Five Reasons to Rethink an ERP System Purchase

In the medical device manufacturing industry, it’s common for small to midsize companies to reach a point in their growth when leadership starts thinking about purchasing an Enterprise Resource Planning (ERP) system. This generally starts to happen when the following problems or scenarios arise:

 

  • Employees are working in multiple systems to complete everyday tasks.
  • Accessing reliable, timely data on what’s happening in the business is difficult.
  • Accounting and financial reporting are becoming too cumbersome and labor-intensive.
  • It becomes too difficult to keep up with inventory coming and going as well as inventory in the field.
  • Your investors and stakeholders associate having an ERP system with being “mature.”

 

Unfortunately, ERP systems are not designed for specific industries—and certainly not industries with the unique peculiarities of the orthopedic side of the medical device space. The information below delves into five reasons why an ERP system might not be the best idea for addressing these problems and scenarios.

 

Five Reasons to Think Twice Before Buying an ERP

1. ERP systems are unnecessarily expensive to buy and maintain. The average range of costs for the software and services associated with an ERP implementation is $150,000 to $750,000. But that’s just the beginning. Annual software maintenance costs are usually in the ballpark of 20% of the initial license cost. This still doesn’t fully capture the total cost of ownership (TCO) of a typical ERP system. According to Gartner Research: For IT, TCO includes hardware and software acquisition, management and support, communications, end-user expenses and the opportunity cost of downtime, training and other productivity losses.

 

Why are costs so high? The reason is that ERP systems are designed to be comprehensive, one-size-fits-all platforms for running all aspects of a very large, often multinational corporation. Tailoring a gigantic industry-agnostic system to meet the specific needs of a small to medium-sized medical device manufacturer is very costly and inefficient. Because of this level of customization, most ERP systems are overkill for these kinds of companies. There is no reason to pay for functionality you don’t need and then spend additional money customizing and configuring that same system to accommodate how you do business.

 

2. ERP systems have fundamental problems with the way medical device products work. Unlike many products that are managed in ERP systems, orthopedic implants and instruments are often contained in bins and trays. Those bins and trays need to be tracked as individual items, but they also have items in them that can be sold and then replenished. ERP systems are not designed to support this arrangement, which is why ERP implementation projects often get stalled. The end result is usually a workaround that heavily undercuts the value proposition of installing an ERP system. Using a general solution for a specific industry is both ineffective and inefficient.

 

3. ERP Implementations are lengthy and painful and usually fail (or at least fail to meet expectations). Following on the problems listed above, ERP systems are difficult (and expensive) to customize, which means that implementation projects are never shorter than one year (and often exceed two to three years). Furthermore, the project is never really over: systems integrators, for instance, become a permanent part of the staffing landscape. But if implementations took a long time but resulted in a well-functioning, highly-valuable system, the cost (in dollars and time) would be worth it in many cases. However, according to a Panorama Consulting Group study, there is a spectrum of implementation challenges that can result in varying degrees of failure. In short, we consider an ERP implementation to be a failure if one or more of the following occurs:

 

  1. Implementation takes longer than expected
  2. Implementation costs more than expected
  3. Implementation fails to deliver at least half of the expected business benefits

 

A 2016 Panorama study—which was technology-agnostic and one of the most thorough pieces of research ever conducted in the ERP space—found that in 72% of implementations, one or more of these three things will happen. Additionally, there is a 31% chance that two or more of these outcomes will occur.

 

4. Even the best ERP implementations lack features for reps in the field. They have no usable mobile functionality, which is what reps need most, arguably. This fact is often overlooked during the system selection process. When a growing orthopedic manufacturer is considering an ERP system, its staff is often focused almost entirely on their warehouse and supply chain operations. These are obviously important, but the ideal leap forward for a med device manufacturer is to adopt a technology platform that extends beyond the manufacturer’s facilities and warehouses. This is because the real cost and complexity of operating a med device company is associated with what happens to product after it leaves the warehouse. Putting functionality that easily tracks inventory and sales in the hands of sales reps offers the most opportunity to control costs—and do more with less.

 

The highly publicized 2013 failure of Avon’s SAP implementation illustrates perfectly what happens when companies focus on their internal operations at the expense of the field sales team:

 

After rolling out the system for testing in Canada, the door-to-door makeup giant reported that the technology had provided extra work for its critical sales representatives, rather than easing the number of tasks as the technology had been designed to do. This then understandably discouraged the reps from utilizing the system in the regions in which Avon tested, and the makeup seller lost its reps in droves.

 

5. ERP systems are very inflexible and can be difficult to integrate with external systems. This issue ties into the total cost of ownership problem and the one-size-fits-all problem. As previously stated, ERP implementation projects are never really over. Customizing and configuring the system to meet the needs of your business is an ongoing challenge, especially given the ever-changing landscape in the med device industry. New regulations, such as UDI, have created the need for new features and functions, but ERP systems (most of which were designed in the 1990s) are simply not equipped to adapt. According to a CIO Magazine report entitled “A Strategic Timeline For Next-Generation ERP,” there are two big issues with ERP systems in this regard:

 

REASON #1: BLOAT AND COMPLEXITY
For one thing, traditional ERP systems are far too bloated and fraught with complex interdependencies that hamper IT organizations’ ability to stay abreast of changing business requirements.

 

REASON #2: THE NEED FOR AGILITY
At the same time, the need for agility has never been greater, as evolving business requirements put pressure on organizations to reimagine applications to support emerging business models

 

An industry-specific alternative

While ERP systems certainly have their value in large enterprises, the reality today is that they are generally overkill for most medical device manufacturers. They cost way too much, take way too long to implement, and very rarely yield the benefits they promise. This is almost entirely due to the industry-agnostic, one-size-fits-all approach ERP providers have taken to designing and selling their software.

 

Yet, a solution that truly fits the orthopedic medical device industry exists—and it’s an ideal counterpoint to the industry-agnostic, one-size-fits-all approach. ImplantBase is an all-in-one software platform designed from the ground up to accommodate the unique needs of the orthopedic implant industry. Founded by a former orthopedic industry sales rep, ImplantBase has matured over its nearly ten years in business to provide an end-to-end suite of features that can handle all aspects of a med device manufacturing and distribution operation. From raw materials purchasing to manufacturing and assembly to distribution, sales, and reporting, ImplantBase is a complete solution.

 

Several ImplantBase clients are manufacturers with $10 to $50 million in annual revenue—and they’re running their entire businesses on ImplantBase and their accounting software alone. The cost is a fraction of that of an ERP system, and implementations are typically complete in 60-90 days. Furthermore, since ImplantBase was designed for the med device industry, ongoing customization and configuration are usually unnecessary. If they ARE necessary, it is only to accommodate a change in the way the business operates. In those cases, unlike ERP systems, ImplantBase can be customized quickly and inexpensively.

 

Before you spend $500,000 or more on a system that wasn’t designed for you and will take years to perfect, wouldn’t you take 30 minutes to talk with one of our experts?

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