What is ERP implementation? The process and best practices

Key takeaways

• NetSuite estimates that the typical ERP implementation takes six to 12 months, depending on the complexity of the business.¹

• The steps for a successful ERP implementation are discovery, requirements, system configuration, data migration, testing, and go-live.

• Airwallex connects multi-currency accounts, bill pay, and corporate cards to ERPs such as NetSuite, Dynamics 365 Business Central, Sage, QuickBooks, and Xero.

Accounting software and spreadsheets can work well as a finance system for a small business but this mix of tools becomes harder to manage as the business grows. Mid-market and enterprise companies usually implement an ERP, or enterprise resource planning software,  when they add more subsidiaries, sell more internationally, or track inventory across separate tools. This guide explains what an ERP implementation involves: the five parts of an ERP implementation plan, the six steps from discovery to go-live, and the three rollout methods.

What is ERP implementation?

An ERP implementation is the process of planning, configuring, testing, and launching an ERP system. With an ERP, teams across the company, including finance, manufacturing, and sales, work from one shared database. Instead of each team keeping its own records, an ERP lets every team record transactions in the same general ledger, which is the company’s main accounting record. For example, when a warehouse receives a shipment, the ERP updates stock, closes out the purchase order, records the amount owed to the supplier, and shows that amount on the balance sheet in just one step.

An ERP is difficult to set up because it changes the daily work of nearly every employee. Executives and department managers have to agree on which old tools to retire, which historical data to clean, and which controls to enforce across every entity.

ERP implementation vs ERP integration

The difference between ERP implementation and ERP integration is the scope of each plan. An ERP implementation builds the central ERP system, its database, and the standard workflows for the whole company. An ERP integration connects that ERP system to outside tools such as online stores, shipping software, payment providers, and banks through APIs, which are connections that let software share data. A business implements an ERP once, but it can add new integrations many times.

ERP implementation vs ERP migration

The difference between ERP implementation and ERP migration is that migration is just one step of an implementation: moving the business’ data from the old system to the new one. During an ERP migration, the business’ past financial, product, customer, and vendor records are taken out of the old systems, cleaned, and moved into the new database. Migration doesn’t include designing workflows, making policy decisions, or training staff. If a project treats migration and implementation as the same thing, it usually doesn’t budget enough time or money for either one.

The 5 parts of an ERP implementation plan

An ERP implementation plan encompasses scope, governance, budget and schedule, change management, and data rules. The business should decide all five elements before anyone sets up the software. ERP implementation projects tend to fail when leaders treat the ERP as an IT upgrade instead of a change in how every team in the company does its daily work. 

Scope and boundaries

Scope and boundaries define what the ERP will do at launch and which features the business will add later, after the core ERP system is working. Executive sponsors should write down business goals, the current bottlenecks, and which modules of the ERP system go live first. Deciding early which processes will follow the ERP's standard workflows is the best way to prevent scope creep, which is when unplanned features — and costs — keep getting added to the implementation project. 

Governance

Governance sets who makes which decisions during the implementation project. A steering committee, a project manager, and subject matter experts from accounting, treasury, the warehouse, and sales each need defined authority. The CFO and CIO secure the budget for the ERP implementation project and settle policy disputes.

Budget and schedule

The budget must cover ERP software licenses, consultant hours, data cleanup, temporary staff to replace employees who work on the project, and support after go-live. A schedule for implementation sets sign-off points between steps, where the steering committee approves the finished work before the next step starts. When vendor payments depend on those sign-offs, the business only pays for finished work.

Change management

Change management is the work of getting employees to use the new system instead of their old spreadsheets. Change management includes training for each role, choosing a lead user in each department to help coworkers, and regular messages from leadership about the change. Without it, staff keep old, manual workarounds, and the ERP's data stays incomplete.

Data governance and risk

Data governance sets the rules for customer, supplier, and inventory records in the new ERP, including required fields and naming conventions, and it checks for duplicates. The risk plan explains how the team will switch back to the old system and recover if the new ERP fails during launch. It also sets permissions that stop the same person from both approving and paying a bill. 

What are the 6 steps in ERP implementation?

The six steps in ERP implementation are discovery, requirements, system configuration, data migration, testing, and go-live. These steps run in order, and each produces a document or result the next step needs.

1. Discovery

In the discovery step, the business writes down how it works today and what leadership expects the ERP to change. Teams from each department list current problems and the systems they depend on. Then they compare vendors against the company's transaction volumes and entity structure. The result is a business case and project charter that list the scope, the people and budget committed, and the expected return on investment.

2. Requirements

In the requirements step, business analysts, controllers, and the implementation consultant document what the system must do. They also compare current workflows with the ERP's standard processes. Leadership then decides where the business changes to match the software and where a real exception is worth extra setup. The requirements document becomes the plan for building the ERP system. 

3. System configuration

System configuration is the build step, where the team sets up the entity structure, chart of accounts, tax rules, report layouts, and approval rules from the requirements document. Developers build the connections to payment providers, online checkouts, and bank accounts at the same time. The team uses the ERP's standard settings wherever possible and documents every exception.

4. Data migration

Data migration is the step where data engineers pull records from the old systems, remove wrong and outdated entries, fix formats, and load the rest of the records into the new database. Finance then compares customer balances, vendor balances, fixed asset records, and product lists with the old system to confirm the starting figures match. If bad records survive this step, they break every automated workflow that uses them.

5. Testing

Testing happens in a sandbox, which is a copy of the system that doesn’t contain live data. It includes three types of testing:

• System integration testing (SIT) checks that data moves correctly between modules.

• Stress testing checks that the system can handle real transaction volumes.

• User acceptance testing (UAT) lets the staff who will use the system daily try it early. 

Test scripts should follow real business cases, such as a sales order from beginning to final payment. The system shouldn’t go live until daily users formally approve the test results. 

6. Go-live

Go-live is the final step when the business stops using the old systems and starts using the new ERP. This step is usually timed for a month-end close or a holiday weekend. The cutover schedule, which is the timeline for the switch to the new ERP, covers the final data sync, a check of open balances, and moving staff onto the live system. After go-live, the team watches the ERP closely during a period called hypercare, when internal staff and consultants fix failed transactions as they appear.

What are the main ERP implementation methodologies?

The main ERP implementation methodologies are big bang, phased rollout, and parallel adoption. Each methodology is a different way to stop using the old system and switch to the new one. The right choice depends on how many entities and modules are in scope, how much risk the business can absorb, and how much extra labor a company can pay for. 

Big bang implementation

A big bang implementation moves every department, entity, and module to the new ERP on the same day. The old systems shut down at month-end and the ERP goes live the next business day. This keeps the schedule short and avoids temporary connections between old and new tools. The risk is that one setup error or bad record could affect the whole company at the same time. 

Phased rollout

A phased rollout introduces the ERP in stages by module, entity, or region. For example, a company might move the general ledger and treasury first, then accounts payable and purchasing six months later, and warehouse management last. This way, any problems stay inside just one part of the business. The downside is that until the last phase goes live, the company has to run temporary data connections, do reconciliations manually, and keep two sets of reports.

Parallel adoption

Parallel adoption runs the old system and the new ERP at the same time for a set period, such as a full business quarter. Staff enter every purchase order, invoice, and receipt into both systems, and controllers compare the totals at each close. This means the business keeps running if the ERP fails. NetSuite notes that this approach adds to project cost and reduces productivity, because staff enter every transaction twice. 

Why do ERP implementations fail?

ERP implementations usually fail because of bad data, too much custom code, and rushed schedules, not because of the software itself. Three well-known cases show what each of these failures looks like at a large company.

Bad data entered under deadline pressure

Bad data can break an ERP before it goes live, as Target Canada found out. In 2011, Target paid US$1.8 billion for the Zellers store leases and planned to open 124 Canadian stores on a new ERP system by the end of 2013. To meet that deadline, merchandisers had to type about 75,000 products into the database by hand.

An internal review later found that the data was correct only about 30% of the time. Some products had measurements in inches instead of centimeters, and some had the wrong currency. In January 2015, Target Canada filed for creditor protection, Canada’s version of bankruptcy protection, and about 17,600 people lost their jobs.²

Too much custom code

Rewriting an existing ERP to fit old business practices can make the implementation project too expensive to finish. For example, in 2011, the grocery chain Lidl started a project called eLWIS to replace its in-house inventory system with a standard retail ERP. The ERP valued inventory at the retail price, but Lidl valued inventory at the purchase price. Lidl had the code rewritten to match its own method. Lidl canceled the project in July 2018 after spending about €500 million, and said it could not reach the original goals at a reasonable cost.³

Revlon's rushed launch

Going live before the ERP system’s controls are ready can stop production and shipping. In February 2018, the cosmetics company Revlon moved a large part of its North American business to a new ERP before its controls were ready. 

Its plant in Oxford, North Carolina, could not keep production and shipping on schedule. Revlon reported about US$64 million in sales it could not deliver and about US$54 million in costs to fix the problems. The company also reported a weakness in internal controls, meaning Revlon’s financial reporting checks were not working. At least four law firms filed class action lawsuits on behalf of shareholders.⁴

ERP implementation best practices

The most important ERP implementation best practices are keeping the ERP software standard, cleaning data early, and putting the company's own employees in charge of decisions. Target, Lidl, and Revlon each broke at least one of these rules. 

Configure, don’t customize

Configuring an ERP means using its built-in settings. Customizing an ERP means writing new code for it, which a software update can accidentally break. Oracle's own ERP team warns that ERP customizations need thorough testing after each quarterly update and that a vendor's new features can make these customizations unnecessary.⁵ When a business process doesn’t fit the software, the business should usually change the process.

Clean primary data months before migration

Primary data, meaning the core customer, vendor, and product records, should be cleaned months before ERP migration starts. Each record type needs a named owner at the company who signs off on its accuracy, which means errors get fixed right away at the source.

Staff the project with internal experts

Implementation consultants know the ERP software itself, but the company's controllers, treasury leads, and fulfillment managers know how the business’ transactions work. These managers need dedicated time for the requirements and testing steps for best implementation results.

Test at production volume

Testing at production volume means running a full month's worth of real-size transactions through the test ERP system, including unusual cases and cross-border payments. Staff who have already run a full practice month-end close in the test system are much less likely to have problems once the ERP system is launched. 

How to measure ERP implementation success

Finance teams measure ERP implementation success against baseline figures taken before discovery and checked again at intervals of 30, 90, and 180 days after go-live. Three groups of metrics show whether the system is doing what the ERP implementation business case promised.

Close velocity

Close velocity is the number of business days it takes the finance team to finish the month-end close, meaning to finalize and check all of the month’s accounting records. The month-end close should get shorter once an ERP is implemented because all entities now share a general ledger. The new system automatically removes transactions between the company’s own entities, which stops the totals from being counted twice.

Inventory and supply chain performance

Inventory and supply chain performance shows whether the ERP’s demand forecasts and warehouse scans match what is recorded in the general ledger. The main measures are inventory turnover, how often items go out of stock, the cost of storing inventory, and the percent of orders delivered complete and on time.

Cost per transaction

Cost per transaction is how much it costs to process one vendor bill, customer invoice, or expense report. Finance teams track it together with the number of manual journal entries and audit issues. When these numbers fall, it shows that the ERP’s automatic checks and reconciliation are working.

How Airwallex works alongside an ERP implementation

Airwallex works alongside an ERP implementation as the business account and payments system that sends transactions into the new general ledger. Airwallex accounting integrations connect to NetSuite, Microsoft Dynamics 365 Business Central, Sage, QuickBooks, and Xero, meaning finance teams don't have to download statement files and upload them to the new ERP.

Hourly bank feeds into the ERP

The Airwallex NetSuite integration creates a separate bank feed for each active currency balance. On the first sync, the integration pulls the last 24 hours of transactions, and after that it updates every hour. This guide on how the NetSuite integration with Airwallex works explains the setup. It also shows how the chart of accounts, departments, locations, classes, and subsidiaries connect between the two systems. 

Multi-currency accounts and global payouts

Airwallex Multi-Currency Accounts enable a business to hold balances in 20+ currencies and collect funds from 70+ countries. Each currency balance connects to its own cash account in the ERP. Airwallex transfers reach 200+ countries and regions, with local transfers in 120+ countries. When a business needs to convert money, Airwallex charges just 0.5% above the interbank rate on major currencies and 1% on all others.

Accounts payable and spend data

Airwallex Bill Pay reads invoice details with optical character recognition (OCR) and then routes each bill through approvals set by currency and amount. Bill Pay then pays approved bills to vendors in 200+ countries and regions, and syncs a record of each bill and payment to the business’ accounting system. 

Airwallex Corporate Cards add per-card spend limits, 0% foreign transaction fees, and 2% cashback. Card expenses also sync to the ERP already coded to the right accounts.

Frequently asked questions about ERP implementation

How long does an ERP implementation take?

An ERP implementation takes six to 12 months for most businesses, according to NetSuite. Mid-market companies launching a cloud ERP with standard settings usually take closer to six months, while large enterprises with several subsidiaries, international sites, and old integrations take longer because they have more data to migrate and test.

How much does an ERP implementation cost?

An ERP implementation costs anywhere from the low-to-mid five figures for a small company to multiple millions for a large organization. NetSuite suggests setting aside about 1% of the company's operating budget for an ERP implementation.⁶ This total covers software subscriptions, consultant fees, integration work, data cleanup, temporary staff, and support after go-live.

What does an ERP implementation consultant do?

An ERP implementation consultant helps a business choose an ERP, prepare for the project, set up the system, and switch over to it. The consultant documents what the business needs and sets up the system to match the approved workflows. They also write the scripts that move data from the old system and run user acceptance testing, which means staff test the system before it goes live.

Which phase of ERP implementation is the hardest?

Data migration is the hardest phase of ERP implementation, and user acceptance testing is the second hardest. Cleaning hundreds of thousands of product, customer, and vendor records almost always turns up errors that need manual fixes before the launch of the ERP.

Is a cloud ERP implementation faster than an on-premises one?

A cloud ERP implementation is usually faster than an on-premises one because there is no server hardware to buy and set up and no local database to build. The cloud ERP vendor runs the servers and security updates, meaning the project team can start on process design and configuration from the first week. Data migration and testing take about the same effort in both cloud and on-premises ERP implementation.

Sources

1. https://www.netsuite.com/portal/resource/articles/erp/erp-implementation-phases.shtml

2. https://canadianbusiness.com/ideas/the-last-days-of-target-canada/

3. https://www.consultancy.uk/news/18243/lidl-cancels-sap-introduction-having-sunk-500-million-into-it

4. https://www.computerweekly.com/news/252464278/SAP-disruption-leads-to-Revlon-class-action-lawsuit

5. https://blogs.oracle.com/erp-ace/post/customization-vs-configuration

6. https://www.netsuite.com/portal/resource/articles/erp/erp-implementation-cost.shtml