6 keys for ERP life cycle management in manufacturing

Matt Keegan, Eric Bunner, Trevor Smith
1/30/2024
6 keys for ERP life cycle management in manufacturing

Review these important considerations before undertaking new ERP projects.

The enterprise resource planning (ERP) life cycle can mean different things to different manufacturing companies. While some organizations are in the evaluation stage, others are implementing new ERP solutions, or customizing and upgrading existing ERP systems.

The one thing these organizations have in common is operation in one part of the ERP life cycle.

ERP life cycle

Respondents to a poll from our recent webinar on ERP life cycle management for manufacturing companies* indicated where their companies are in the cycle.

  • 39% are stabilizing, updating, and continually improving the ERP system
  • 15% are planning for a new ERP system
  • 24% are implementing a new ERP system
  • 11% are evaluating and selecting a new ERP system
  • 10% are extending the life of legacy ERP to extract return on investment until the operational risks outweigh the benefits

No matter where a company might be in the ERP life cycle right now, companies should note six keys to understanding the cycle when it comes to manufacturing.

    1. Take a thoughtful, structured approach to the ERP selection process

    When exploring a new software system like an ERP, buyers might narrow the field down to a handful of potential solutions. However, buyers often fall short in the assessment and selection stages that follow. Instead of investing significant time and effort into asking the right questions, evaluating capabilities, and uncovering shortcomings and limitations, they make decisions based on short, high-level presentations and demonstrations, along with the assurances of software vendors. Consequently, buyers might select an ERP that falls short of expectations and doesn’t meet all their needs. Gaining a deep understanding of the ERP landscape and technical intricacies can help a buying committee perform more rigorous, targeted evaluations and avoid issues in contracting and implementation. Working with a knowledgeable outside party can help provide that perspective.

    2. Connect your ERP to how your business operates

    Major issues often arise during the implementation planning phases. An ERP implementation provider needs to understand how a business runs, which means engaging in frequent, meaningful communication throughout the implementation process and conducting scenario-planning exercises, among other things.

    3. Realize that it’s not just an IT challenge

    New ERP projects affect every aspect of business, beyond the people who implement and manage technology. Each choice can have major financial, operational, and strategy effects, too, and organizations should account for these effects with each move into a new stage of the life cycle.

    4. Consider evergreen ERPs

    Many ERP providers continually update their software to remain relevant to the organizations and industries they serve as they extend the lifetime of the system. Taking advantage of this evergreen trend helps companies extract value from a new system several years after it goes live.

    5. Don’t ignore tax requirements

    Tax requirements are complex and might be overlooked during ERP implementations. Sales and use tax rates vary among thousands of state and local jurisdictions throughout the U.S. Organizations might need to manually input and maintain that information, which can be tedious and time-consuming. Integrating sales tax determination software can address these tax issues up front.

    6. Understand the implications of R&E expenditures

    For tax years beginning after Dec. 31, 2021, research and experimentation (R&E) expenditures are required to be capitalized and amortized over five years for U.S.-incurred costs and over 15 years for internationally incurred costs. With ERP implementations and upgrades, companies should consider and analyze associated costs – building or customizing new tools, for instance – to determine if they are subject to Section 174.

    Want more insights into how the ERP life cycle can affect manufacturing companies? Watch the recording of our recent webinar.

    * Unscientific poll with 125 respondents.

     

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Matthew Keegan
Matt Keegan
Principal, Advisory
people
Eric Bunner
Consulting
people
Trevor Smith
Tax