Out with the old, in with the new? ERP upgrade not so clear-cut

One small manufacturer is mulling over which much-loved customizations to ditch as it prepares to migrate to a newer version of its ERP software.

A major ERP upgrade often requires a difficult break with the past. For one Long Island manufacturer of medical devices, it means carefully deliberating over how much of the old system to carry forward. Long-used custom modifications are on the chopping block, and some employees are reluctant to let go.

American Diagnostic Corp. (ADC), based in Hauppauge, N.Y., runs an older version of S2K ERP software from Vormittag Associates Inc. (VAI). Right now, it is conducting an intensive analysis to decide how best to migrate from S2K 3.5 to the latest version, 5.0.

“We’re looking at everything in it that we modified and whether to bring them into the new system,” said ADC’s IT manager Nick Selvaggio. “The goal is to exclude as many of the modifications as possible.”

Managing an ERP upgrade
Minimizing modifications will simplify long-term maintenance and allow ADC to take advantage of the best practices embodied in the S2K base package, according to Selvaggio.

“Modifications are always dangerous if you don’t document them properly,” he said. “The system kind of diverges over time from the base package, and it becomes very hard to upgrade.”

The evaluation process is “pretty straightforward,” Selvaggio said. “It’s really a process of aligning the software with the needs of the business. You want to choose a package that aligns well and minimizes modifications but is also flexible enough to change when the business changes.”

A multidisciplinary team is combing through documentation to determine what was modified and will have to decide if the base upgrade package can solve the original problem. If the answer is yes -- but the ERP upgrade does it differently -- the group must then decide if the new approach fits the company culture and workflow.

“If so, we scrap the modification in favor for the upgrade’s implementation,” Selvaggio said. “If not, we need to [home] in on why we need this modification and the value around it. If we determine it is critical for the business, we port it over.”

The changes are encountering some resistance. “We’ve had to break through the cultural barriers -- [people who say] ‘I’ve been doing this the same way for 10 years,’ ” Selvaggio said. “I anticipate [the upgrade] being pretty hard. It’s probably going to take at least six months. We’ve got to get to a middle version before we can jump to their 5.0.”

According to Pete Zimmerman, VAI’s manufacturing segment manager, the intermediate move to version 3.75, now running in a test environment at ADC, is needed to get the data-conversion programs that will automate much of the migration to 5.0.

“The customer is not required to go live,” Zimmerman said. “It’s really just a stepping stone.” Ironically, ADC considered upgrading to version 3.75 two years ago but later decided to make the bigger leap, he said.

“We’ve actually been waiting a while on upgrading the system,” Selvaggio said. “We kind of shelved it when the economy went south. As the economy gets better, people are definitely going to spend more money on their ERP systems.”

Getting a handle on landed costs
Zimmerman said ADC uses the S2K accounts receivables, payables and general ledger modules for core financials, as well as the customer order, sales analysis, purchasing, manufacturing work order and material requirements planning (MRP) modules. Around 50 ADC employees use the software daily, including several in Taiwan and in Ningbo, China, who connect over a virtual private network.

In the 13 years it has used the software, Selvaggio says ADC has grown loyal to VAI, which is based in nearby Ronkonkoma, and only briefly considered switching to platforms such as Microsoft Dynamics.

The relationship has its own value, according to Selvaggio, with benefits flowing in both directions. “We’re seeing a lot of what we did five years ago in their new version now,” he said.

Specifically, ADC was “very involved” in the MRP module, said Bob Vormittag Jr., VAI’s project director on the ADC account. “They did have quite a few suggestions as to how we could make that module more effective and more efficient.”

For example, ADC pointed out a need to synchronize due dates between the MRP and cargo-processing functions. In addition, its request to expand the date ranges and variables that can be included in sales forecasts led to changes in the standard 5.0 module, Vormittag said.

Selvaggio also likes having his project manager, Vormittag, nearby.

“It’s just me and another guy running IT,” he said. “We don’t have that many programming resources.”

 The biggest motivation for the ERP upgrade, Selvaggio said, is getting a better handle on the landed cost of materials arriving from overseas. “As we grow, it’s really out of control,” he said. “Just doing landed costs more effectively would pay for the system.” Zimmerman added that a more accurate view of costs should enable ADC to price its products at more profitable levels.

ADC also wants to use S2K’s enhanced forecasting tools. “Some of their forecasting algorithms are pretty spot-on,” Selvaggio said.

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