The Big ERP Project
Most medium-sized and larger companies have been through one or more ERP projects. The ERP system often acts as both the heart and the hub of the business – linking critical business processes such as finance, sales, inventory, purchasing, production and HR. Therefore, major updates or system changes will affect the entire value chain and often involve the entire organization.
There are many well-known examples of ERP projects that have failed, both internationally and in Norway.
Komplett.no – a Norwegian ERP nightmare
A well-known example is Komplett.no, which in 2010 was to upgrade its ERP system based on SAP’s simplified “All-In-One” package. This was supposed to be a relatively simple upgrade, but something went wrong during implementation. The system crashed, bringing operations to a complete standstill for several weeks. Logistics got out of control, and at one point the company was close to bankruptcy. Although Komplett eventually made it through the crisis, it was a costly experience and a clear reminder that even “minor” ERP updates can have major consequences.
Ulta Beauty – billion dollar loss and investor impact
In 2023/2024, Ulta Beauty, one of the world’s largest beauty product chains, modernized its ERP system. The company has more than 1,350 physical stores in the US and sales of more than USD 11 billion (2024). The ERP project was part of a strategic move to meet increasing competition in the US market. However, problems and delays in implementation affected both e-commerce and POS systems. The result was further losses in market share and a drop in share price of over 45%. Investors fled the company, expressing uncertainty about the company’s future.
In Q1 2024, Warren Buffett invested USD 266 million in Ulta. He believed the company was now undervalued and took what was planned to be a long-term position. It did not turn out that way. Ulta was never able to recover from the problematic ERP project and its competitors increased their lead. Buffet sold 95% of its holding in Ulta after only three months.
So, what can we learn from this?
Without any direct reference to the previous examples, there are some general prerequisites for success with an ERP project.
Management must be involved from start to finish
Top management must take the lead and show clear direction – “pointing with the whole hand”. The whole organization needs to understand that this is a high priority and that the goals are clearly defined. A common mistake is that employees don’t feel ownership or get enough time for training and preparation, which leads to low user quality and errors afterwards.
Start with the reports
An ERP system must support the reporting required by the board, management and operations. Therefore, start by designing the desired reports with specific layout and content. This will reveal requirements for system selection, data collection, structure and usability.
Scaling needs and roles
- How many concurrent users?
- Does your business have multiple locations?
- Are there hierarchies within functions such as accounting, logistics, HR?
- How large is the transaction volume (orders, invoices, payments, payroll, vouchers, etc.)?
- Which roles need which rights?
These questions are important for assessing licensing, technical capacity and future growth.
Describe the company’s business
Create an overview of how the business works today: sales processes, purchasing, production, logistics, services, aftermarket, etc. The better the system can reflect reality, the higher its usefulness.
Drop detailed requirements specifications written by end users
Requirements specifications created by non-experts often result in a mirroring of the existing system – not necessarily an improvement. Instead, focus on defining desired business outcomes, workflows and reports. ERP experts and consultants should help translate this into technical requirements.
Contact the manufacturer directly
Instead of choosing randomly among distributors and partners, you should contact the system supplier directly. Ask for advice on which implementation partner is best suited to your industry, size and needs.
Test the systems with real scenarios
Use the test period actively and simulate entire processes from “lead to order to money in the bank”, for example;
- Purchasing, goods receipt
- Sales order, delivery
- Invoicing, ledger
- Warehouse, logistics
- Production
- Payroll, HR
- Accounting, reporting
Verify that the reports you have designed can actually be generated with the desired precision and level of detail.
Calculate Total Cost of Ownership
Request an estimate of Total Cost of Ownership (TCO) for the next 5 years – including licenses, operations, maintenance, consulting hours and support.
Use “milestones” in the contract
Divide the implementation costs into milestones, and let the last partial payment (e.g. 30-50%) be linked to approved full production deployment. This provides an incentive for quality throughout the delivery.
Summary
ERP projects can be success stories – or turn into disasters. It often comes down to:
- Anchoring in management
- Realistic planning
- Close collaboration with the right partners
- Good tests and documented benefits
The ERP system becomes the digital nervous system of the business. Then it’s worth doing the job thoroughly – once.
