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DQ News: A Quick Guide to ERP Outsourcing for SMBs

Once thought of as something only large enterprises do, outsourcingis nowa viable option for companies of all sizes who are looking for efficiencies or to offload non-coretasks. One such option is to outsource the hosting and management of your enterprise resource planning (ERP) system.

But what exactly is ERP outsourcing?  What are its benefits?  And what do you need to consider when looking at service providers?

Today, outsourcing isn’t just for large enterprises. We’ve seen a shift during the past few years as increasingly small and mid-sized businesses (SMBs) look towards outsourcing because they can now benefit from the same services as large enterprises, and in many cases even more so.

What is ERP outsourcing?

In general,ERP outsourcing has three independent components:

• Application hosting
• Application management
• Help desk outsourcing

Application hosting is what people traditionally think of as“hosting”, i.e. the idea of purchasing space and resources from a data center to host one or more software systems.  Application management is handing off the “tactical” maintenance of the applications within your system, such as applying patches and updates.  And help desk outsourcing is where the service provider becomes the direct line of support for your end users.All three components can stand alone as individual services with unique benefits, but when bundled together, they work in harmony to enable further efficiencies.

While hosting is something that SMB’s may have considered, they may not have thought about outsourcing the maintenance of their ERP software or the associated end user support. With the downturn in the economy businesses of all sizes are looking at how they can improve efficiencies and make better use of their capital. With the convergence of less expensive hardware and new technologies, such as virtualization, with the increased complexity of enterprise software and the business environment, ERP outsourcing has become a relevant option for SMB’s.

What are some of the benefits of ERP outsourcing?

There are numerous benefits associated with outsourcing, however, for expediency we’ll focus on three key benefits:

• More effective use of capital
• Improved service delivery
• Ability to focus on core competencies

With outsourcing, capital expenses become operational expenses. Organizations exchange unpredictable IT expenses for a predictable, all-inclusive, monthly bill. No large up-front fees, no unplanned expenses, no surprises. Further, capital is freed up to be used on other strategic initiatives.

Companies can also expect improved service delivery backed by service level agreements (SLA’s).  In paying your monthly bill, you’re paying for top-tier facilities, the latest technology, IT expertise, and application knowledge. This all translates into improved system performance, up-to-date applications and happier, more knowledgeable, end users.

Probably the most important benefit of ERP outsourcing is that it enables organizations to focus on their core competencies, rather than IT. Every business has finite financial and human resources, ERP outsourcing can free up resources so they can be invested in more strategic initiatives. This includes freeing up your current IT staff to focus on supporting those initiatives, instead of spending time on tasks that add little value to the bottom line.

What should you consider when looking at service providers?

Good service providers take the time to understand your business, develop solutions based on your specific requirements, back those solutions with SLA’s and provide regular account reviews. The best providers essentially become an extension of your IT department, seamlessly working with your organization.

We suggest considering these three attributes to start with:

• Top tier data centers
• Well defined services delivery methodology
• Application expertise

Selecting a data center can be challenging.Of course you want to look for the expected attributes, including redundant power supplies and data communications connections, environmental controls (e.g., air conditioning, fire suppression) and security devices. However, capabilities and quality range significantly, so if you are going to invest in hosting it would be sensible to select a Tier III or IV data center. The tier level designation ensures that the data center can provide a proven level of service based on their facilities, infrastructure and technical competency.

Next, simply providing hardware, software and support services,is not enough. A quality service provider follows established best practices based on a framework or methodology, such as the Information Technology Infrastructure Library (ITIL), when delivering services. Ask for a review of their standard operating procedures (SOP’s). Having clearly documented processes provides confidence that the provider will be consistent in their service delivery.

Finally, if you’re outsourcing the application maintenance and/or end user support, it is critical that the provider knows the applications intimately. If they are tasked with making sure the software is up-to-date and performing optimally, they have to have a thorough understanding of the application’s architecture and administration. For effective end user support they must understand the applications at the detailed feature/functionality level to ensure they can adequately help users.  And close ties to the software vendor is helpful, as getting timely communications on application issues and updates is helpful in providing proactive support and if necessary getting access to support and development resources beyond what is available through normal channels.

About the Author: Rashed Khan holds a MSc in Software Engineering and guest posts on business/technology related topics. Rashed is currently guest posting on behalf of Epicor who specialize in ERP Software.

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