Business Transformation With the 5 “R”s of ERP Modernization
Did you know that the first precursor ERP software was introduced in the 1960s? [1]. It is absolutely mind-boggling, right? Since then, ERP systems have evolved tremendously and become an integral part of businesses of all sizes across different industries.
Besides, ERP solutions have a long life cycle, due to which, most businesses have to use the same ERP for around 10-20 years. In fact, a lot of companies still use ERP systems that date back to the 2000s. However, due to the rate at which technology has upgraded, personalization, and add-ons, dated technology is becoming a major barrier for businesses, especially in their transformation.
ERP modernization is important and there is a strong reason for that. It acts as a catalyst for business transformation. However, a lot of companies have failed to crack the right way to go about ERP modernization, and thereby fallen behind the competition.
Companies that are involved in the supply chain and logistics sector need to stay on their toes to stay competitive in the current market landscape. Businesses across all domains need to find new ways to become more analytical and use real-time data to enhance collaboration, improve operational efficiency, and response time.
Right from distribution to manufacturing, ERP modernization is very important to take your business to the next level. Cutting-edge technologies such as AI have led to the introduction of a plethora of new features in modern ERP systems. These include digital automation, track and trace, chatbot, and more.
One of the most important questions that most companies are finding answers to is When is the right time for ERP modernization?
In this article, we will take a look at when it is the right time for ERP modernization and what are the five ‘R’s of legacy ERP modernization.
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What is the right time to initiate ERP modernization?
While most companies are looking to modernize their ERP systems, they do not have a clear idea of when they should initiate ERP modernization. It is not easy to determine the right time to undertake this project or upgrade your ERP.
One reason why companies find it difficult to take the plunge is the high degree of proficiency legacy ERP systems deliver while managing different business operations. Having said that, if there are certain tasks or processes that your existing ERP system is not able to handle, it is probably the right time to focus on ERP modernization.
If you come across any of these challenges, you should consider deploying a modern cloud-based ERP solution.
- Management reporting becomes problematic and difficult due to the limitations of the current ERP system.
- Your ERP needs to be upgraded for which your company needs to invest in new hardware.
- Your ERP software is obsolete and requires frequent maintenance, resulting in additional IT costs.
- If your employees become increasingly dissatisfied with the existing ERP software, ERP modernization is necessary.
- Your current ERP solution is not able to handle the increasing business requirement, a growing number of users, and large volumes of data.
- ERP modernization is a must if your current system cannot adapt to the evolving marketing conditions, business processes, and compliance regulations.
What are the five “R”’s of legacy ERP modernization?
Gartner has revealed the five “R”s of legacy ERP modernization. These are also the five approaches companies can take to modernize their legacy ERP systems.
1. Rehost
It is a wise choice to move to a better and improved ERP solution If a business has expanded and outgrown its existing ERP. Besides, when the performances are affected, shifting the ERP to another infrastructure such as the cloud or a new server is very important. Why? Making these changes will provide faster storage, enhanced networking, and more processing power.
Rehosting also means that you need to upgrade only the software and the hardware of the back-end database engine that saves ERP data. This plays an important role in improving the system’s performance.
2. Refactor
Refactoring an ERP solution means assessing and evaluating ERP customizations and processes. It is important to understand that this approach requires an internal committee of subject matter experts, IT professionals, and business analysts.
This committee studies the ERP system and makes recommendations that will improve overall business processes and efficiency.
3. Rearchitect
Rearchitecting means adding third-party applications to add functionalities that are missing in a legacy ERP system. For example, a firm may want to get rid of duplicate data entry between the existing ERP and the supplier’s system.
One of the solutions to solve this problem is to adopt an electronic data exchange that offers a way to exchange data including invoices, orders, and delivery confirmations to minimize duplication.
4. Rebuild
Similar to rearchitecting, rebuilding also includes a committee that is reviewing and making attempts to optimize the current processes. The only difference here is that the committee considers rebuilding a few existing business processes. On some occasions, it could mean starting right from the beginning.
In the rebuild approach, the committee could throw new tools in the mix and also change the responsibilities of the staff.
5. Replace
The replace strategy primarily refers to getting rid of some of the components of ERP systems that are obsolete and ineffective. Production scheduling, warehouse management systems, and manufacturing resource planning are a few components of an ERP that organizations find difficult to use.
Which is the right approach for your business?
There are different factors you need to consider while selecting a legacy ERP modernization approach. Out of these business risk and cost are arguably the most important factors.
Every modernization comes with a different degree of risk. If you want to deal with low-level risk, you should consider refactoring and rehosting. These two approaches provide minimum disruption and predominantly focus on optimizing the existing ERP processes.
If businesses are dealing with severe problems such as inefficient workflows and processes, replacing and rebuilding is the right approach.
The next step is to evaluate the costs involved with ERP modernization. Legacy ERP modernization demands different costs, with some requiring human capital and others demanding monetary funds.
SEE ALSO: Accenture Strikes Golds, Signs $163 Mn Deal to Deliver Single ERP System
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Sources:
[1] Thompson. P (2020) “The Complete History of ERP: Its Rise to a Powerful Solution” G2 [online] Available from: https://www.g2.com/articles/history-of-erp [accessed February 2022]
