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A practical guide for SMMEs looking to right size without sacrificing operational excellence

How to re-evaluate existing ERP and business systems by looking at costs and employee resources.

When an SMME reduces employee resources, careful consideration should be given to the core systems that drive the remaining business. When workflow contracts in a right sized environment, processes will follow suit. These should not be left to occur naturally, as this could materially affect the productivity and efficacy of the business as a whole.

Factors to be considered not only relate to the physical cost of ERP and business systems, but also extend to resource costs. Factors which are more visible and which can be particularly painful include actual software costs.

During and after the retrenchment of staff many SMME are finding that their business systems exceed their requirements and that unused, excess user software licenses are non refundable. In fact, they may be obliged to continue paying for the same amount of user licenses in the next financial year irrespective of actual requirements. This is because many companies only scale up user licenses and do not cater for a reduction in seats.

When incorporating both actual (direct) costs and implied (indirect) costs related to the downsizing of SMME, the following factors may be important:

  • What is the percentage reduction in user licensing?
  • How will this affect new Return On Investment calculations?
  • How will this new Total Cost of Ownership calculations?
  • Can the current ERP be scaled down and what are the cost implications of doing this?
  • Availability of downward scalability in the present ERP solution and cost factors
  • Are the redundant software modules refundable?
  • Can the additional software systems (eg. Operating system, Database System etc.) be scaled down? Look at and per-user costs.
  • Is it possible to sell existing ERP and business software?
  • Is Software owned or leased?
  • Can you sell computer hardware not being used?Reduction in network requirements, can you cut leased lines and other fixed architectural costs?

Investigate utilising electronic documentation to effect lower administration overheads
Bundling (or grouping) of extended workflow procedures to reflect new business size more accurately. (This has many benefits including the reduction of administrative overheads, but has to be carefully designed in order to not reduce the value to the internal audit)
Investigate administrative duty combinations as roles combine (or are disseminated) in relation to new system workflow requirements. (Extended ERP systems would no longer function adequately and cause administration bottlenecks) Not considering this effectively would result in business processes being circumvented and could damage the bottom line even further.

Example: In an extreme case where half of the staff in a manufacturing concern were retrenched, the company found that not only was the ERP and business system an overkill for their new requirement, but that there was not enough staff left to drive the recently installed, advanced ERP system. They were also locked into an ‘evergreen’ contract with the supplier of the larger ERP system. They had to purchase a second, smaller and more effective ERP system in order to remain trading. Currently this company is paying for two ERP systems until the larger system contract eventually expires.

So, it clear that when reducing staff one has to also plan which business processes require reduction and effectively distribute the remaining processes. The key lies with the enemy of almost all SMMEs documentation.

Without a doubt, lack of even basic business process documentation is a leading factor of poor production in almost all SMME in South Africa. The same lack of documentation leads to longer lead times in effective role evaluation and resource placement (or distribution)

When re-evaluating the suitability (or non) of an existing ERP business system, the following questions must be assessed:
What is the total annual cost of operating/owning the present system including the underlying software, databases, operating systems etc?

  • Can the user licensing be reduced and what is the Rand and Cent effect of such a reduction?
  • Can the underlying software user licensing be reduced? What is the Rand and Cent effect of such reductions?
  • After staff retrenchment would the present ERP and business system be operable by the remaining staff or is there a business case for bundling of workflow in a simpler/other ERP system?
  • What is the Rand and Cent value should the SMME sell the existing ERP and business system to another company?
  • What is the Rand and Cent value should the SMME sell excess computer servers and reduce network expenditures, how would this affect the existing ERP and business system?Does the type of process reductions advance cost saving changes to electronic documentation systems in other ERP solutions?

With modern ERP and business system user interfaces being very similar to each other (and back-ends being some form of SQL) the challenge of system migrations are no longer as daunting as in the age of DOS-based text systems. Most modern ERP and business systems allow users to design their own interface colours and templates, allowing business owners to focus on running their operations profitably.