat.” A smaller company may need to hire a consultant to help identify the right technology partner because few can deal directly with an SAP or Microsoft. SAP says 80 percent of its 263,000 customers worldwide are small or medium-sized enterprises (SMEs), but a majority of them work with SAP’s channel partners. While small company CEOs can work directly with smaller ERP companies, such as Epicor Software, based in Austin, Texas, managing that relationship can be still be tricky. If the project comes off the rails, a company might have to hire consultants to help fix it. Delays in implementation and cost overruns can occur if the CEO does not take a personal stake in decision-making and implementation.

“From my perspective, the CEO has to lead the process and be all-in,” says Anthony L. Chirchirillo, CEO of Chirch Global Manufacturing, headquartered in Cary, Illinois. One basic problem to overcome is building an internal consensus about the technology path because different departments within the company may fear that a cloud-based ERP system will erode their power base. “It has to be driven from the top,” Chirchirillo explains.

If done wisely, ERP systems can transform a smaller business and set the stage for its next leg of growth. Chirchirillo, for example, implemented an ERP system from Epicor that was completely in the cloud. His company is in the tool-and-dye, metal stampings and metal fabrication businesses. When he acquired the company, its software was badly out of date, so he upgraded its systems to the cloudbased ERP system over a three-month period ending in June 2011. “What was driving us was not just catching up to the competition,” Chirchirillo says. “We wanted to leapfrog the competition.”

That platform allowed him to use another cloud-based communications system to create a collaborative network among 14 multi-generational, family-held niche manufacturing companies in Illinois and Wisconsin with total revenues of more than $220 million. “They all had good skills,” he explains, “but they were fighting the trap of being looked at by our large customers as just providing a commodity.”

Now, when a large customer requests bids on a project that may require injection-molded plastic parts, powder coating, machining or other highly specialized services, the Chirch network can see the customer’s drawing on their shared cloud-based system and bid for specific parts of the order. The ERP system and other cloud-based technology thus transformed their business models. Chirchirillo says embracing cloud-based ERP systems allows SMEs to stay focused on their core businesses and not get bogged down in managing IT systems. “SMEs have a very difficult time keeping up with the new versions of systems and having to constantly go through re-installations,” he says. “Every time a new version of a piece of software comes out, you have to go through that process.” Now Epicor manages Chirch’s system and does the software updates behind the scenes.

He takes issue with two reasons some small-company CEOs say they do not want to outsource their ERP systems—they want to retain control of their systems and they worry about data security. Chirchirillo says trying to develop and maintain one’s own internal IT department carries its own set of risks. “It’s very difficult for SME manufacturers to employ high-end IT people because of the cost factor, and they are somewhat transient,” he explains. “You run the risk of having someone who is very knowledgeable about your system leave you.”

When it comes to security against hacking, Chirchirillo notes that software companies such as Epicor have multiple layers of backups and protections and are monitoring systems around the clock. “Their processes are more secure than what the vast majority of SME companies can afford,” he says. “I actually feel we have reduced our business risk.”

The providers of ERP systems to smaller businesses are a fragmented field. The big players include Microsoft, Oracle, SAP and Sage Software, a unit of Britain’s Sage Group, but none of them appear to be dominant. There are also a raft of smaller companies such as Epicor, Intuit and NetSuite. Business-Software.com lists 20 different competitors.

The big guys who sell through channel partners naturally argue that theirs is the best model. “If you have Microsoft combined with our channel partners, you’ve got the best of both worlds,” says Gordon Macdonald, director of the ERP management team for SMEs at Microsoft. “The manufacturer has a massive investment in innovation and tying things together from the software perspective, and the channel partner delivers industry or region-specific solutions that are
perfect for that customer.”

Says Kevin J. Gilroy, senior vice president and general manager of the global SME segment for SAP, “Many of our channel partners develop an intimacy with the customer that the industry misses sometimes. The CEO of a small manufacturing company in Topeka, Kansas, knows he can call that partner 24/7. He has his cell phone number and sees him in church.”