NOTE: This was first published in the July/August edition of Building Profits

Many businesses today are using ERP platforms that were created over 20 years ago.^{Display footnote number:1} Although these platforms have received regular updates over the years, their core structure, code, and functionalities have largely stayed the same. Some have even made cosmetic changes to allow them to remain modern looking.

As new cloud ERP platforms are coming into their own and proving ready to a certain level, an industry-wide transition is beginning. The integration of third-party project management technologies with ERP integration is changing the traditional ERP landscape.

Instead of relying on an all-in-one software that may limit project management capabilities, contractors can now choose the best ERP for their business while also utilizing the best technologies for their operational needs.

This article examines the trends affecting ERP, how you can prepare for the change, and what a new ERP could mean for your business.

THE EVOLUTION OF ERP SOFTWARE

Many software functions that are taken for granted today weren’t considered or available back when many ERP programs were originally developed in the 1990s and 2000s.^{Display footnote number:2}

Looking back to 2000, mobile phones and the internet were not nearly as widespread, and cloud computing and artificial intelligence (AI) weren’t even on construction’s radar. In addition, integrations were hard and conducted on a point-to-point basis, and reporting was one-dimensional and rather static.

Technological Advancements

In the decades since the first ERPs were deployed, the software sector has witnessed so many advancements in technology that it’s hard to keep pace — even for modern architecture and proficient development teams.

Ownership

Back in the day, most ERP platforms were privately held, owner-operated businesses, and investments in the ERP were limited to a percent of earnings.

Today, many ERP platforms have been acquired by publicly traded or investment companies. They are investing in the products and bringing new ideas and experiences into the companies they acquire, but frequently have shorter-term profit motives, which brings pressure on pricing.

Licensing Model

The licensing model has also changed in favor of software developers. With SaaS agreements rather than perpetual licenses, ERP platform costs have increased.

Integration

When ERP products were first developed, the idea of having a dozen or more third-party technologies integrated into the platform simply wasn’t practical; but today, it’s a given.

Human resources (HR), project management, payment portals, procurement, equipment management, timecards, and many other products can contribute data to ERPs or draw from them, and the technology to enable this integration is available. To facilitate these integrations, construction companies are increasingly adopting middleware — platforms that connect to multiple programs and exchange data.

However, proceed with caution, as new and shiny does not always mean flawless. Older software has had time to mature, with help from customer feedback and development hours. An array of rich, deep, and nuanced functionalities are already built-in and, for the most part, they work.

While new ERP software offers some important technical advantages, developers will be busy catching up on the functional gaps for several years — think about certified payroll, American Institute of Architects (AIA) billing, sub-contract management, complex union payroll, forecasting cost-to-complete, use-tax accrual, and any of the other sophisticated functions that the industry takes for granted.

The previous mentality was “we build it ourselves, so the contractor doesn’t have to deal with multiple non-integrated platforms.” However, new ERP developers are taking a different view of their position in the marketplace.

Some of the newer cloud platforms have integration technology front and center, anticipating integrations from the beginning and making it easier with help from an integration-friendly architecture (e.g., publicly available application programming interfaces (APIs)). This suggests that a contractor’s ERP investment is no longer limited to the platform itself, but rather it will be the sum total of the ERP software plus all integrated products that are required to support the necessary functions.

Some ERP providers are even abandoning specific applications after years of development, simply due to the challenges of trying to keep pace with the market. This trend could continue, and it could translate into a diminished ERP software footprint — which are the collective applications that a software solution provides — for most organizations.

The Value of ERPs

Another consideration factoring into a contractors’ calculation on ERP is value.

Construction contractors use ERP differently than other industries like manufacturing and retail. These other industries have invested heavily in their ERP platforms, as it is the system of choice for getting work done rather than just keeping the books.

Construction has mostly viewed ERP as an extended cost and financial management solution — the end of the road perhaps rather than the road itself. Construction companies would key data into their ERP after the fact and use the software to provide a look back at performance for a job, vendor, or the company rather than to facilitate day-to-day operations. It could be argued that billing, payroll, and purchasing are all operational functions, and while they are necessary, how much value do those functions really produce as performed today?

Prefabrication & Modular Construction

Prefabrication and modular construction are also impacting the ERP footprint, as these functions are turning a contractor partially into a manufacturing company. Traditional ERP programs used in construction don’t facilitate shop floor management, work orders, nested material bills, or robust inventory management.

Today, those adopting construction ERP solutions often rely on a third-party non-integrated solution for these functions or an ERP platform that handles both.

Human Resource Functions

Similarly, the movement to Best in Class HR software is changing ERP. Previously, HR was an application within the ERP suite and tightly integrated to payroll. As the demands for HR automation increased and the size of the departments running it grew, HR applications were removed from ERP suites and moved to Best in Class applications.

Now, some of those applications have an expectation that payroll will also move to remain integrated. Other contractors are considering remote payroll applications to get this complex and time-consuming function out of their organization. But unfortunately, not all third-party payroll applications are construction-ready. With complex union requirements, multi-state payrolls, and Davis-Bacon prevailing wage jobs, standard payroll applications might not meet construction-specific demands.

The integration of payroll back into ERP is certainly a consideration, as job-costing and job rules are most important.

INTEGRATING A NEW ERP INTO YOUR COMPANY

Evaluating Your Current ERP

Whether you are in the market for a new ERP or just looking to improve what you do today, start by forming a small team from across your organization to evaluate your current ERP, identify its uses and value to the organization, and assess your options. Place any necessary emphasis on adoption and value. Don’t assume (or expect) that the way you have used ERPs historically will be different than how they are used going forward.

This team should help determine who is using a function in your current ERP, how well they are using it, and how much value it provides the organization. Look carefully at the number of functions that are supported by spreadsheets, documents, emails, and other systems outside of the ERP, as well as how and when they are entered into your ERP. Think about subcontracts, change orders, and owner and customer billings, as these are all common culprits of a lagging ERP.

Also, consider how your reporting works. Once data is pulled from the ERP, many companies depend on spreadsheets for reporting — job cost reports, work-inprogress (WIP) reports, and even sub-contract ledgers.

After evaluating multiple criteria, management can decide on the next steps to take.

Identifying a New ERP

Companies may have a few clear strategies, but a new platform shouldn’t be chosen until they understand how they use the ERP system they have and how it provides value (or doesn’t). Ideally, you should have a vision for the future before getting confronted with vendors, demonstrations, and a time-consuming selection process.

There are several sources for vetting ERP options, and some are more objective than others. A good place to start may be asking peer contractors what they are using and how satisfied they are with ongoing development, support, and ease of use.

Additionally, CFMA’s Connection Café discussion forum is a good place to ask other contractors that are similar to your organization.

Be sure to do your research before starting a structured selection process. Given today’s environment, a contractor should evaluate both functional and technical criteria during a selection process.

Implementing a New ERP

Once a product is chosen and licensed, the important and detailed work of implementation begins.

Since ERP implementation is a team sport, ensure that you have broad representation from throughout the organization. Additionally, involving your IT team will ensure that all of the technical considerations are managed, such as integrations, security, reporting, and tailoring.

Use the vendor’s capabilities where their services are offered. It’s important to note that many ERP vendors now involve third-party vendors (called independent service vendors or value-added resellers) to assist with functions like data migration, process improvement, and project management. Some even take over the entire implementation, limiting the software vendor to only developing the software and providing support.

Overall, modern ERP implementations can take anywhere from 5-14 months, and the window ultimately depends on the size and complexity of the contractor and breadth and intricacy of the software.

During the implementation phase, be sure to pay attention to process assessment and improvement. By doing this, you’ll ensure that your organization isn’t just implementing old legacy processes into a new program, sometimes going as far as to pay for customization in the new system just to make it behave like the previous software.

CONCLUSION

The construction industry is at a pivotal juncture, with legacy ERP vendors striving to maintain market share while innovative newcomers rapidly gain ground. Selecting the right ERP platform is crucial for your organization’s long-term success, but even more critical is how the platform is implemented and embraced by your team.

As you navigate this selection process, consider how the ERP will integrate into your organization, its ease of use, and its adaptability to your unique needs. Choosing the right ERP and ensuring its effective deployment can significantly enhance your operational efficiency, driving your business toward greater success and resilience in an ever-evolving landscape.