2012 ERP STUDY - MPI Group

2012 ERP STUDYImplementatIon and Usage trends for saas/CloUd vs. tradItIonal systems

2012 ERP STUDYImplementatIon and Usage trends for saas/CloUd vs. tradItIonal systems

2012 ERP Study l 1

Manufacturing leaders are ready to invest again in capital expenditures and information technology. After years of delayed or canceled projects due to recession, many of these executives find their firms constrained by aging facilities, failure-prone equipment, and outdated software and systems. For example, a recent study found that 40 percent

of enterprise resource planning (ERP) systems were more than seven years old, and 7 percent of systems were more than 15 years old.1

Manufacturing companies anticipating growth in 2013 and beyond are actively seeking new equipment and systems. Acquisitions of ERP systems — whether an upgrade, replacement, or first-time purchase — will be under discussion in many manufacturing boardrooms this year.

The 2012 ERP Study assessed implementations of ERP systems, satisfaction with those implemen-tations, and the extent to which ERP systems have benefitted organizations. Conducted by the Manufacturing Performance Institute (MPI) on behalf of Plex Systems Inc., the study also analyzed implementations based on the type of system in place: software-as-a-service/cloud ERP systems vs. traditional ERP systems, where hardware and software reside on premises.

Limited investment during the recession, combined with significant executive turnover during this turbulent period, means that many new manufacturing leaders will likely face ERP decisions for the first times in their careers. They will seek to balance actual need for new or upgraded systems against potential organizational and functional requests. They will seek to predict total cost of ownership and return on investments, as well as project outcomes and performance measures that will drive enterprisewide success: customer satisfaction, productivity, supplier performance, etc. Findings from the 2012 ERP Study will help to inform their decision making.

Table of Contents

Introduction 1

ERP Licenses and Functions 2

ERP Implementation 4

ERP Value 8

Profile of Study Participants 11

Methodology 12

About Manufacturing Performance Institute 12

About Plex Systems 12

Introduction

1Kevin Prouty, Aging ERP: When old ERP is too old, Aberdeen Group, June 2011. These participants did not answer questions pertaining to ERP implementation and value.

2 l The MPI Group

Amajority of manufacturers (60 percent) participating in the 2012 ERP Study indicate they operate a traditional ERP system in which hardware and software

are on premises; 22 percent of participants operate a software-as-a-service (SaaS)/cloud ERP system, and another 18 percent2 have no ERP system in place (Figure 1). Lack of an ERP system is highest among companies with lower annual sales: 26 percent of organizations with sales of less than $50 million have no ERP.

Two-thirds of cloud ERP users (68 percent) have unlimited licensing agreements within their companies, more than double the percentage of traditional ERP users with unlimited company licenses. Overall, 42 percent of companies with ERP have unlimited company licensing. Traditional ERP users are more likely to pay by the seat: 52 percent vs. 18 percent among cloud ERP users (Figure 2).

These licensing agreements impact the number of employees who can access ERP: 90 percent of employees (median3) for cloud ERP users vs. 30 percent (median) for traditional ERP users. Overall, 40 percent (median) of employees are licensed users at companies with ERP (Figure 3).

ERP Licenses and Functions

1. ERP system description

22.0%17.7%

60.2%

All

Software-as-a-service (SaaS)/Cloud modelTraditional hardware-software on premisesNo ERP

Unlimited within companyUnlimited by siteLimited by seat purchasesOther

2. ERP licensing agreement

41.7%

43.1%

8.0%

7.3%

67.5%

17.5%

7.5%

7.5%

32.4%

52.3%

8.1%

7.2%

All SaaS/Cloud

Traditional

3. Percentage of employees that are licensed users

All SaaS/Cloud Traditional

Median Average

Unlimited within companyUnlimited by site

Limited by seat purchasesOther

0

20

40

60

80

100

40.0%46.5%

90.0%

74.0%

30.0%36.3%

2These participants did not answer questions pertaining to ERP implementation and value.3Median is the statistical midpoint — 50% above this figure and 50% below this figure — and is considered a typical performance.

2012 ERP Study l 3

Only a small percentage of manufacturers with ERP make those systems accessible to suppliers (26 percent) and customers (19 percent). Cloud ERP users are significantly more likely to make their systems accessible to suppliers (60% cloud vs. 14% traditional) and customers (43 percent cloud vs. 11 percent traditional (Figure 4).

The most commonly used ERP function, regard-less of type of ERP, is accounting (91 percent of participants) (Figure 5). For the three next most popular ERP functions — inventory control, costing, and supply-chain management — usage is comparable between cloud and traditional ERP users. But usage patterns differ significantly for other functions. For example, 75 percent of manufacturers with cloud ERP use manufacturing execution systems (MES) compared to 57 percent of traditional ERP users. And 55 percent of manufacturers with cloud ERP use the system for document control vs. 30 percent of traditional ERP users.

Yes No Yes No

Unlimited within companyUnlimited by site

Limited by seat purchasesOther

0

20

40

60

80

100

4. External licensed users of ERP system or portal

74.0%

26.0%

60.0%

40.0% 89.1%86.4%

13.6% 10.9%

80.7%

19.3%

42.5%

57.5%

Suppliers Customers

All SaaS/Cloud

Traditional All SaaS/Cloud

Traditional

5. ERP functions currently used by company

Accounting

Inventory control

Costing

Supply-chain management

Manufacturing execution system

Quality management

Product data management

Customer relationship management

Human resources

Analytics/dashboarding

Document control

Program management

Groupware databases/communication

Ecommerce

Other

No functions used

All SaaS/Cloud Traditional

0 20 40 60 80 100

90.5%90.0%90.7%

84.5%82.5%

85.2%

77.7%77.5%77.8%

63.5%65.0%

63.0%

62.2%75.0%

57.4%

49.3%60.0%

45.4%

49.3%55.0%

47.2%

39.2%42.5%

38.0%

38.5%55.0%

32.4%

36.5%47.5%

32.4%

36.5%55.0%

29.6%

25.7%32.5%

23.2%

23.7%35.0%

19.4%

19.6%20.0%19.4%

2.7%2.5%2.8%

0.0%0.0%0.0%

4 l The MPI Group

Amajority of companies (55 percent) with ERP had implemented their systems more than four years ago (Figure 6). Not surprisingly, the percentage of older

systems is higher among traditional ERP users (62 percent) than cloud ERP users (38 percent), due to cloud ERP’s recent emergence.

A mix of big-bang and phased ERP rollouts have occurred among manufacturers — 31 percent and 41 percent, respectively, for all study participants. Phased rollouts are more common among cloud ERP users (61 percent) than traditional ERP users (34 percent) (Figure 7).

ERP Implementation

6. Years since ERP system implementationwas completed

All SaaS/Cloud

Traditional

18.0% 20.0% 17.3%

8.0% 5.0% 9.1%

14.0%

27.5%

9.1%

4.7%

10.0%

2.7%

55.3% 37.5% 61.8%

7. Company’s ERP implementation strategy

All SaaS/Cloud

Traditional

30.7%26.8%

32.1%

41.3%

61.0%

33.9%

23.3% 7.3% 29.4%4.7% 4.9% 4.6%

More than 4 years3–4 years2–3 years1–2 yearsLess than 1 year

OtherParallel (legacy systems alongside ERP)Phased rolloutBig bang/all users at once

2012 ERP Study l 5

Software costs are the most common expenses included in ERP implementation fees (81 per-cent of all participants report software as a fee component), but software is more likely to be a fee for traditional ERP users (86 percent) vs. cloud ERP users (68 percent) (Figure 8). It is interesting to note that cloud users perceive software costs as component fees, given that there are no software systems involved with SaaS/cloud ERP other than web browsers.

8. Included in ERP implementation fee

Software costs

Installation

Training

Company licenses

Maintenance

Hardware costs

IT backup and security

Disaster recovery

Other

None of these

All SaaS/Cloud Traditional

0 20 40 60 80 100

81.2%67.5%

86.2%

65.1%55.0%

68.8%

63.1%55.0%

66.1%

61.7%45.0%

67.9%

61.1%65.0%

59.6%

45.6%32.5%

50.5%

26.9%47.5%

19.3%

15.4%32.5%

9.2%

5.4%10.0%

3.7%

3.4%2.5%3.7%

Installation, training, company licenses, and hardware costs are also more commonly included among implementation fees for traditional ERP users. Two activities — IT backup and security and disaster recovery — are more common among implementation fees for cloud ERP users.

6 l The MPI Group

ERP Study participants are most satisfied with hardware costs and the quality of their implementations: the study found a satisfaction differential4 of +26 percentage points and +19 percentage points, respectively. Manufac-turers are least satisfied with other costs and overall costs of implementations: satisfaction differential of -2 percentage points and -5 per-centage points, respectively (Figure 9).

Cloud ERP users are significantly more likely to report satisfaction with all implementation factors; the lowest satisfaction differential for any factor for cloud ERP is +20 percentage points (overall costs), while the highest satisfaction

differential for any factor for traditional ERP is +19 percentage points (hardware costs). The greatest disparities in satisfaction differentials between cloud ERP and traditional ERP are for the following factors:

•Overall ease of implementation: +61 percentage points for cloud ERP vs. -13 percentage points for traditional ERP.

•Length of time/duration: +55 percentage points for cloud ERP vs. -17 percentage points for traditional ERP.

•Risks to corporate operations: +67 percentage points for cloud ERP vs. +1 percentage point for traditional ERP.

9. Satisfaction Differential with implementation factors% of satisfied users (rated 4 or 5 where 5=satisfied) minus % of dissatisfied users (rated 1 or 2 where 1=dissatisfied)

Hardware costs

Quality

Risks to corporate operations

Resource requirements (implementation team)

Resource requirements (non-team workforce)

Overall ease of implementation

Adapting existing processes and systems to ERP

Length of time/duration

Software costs

Other costs (not hardware or software)

Overall costs

All SaaS/Cloud Traditional

0 20 40 60 80 100

+25.5% pts+43.6% pts

+19.1% pts

+18.7% pts+60.0% pts

+3.6% pts

+18.2% pts+66.7% pts

+0.9% pts

+12.7% pts+47.5% pts

0.0% pts

+12.7% pts+52.5% pts

-1.8% pts

+6.1% pts+60.5% pts

-12.9% pts

+4.1% pts+50.0% pts

-13.0% pts

+2.7% pts+55.0% pts

-16.5% pts

+2.0% pts+25.0% pts

-6.4% pts

-2.0% pts+25.6% pts

-11.9% pts

-5.3% pts+20.0% pts

-14.6% pts

4A satisfaction differential is calculated by subtracting the percentage of dissatisfied users (responded 1 or 2 where 1=dissatisfied) from the percentage of satisfied users (responded 4 or 5 where 5=satisfied). A positive number reflects relatively more satisfaction among respondents; a negative number reflects relatively less satisfaction among respondents.

2012 ERP Study l 7

One-third of ERP users (35 percent) report it is easy (very easy or somewhat easy) to customize the functionality of their systems, and 39 per-cent report it is easy to upgrade functionality (Figure 10).

Cloud ERP users are more likely to report that it is easy to customize functionality (61 percent vs. 26 percent of traditional ERP users) or upgrade functionality (73 percent vs. 26 percent of traditional ERP users).

0

20

40

60

80

100

12010. ERP ease

22.0%

12.8%

30.0%

30.3%

8.3%10.9%

15.2%

46.3%

19.5%

Customize functionality Upgrade functionality

All SaaS/Cloud

Traditional All SaaS/Cloud

Traditional

Very difficultDifficultNeither easy nor difficultSomewhat easyVery easy

13.3%

29.3%

25.3%

10.0%

26.8%

34.2%

26.8%

9.8%

2.4%

17.4%

31.2%

23.8%

25.8%

23.2%

11.9%

26.8%

4.9%

2.4%

15.5%

28.2%

15.5%

8 l The MPI Group

ERP Study participants are most likely to have improved inventory manage-ment with their ERP systems, with a satisfaction differential of +52 percent-

age points. ERP systems are least likely to have positively impacted new-product-to-launch lead times, with a satisfaction differential of only +26 percentage points (Figure 11).

Cloud ERP users are more likely to cite im-proved performance of all activities, and are also more likely to rate the activities as sig-

ERP Value

nificantly better or better. Activities with the greatest disparities in satisfaction differentials between cloud ERP and traditional ERP include:

•Product quality/reliability: +73 percentage points for cloud ERP vs. +28 percentage points for traditional ERP.

•Supplier performance: +59 percentage points for cloud ERP vs. +21 percentage points for traditional ERP.

•Customer satisfaction: +73 percentage points for cloud ERP vs.

+36 percentage points for traditional ERP.

11. ERP impact% of significantly better or better minus % of significantly worse or worse

Inventory management

Workforce productivity

Manufacturing costs

Deliverability (on time and to all specifications)

Order-to-delivery leadtimes

Customer satisfaction

Production leadtimes (production start-to-end)

Product compliance

Product quality/reliability

Asset management

Administrative costs

Supplier performances

New-product-to-launch leadtimes

All SaaS/Cloud Traditional

0 10 20 30 40 50 60 70 80

+52.0%+75.6%

+43.1%

+48.0%+70.7%

+39.5%

+47.3%+68.3%

+39.5%

+46.0%+58.5%

+41.3%

+45.7%+53.7%

+42.7%

+45.6%+72.5%

+35.8%

+41.6%+60.0%

+34.9%

+40.7%+62.5%

+32.4%

+40.4%+73.2%

+28.2%

+38.3%+57.5%

+31.2%

+37.8%

+31.1%+58.5%

+20.6%

+25.7%+36.6%

+21.5%

+53.7%+31.8%

2012 ERP Study l 9

The vast majority of manufacturers indicate that the total cost of ownership (TCO) for their ERP system is either very predictable (15 percent of study participants) or predictable (55 percent), a perspective that is comparable among cloud ERP users and traditional ERP users (Figure 12). But overall, almost one in 10 manufacturers report that TCO — typically considered to be direct and indirect costs of ERP ownership — is very unpredictable, a precarious position given the large investments involved.

Yet despite the size of these investments, few companies track return on investment (ROI) from their ERP systems. Only 21 percent of manufacturers track ROI, although cloud ERP users are twice as likely to do so: 34 percent of cloud ERP users vs. 17 percent of traditional ERP users (Figure 13). For the few companies that do track ERP ROI, 78 percent report a positive ROI, and 30 percent report an ROI of 100% or higher (Figure 14).

12. Predictability of company totalcost of ownership for ERP

All SaaS/Cloud

Traditional

14.7%22.5%

11.8%

55.3%55.0%

55.5%

22.0% 17.5%23.6%

8.0% 5.0% 9.1%

Very unpredictableSomewhat unpredictableSomewhat predictableVery predictable

13. Measured return on investment(ROI) from company ERP

All SaaS/Cloud

Traditional

21.4%

34.2%

16.8%

83.2%78.6% 65.8%

Yes No

14. If measured, approximate ROIfrom company ERP5

All SaaS/Cloud

Traditional

4.4%

11.1%

16.7%

7.1%

15.2%

28.3%

33.3%

0.0%

16.7%14.3%

25.0%

10.9%

10.9%

8.7%

15.2%11.1%

11.1%

10.7%7.1%

7.1%

17.9%

6.5%0.0%

10.7%

Negative ROI0%1% to 25%26% to 50%51% to 100%101% to 200%201% to 300%>300%

5Small sample sizes as many study participants do not measure ROI.

10 l The MPI Group

Few measures are more revealing than an executive’s willingness to put his own reputation on the line and recommend a purchase — of any kind. Surprisingly, despite the negative attention focused on many ERP implementations through the years, 79 percent of executives would recommend their ERP system to others (Figure 15).

Perhaps surprisingly, the age of an ERP system does not impact a user’s willingness to recom-mend it — i.e., newer systems are not necessarily perceived as better or worse. Two-thirds of companies (68 percent) that implemented their systems more than three years ago would recommend their systems vs. 70 percent of companies that implemented systems within the past three years.

The size of a company does seem to influence satisfaction with an ERP system: 77 percent of manufacturers with sales of more than $100 million would recommend their systems vs. 63 percent of manufacturers with revenues of $100 million or less. (Note: 22 percent of smaller companies use cloud ERP, 56 percent traditional ERP, and 22 percent have no ERP; 22 percent of large companies use cloud ERP; 67 percent traditional ERP, and 11 percent have no ERP.)

Cloud ERP users are far more likely to recom-mend their systems to any degree (98 percent vs. 59 percent of traditional ERP users) and are far more likely to strongly recommend their system (42 percent vs. 16 percent of traditional ERP users).

15. Recommend ERP system to others

All SaaS/Cloud

Traditional

0

20

40

60

80

100

23.0%

41.5%

16.2%

46.1%

56.1%

42.3%

24.3%32.4%

6.6% 2.4% 9.0%

Strongly not recommendNot recommendRecommendStrongly recommend

0.0%

2012 ERP Study l 11

Profile of Study Participants

Participant title/role

26.0%

14.6%

7.0%

11.9%

1.6%

6.0%

15.1%

9.7%

8.1%

Manager/Supervisor (not IT)IT Manager/SupervisorDirector/VP (not IT)C-level executive (not CTO or similar)

IT otherIT Director/VPOther (not IT) CTO or similarNone of the these

Company employees

35.7%13.0%

7.6%

9.7%

28.7%

5.4%

Less than 100100 to 500501 to 1,000

1,001 to 5,0005,001 to 10,000More than 10,000

Company approximate sales

51.1%

9.3%

12.6%

6.0%

13.7%

7.1%

Less than $50 million$51 million to $100 million$101 million to $250 million

$251 million to $500 million$501 million to $1 billionMore than $1 billion

Geographic distribution of products

67.9%

8.2%

2.7%

21.2%

InternationalNational

RegionalState/Province or smaller

12 l The MPI Group

Methodology

T he 2012 ERP Study was designed to assess manufacturers’ implementations of ERP systems, satisfaction with those implementations, and the extent to which ERP systems have benefit-ted organizations. The study was conducted by the Manufacturing Performance Institute

(MPI) on behalf of Plex Systems Inc.

The study was conducted using an online questionnaire; Plex Systems promoted the study to manufacturers, including its customers. There were 186 total respondents, with surveys received from May through October 2012. Responses were received by the Manufacturing Performance Institute (MPI) and then entered into a database, edited, and cleansed to ensure answers were plausible, where necessary.

All respondent answers to the survey are confidential. As an incentive, respondents who provided contact information were offered a copy of a customized benchmark report, which compares their responses to respondents with similar profiles. Only MPI has access to participants’ answers to individual questions. Plex Systems received only aggregate data along with a file containing contact information for participants who requested a customized benchmark report.

About The Manufacturing Performance Institute The Manufacturing Performance Institute (MPI) is a unit of The MPI Group and serves business leaders with research, advice, and performance-targeted solutions that provide a competitive advantage in today’s fierce marketplace. MPI combines the disciplines of research, strategic advice, knowledge development, and hands-on leadership to create a difference — in performance, in profits, and in the people who make them possible.

About Plex Systems Inc.

Plex Systems Inc. is the developer of Plex Online, a Cloud ERP solution for the manufacturing enterprise. Plex Online offers industry-leading features for virtually every department within a manufacturer, including Manufacturing Execution System (MES) and Quality Management System (QMS) for the shop floor, Supply Chain Management (SCM) for procurement, Enterprise Resource Planning (ERP) for finance and management, and Business Intelligence (BI) for executive management. Plex Online’s comprehensive functional coverage delivers a “shop floor to top floor” view of a manufacturer’s operations, enabling management to run its business at maximum efficiency. Founded in 1995, Plex Systems is headquartered in Troy, Mich., with customers around the globe.

Conducted by The MPI Groupwww.mpi-group.net

+1 216-991-8390

Sponsored by Plex Systemswww.plex.com+1 855-534-8012