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Tier 1 to Mid-Market

A growing number of manufacturers are abandoning failed ERP implementations in lieu of mid-market solutions
A growing number of manufacturers are abandoning failed ERP implementations in favour of mid-market solutions. It used to be that larger manufacturers would purchase multi-million dollar ERP software to manager their businesses. This trend is changing as companies realize the colossal undertaking of implementing these complex systems, the increased risk of failure, and the long road to return on investment. Fortunately, mid-market products are now a viable option for these companies. These solutions have undergone significant advancements in the last few years, including streamlined data migration technologies and easy integration of specialized applications such as supply chain management, logistics, web portals and services, and other business-critical applications.

ERP Failure

Implementing a tier one ERP system is not an easy project. In fact, a recent report indicates that the average ERP implementation takes 23 months. According to some published reports, 33% of ERP implementations were “somewhat longer” than expected and 26% were “significantly longer.” The same survey showed that 35% of implementation budgets were “somewhat higher” than expected while 20% where “significantly higher.” There are many ERP disaster stories, which reveal that even some of the largest and most successful companies are not immune to ERP failure.

ERP Costs

Costs associated with ERP implementation are extensive and often unanticipated. Most companies fail to identify the true cost of ownership because they do not include many of the associated costs from hardware and software upgrades, inefficiencies moving to the new application, and other hidden costs. The total cost of implementing a new ERP system most often includes a sizable bill from each of the categories below:

> Evaluation / Consulting
Companies invest considerable money and resources researching ERP systems. These costs include downtime to review demonstrations, costs for consultants, paid evaluations, and more.

> Hardware Upgrades
The move to a new ERP system typically requires upgrades to servers and personal computers. Project managers often miss these costs.

> Software Upgrades
Most implementations require new software or upgrades to existing software such as databases, operating systems, terminal services, etc.

> Software & Maintenance
The cost for the ERP software is only part of the total cost. Companies should be aware of the annual maintenance costs associated with their ERP system as well as the cost for future modules and services.

> Training
The training budget can consume a large chunk of the project budget – especially in large ERP implementations. Training is usually available only from teams of expert consultants who charge a premium for their services. Companies are rarely able to train their own employees due to the complexity of the software.

> Data Migration
Many companies fail to identify data migration costs as well. These costs may include development of migration scripts to move data from the old system to the new system, reformatting and validation of the old data, and the cost of maintaining the old system when transaction history cannot be moved into the new ERP system.

> Implementation / Consulting
Most ERP systems require a team of consultants for implementation. The costs for implementing the system can run 4 to 6 times the cost of the software itself.

> Customization / Consulting
ERP systems provide a wealth of functionality but they usually require some level of customization and integration of third party products, such as supply chain management, web catalogs, CRM, and more.

Evolution of Mid-Market Products

Mid-market products have improved tremendously over the past few years. Once providing only basic financial applications, mid-market ERP system now rival some of their tier one competitors with such features as supply chain management, inventory replenishment, web-based catalogs, B2B ecommerce, and advanced manufacturing applications.

Technology is another advantage of mid-market solutions. Most tier one applications are developed in proprietary or legacy programming languages and support mainframe servers and expensive databases. Mid-market products, on the other hand, typically run on PC-compatible servers and workstations and natively support current Windows operating systems, as well as the powerful SQL Server database.

Technology for the PC platform has improved dramatically over the last decade providing scalability, easy upgrades to new technologies and performance on par with industry demands.

Why Mid-Market Products Work?

Mid-Market products offer a cost-effective alternative to expensive and complex tier one applications because companies can implement the software in a shorter period, achieve a faster return on investment, and significantly reduce their overall cost of ownership.

One reason for the improved ROI and lower TCO is that mid-market products are less complex and require less training. Further, smaller IT staffs can manage mid-market products saving the company thousands of dollars in annual IT expenses.

In addition, many mid-market products offer customization tools, which allow the company’s IT, staff to do most of the customization and application integration themselves. This further reduces IT costs and the need for expensive third party consultants and developers.

Most mid-market products take advantage of industry-standard technologies such as Windows and SQL Server. These are the same technologies that today’s college students are learning. Consequently, companies with these solutions will have a wealth of potential employees who already understand the fundamental architecture supporting their critical business applications.

Unlike tier one applications, mid-market products are typically developed in one development language and support one or two database platforms. This means that internal staff can more easily keep up with technology advances because they don’t have to manage knowledge in multiple environments or application platforms.

Finally, many mid-market products offer import utilities and even sophisticated data migration tools to import data from legacy applications and external systems such as electronic data interchange applications.

Mid-Market Applications For Larger Companies

Many larger companies are abandoning lengthy ERP implementations and legacy mainframe applications for mid-market ERP systems. The cost savings from IT administration and annual maintenance contracts alone often validate the decision.

Further, many spin-off companies and start-up companies with aggressive growth plans choose mid-market products because they can evolve with their business.

Conclusion

Tier One ERP applications are complex and expensive solutions designed for very large organizations. Many companies currently using or evaluating these systems select mid-market products to run their businesses due to lower cost of ownership, improved return on investment, and the ability flexibility to customize the software to meet their unique business objectives.

Mid-market implementations are more successful, the products are easier to learn and to use, and they now offer many of the advanced features previously found only in more expensive products.


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