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Guide in ERP Selection
If your existing accounting system is lacking or you have grown out of QuickBooks you’re most likely starting to look for an ERP (Enterprise Resource Planning) solution. There are many offerings out there such as Microsoft Navision (or a 3rd party system based on it), SAP, Sage (which has several models), Syspro, and quite a few more. Where do you start?
Your first impulse may be to start calling the most well-known ERP software vendors to come in and demonstrate their software and features. But since each vendor may have a different song and dance you will be left to sort it all out on your own.
ERP software selection is a difficult multi-layered task and the advancements made in software functionality have made the selection process even more complex. Making the wrong choice will lead to unexpected higher costs or failure of the implementation.
It is wise to employ an experienced consultant to help with the process. However, beware that the consultant may have biases toward one of the solutions due to his familiarity with it. (see number 7)
Irrespective of the company size, many common mistakes in ERP selection can be avoided. Our experience from working with several ERP providers and numerous clients on ERP integration projects, I have put together this list of considerations specific to ERP vendor selection you should take into account:
1 – Calculate your budget and total cost of ownership
The vendor may give you a software quote of say $60,000 but the implementation will be an addition that’s usually quite a bit higher. The implementation consists of the data migration, software configuration and customization to your operation, special reports to be created and staff training. Staff training always seems to be underestimated. Pay particular attention to your implementation staffing plan. Many companies underestimate these areas and fail to manage expectations even before the implementation starts. Implementations are almost always more time-consuming, and costly than anticipated, realize this and manage expectations accordingly. Training should not be a one-time occurrence. Plan on follow up sessions for each department.
2 – Define the project scope and stick to it
“Scope creep” is the most common project and budget killer. “SOS” (Shiny Object Syndrome) is commonplace when people are looking at new ideas and technology. All of a sudden, each new software and feature appears to be something you can’t live without. Before long, the wish list has driven the project over budget.
Prioritization is the key to an ERP project’s success. Keep a keen eye on total cost of ownership components, both initial software and hardware costs and ongoing implementation and training costs. Keep in mind that each feature and function added results its own additional implementation cost. The bulk of that cost is often the time and money it takes to integrate the data needed for the feature to operate properly. Realize that your ERP project involves more than functionality. The ERP solution scope also needs to be defined organizationally and for the business processes, data migration, hardware interfaces, old system decommission targets, etc. Will the company require additional employees to operate the new system and will any be eliminated?
3 – Focus on the difficult points first
Identify your most critical and unique business process requirements – both current and future, that will test the capabilities of standard ERP packages. This may include production planning with material requirements integrated into purchasing. Or product cost analysis with regard to ingredient costs, yield, scrap and labor load. Think about the most elaborate fix you’ve had to devise to solve an issue in your operation such as special spreadsheets. Then make your stop-gap solutions a key item of your requirements list.
4 – Focus on the benefits to the business, not the technical features
You and your team should constantly question: What is the benefit to the company from this particular feature the new system offers? Just because it’s new and different does not mean it will bring something that benefits the company.
Look towards the future plans of the company after the implementation. Will the system have the utilities to handle the larger company you plan to be?
5 – Pros and Cons of RFQ scorecards
So, the company team has made up a list of desired functions and features and put a weighted number to each. Now you want to compare the results of the different vendors’ total score based on individual components of each solution. I’ve seen this quite a few times with varying results.
While it can help eliminate the weakest contenders, this can muddy the waters between the 2-3 best solution providers. Don’t let this be the sole basis of your final buying decision. There are other factors to consider that are difficult to score:
- While the proximity of the integrator may be closer, is the product more difficult to learn? Don’t pick a solution that’s over the competency of the company’s personnel.
- Are the customized reports included or do you get a report writer and find out that’s a do it yourself feature?
- Sometimes we want to buy from the “guys we liked” but the sales people disappear after the sale and the implementation team takes over. What are they like and what’s their qualifications and availability?
You can use the selection process to rally your implementation team. This is an occasion to recruit, involve, educate and test the cross-functional team that has to make the software work in your company. However, who is going to judge this? You the owner, the CEO, the CFO?
This is where an outside pair of eyes and ears will help. You need an objective person (consultant) to judge if your team does not have buy-in, or the implementation will surely fail. Participation in the selection process can also be a good learning opportunity for new employees and rising stars.
6 – The two-vendor option
You selected one ERP software package but you also have the option of selecting a different vendor for implementation services. When comparing ERP software suppliers, there is a variation in the quality of implementation services. While the software itself has the most visibility during the selection process, it is not unusual for the implementation and training services component to become the main risk-driver and deal breaker. Also, remember that implementation services represent the biggest factor in budget burn rate on most ERP projects. I have witnessed quite a few customers get budget over-run surprise.
While the integrator from the chosen ERP software vendor are often the recommended choice for implementation services, they are sometimes not the best choice. Simply being a reseller of the primary ERP vendor does not mean the people assigned to your project are the best suited for the job. Investigation should be conducted separately for the software and services components. If they have no experience with your industry such as baking, you should shy away.
7 – On the Cloud or your Server
The manner in which the software and infrastructure are hosted should not be what’s most important when it comes to selecting an ERP vendor. The advantage to Cloud based is the reduction of internal IT personnel and hardware requirements. Users simply log into the software using a web browser. However, this may bring other security concerns into the picture.
8 – Beware of biased recommendations
There are quite a few consultant and analyst organizations offering ERP software selection guidance. But be careful if they make revenue implementing the software they recommend. Often, the profits they make implementing the software far exceed what they earn for selection services. These practices may be considered conflicts of interest and even unethical in some cases. Experienced consultants that are unbiased are always the better choice.
9 – Manage the Vendor Demos
Demonstrations are very often left up to the vendors. Resist the urge of letting the vendor control the agenda and having him dazzle you with their song and dance.
Prepare a clear and comprehensive demo script and agenda based on your ranking of the functionality, features and integration you need. Make the vendor to follow your script. Make sure you have the right decision makers and key people in your company reviewing and objectively rating each portion of the demo. Be prepared to allow the vendor to return for a follow-up demo.
10 – Reference checks
Every vendor will display their most successful installations of customers to support their customer satisfaction claims. But don’t stop there. Find some that are in your exact industry and expect that every vendor may have some dissatisfied customers. A very important job in this process is to go out and find them. One caution though: many times, a disgruntled customer caused many of their own problems. You may also find a customer that was a difficult case but the vendor succeeded in shaping a good outcome.
The ERP selection process is a multi-layered problem and you need to approach it using research and methodology that simplifies it. This needs to be structured in a way that focuses on what really matters to the company. You also need to take a look at what may have a high risk of going wrong during the system implementation.
Small companies use several systems to run their businesses whereas, large organizations may utilize 100’s of both integrated and stand-alone systems. In this multi-system environment, a clear understanding is required of what system addresses what functions, what inter-system integration is worth the effort, and where the master database is to be located. The desired system outcome needs to include what is practical and reasonable at given investment levels and timelines, or expectations will never be met.
Focus Works Inc