ERP Guide: 7 steps how to select a new ERP Software System

Table of contents | ERP Guide:

7 steps to a new ERP

1. Today's ERP market trends
2. Why replace ERP?
3. Defining ERP selection project objectives
4. Narrowing the field of Vendors
5. Establish selection process crieteria
   1. Price
   2. Technology
   3. Funktionality och fit
   4. Core funktionality
      1. Differentiating funktionalitet
   5. Vendor
   6. Service
6. Designing an Evalutation process
7. Making the decision

1. ERP TRENDS - UNDERSTANDING THE MARKET FOR ERP 

Understanding where ERP has been and where it’s headed from here can provide a lot of insight into your purchase decision.

CONSTANT INNOVATION AND CHANGE

We’ve studied the industrial revolution, the machine age, and the information age and one thing is abundantly clear: constant change is a part of the manufacturing world and the rate of change is accelerating. As we stare the Digital Revolution and Industry 4.0 in the face, perhaps one of the most important questions to ask is, “Can we adapt quickly enough?”

Never before has technology been changing at such a rapid and exponential pace, and we humans (not to mention our businesses) are finding it harder and harder to keep up. Even though mainframe computers first became available in the 50s, affordable mid-range computers — and some of the first packaged and affordable manufacturing management software systems (we called them MRPII back then) — weren’t really mainstream in small and midsize companies until the 1980s. Client-server networks and rapid software evolution continued to add capabilities and broaden choices for smaller companies through the ensuing years.

The last 20-25 years have seen exponentially increasing levels of innovation. We’ve seen the emergence of the internet, the cloud, mobility, and machine learning, just to name a few. Consider this jaw-dropping fact: your child’s PlayStation sitting at home right now is more powerful than a multi-million dollar military super computer from 1996.

ERP IS THE KEY

Despite all of this disruption, ERP software has survived. During the time the average business professional may have gone from a Palm Pilot, to a flip-phone, to a Blackberry, and then through every single version of the iPhone, he probably owned one ERP system. Now, why is that?

One of the reasons is because ERP resides at the heart of a business. It is the main repository for company data, provides tools that are essential to all major company functions and activities, and supports decision-making from the plant floor to the board room. It’s incredibly difficult to rip out and replace. Companies, on average, hold on to their ERP systems for more than 11 years  and ERP still takes up more than 10 percent of a company’s typical IT budget . Because of the high degree of operational reliance companies have on ERP, they are often willing to choose a customization or an upgrade before they would ever consider replacing their system altogether.[1][2]

Another reason so many incumbent ERP systems are still in place is because developers are continually reinventing ERP. Loyal users who properly maintain their systems benefit from the constant stream of new functions, new technologies and new capabilities that keep their “old” systems vital and valuable over the long haul.

CLOUD FIRST

Cloud technology, however, has broken down barriers and created a new baseline for ERP. Unlike the previous decade’s legacy, on-premise ERP solutions, cloud-based ERP provides a new and important infrastructure that meets today’s requirements in a way that legacy on-premise systems simply cannot match. Not only is cloud infinitely more secure, performant and cost-effective, but it also opens the door to meet needs of an increasingly mobile and social workforce. The cloud offers compelling reasons to move from incumbent on-premise ERP, even if the existing system is providing adequate support for daily operational needs.

TECHNOLOGY

The future of ERP (and of the industries who use it) is inextricably tied to technology. Marco Annunziata, chief economist for GE, is paid to predict what the future will look like for industrial companies. In his speeches and writings, he sees a world where workers will come onto an intelligent factory floor. Everything around (and even on) the worker will be equipped with sensors, creating a digital nervous system of connected objects (Industrial Internet of Things / IIoT). Robots will be helping him complete his work, and computers will be constantly analyzing billions of data points to help the worker create a safer, more efficient, and more enjoyable work environment, while producing increasingly performant and innovative products. This imagined world doesn’t have to be a scary one. According to Annunziata, it’s one that will create more demand, as well as new and more interesting jobs. And the truth is: that this new world of manufacturing is approaching rapidly – whether you want it to or not.

https://www.linkedin.com/in/marcoannunziata/recent-activity/posts/ [1]

Radar Trend Report: The Importance of the Right ERP System by Hans Werner, Radar Ecosystem Specialists[1]

Radar Trend Report: The Importance of the Right ERP System by Hans Werner, Radar Ecosystem Specialists[2]

2. WHY REPLACE ERP?

The first step to an ERP project is making the decision to replace your existing system. To help you make sure you’re considering a new system for the right reasons, here are some of the most common reasons we hear when we ask our customers what drove them to launch their ERP selection projects.

1. The current legacy system lacks function, is hard to use, slow, and/or inflexible. These are probably the most obvious reasons, and companies experiencing these kinds of issues should not hesitate to find and install a replacement system
2. It doesn’t support current business needs like mobility or business intelligence.
3. Your people rely on spreadsheets to get their jobs done. This is a big red flag. If the function can’t be accomplished within the system (or usability is lacking so it’s perceived to be easier to use spreadsheets), you are not getting the benefits you paid for and the system is not supporting your business needs.
4. You lose business to competitors based on quality, price, or lead time. This may not be entirely the fault of your system, but it still could be limiting your opportunities for improvement.
5. Your company is growing or changing faster than the system can support it, and you need better control of your processes. Perhaps you’ve outgrown the functionality available to you, and the functionality you need is too great to take on as a customization.
6. Decision-makers are frustrated by lack of easy access to the information they need about the business, sales and markets.

3. DEFINING ERP SELECTION PROJECT OBJECTIVES

So, you’ve finally made the decision to replace your ERP system. But, before you begin looking at what’s out there, it’s important to take a step back and think about what you’re trying to accomplish.

• Are you trying to replace your system, preserving your existing business processes?
• Or, are you trying to change/improve processes as part of the new system implementation?

Your answer to this question could greatly affect your approach to selecting, implementing and using a new ERP system.

If your business processes are part of what differentiates you as a company, then system fit and flexibility should move to the top of your selection criteria. What are the most critical processes to preserve, and which system best aligns with those processes? If there is a gap, which system has the best toolset to quickly and cost-effectively build the custom features you need without modifying the software code? With an emphasis on choosing a system that fits your business “out of the box,” your implementation should follow suit, with goals of being quick, minimally disruptive, and iterative.

If you want to improve business performance by adopting new, proven ‘best practices’, then you’ll want to find the best software for your industry and focus your implementation on adopting as much of the system functionality as you can. You will want to spend time documenting your vision, based on what the software has to offer, and develop a roadmap for moving processes from today’s practice to adoption of the new capabilities for improved performance.

4. NARROWING THE FIELD OF VENDORS

The ERP market is often viewed as being made up of “Tiers” of products and suppliers that are directed at two distinct market segments:

Tier 1:

Includes the international market leaders like SAP, Oracle, Infor and Microsoft that have multiple ERP products and variants marketed primarily to big multi-national corporations. For the most part, these solutions (particularly SAP and Oracle) are large, expensive and difficult to implement because of the big-company functionality that is built into these products.

Tier 2:

Encompasses hundreds of midmarket ERP solutions that make up over one third of the global market. Small and midsize companies typically choose these “medium-sized” ERP solutions because they are more affordable, easier and quicker to implement, yet still contain robust functionality they require without the big-company complication that they don’t need.[1]

 Top Five Manufacturing and Operations Vendors by Total Software Revenue, Worldwide, 2013-2014 (Gartner)[1]

THE DIFFERENCE BETWEEN AN ERP EVALUATION PROCESS AND AN ERP SELECTION PROCESS

One of the most common misunderstandings we encounter with ERP software buyers is clarifying the difference between their evaluation process and their selection process. Think carefully about what each of those words mean. They are not interchangeable.

So, let’s begin with our definition of these two terms:

Evaluation Process: Steps taken to complete the evaluation of the solution.

Selection Process: Criteria for how the customer will make the purchase decision.

Often, and especially in the ERP industry, these two processes are blended into one. And unfortunately, the selection process tends to be discussed in the least amount of detail amongst the members of the team. In fact, we often see selection teams begin their vendor research (and the sales process) with little to no consideration for their selection criteria.

5. ESTABLISHING SELECTION PROCESS CRITERIA

No matter how complex your request for information (RFI) is, we believe it’s easier to start with simple set of criteria when making a purchase decision. In project after project, ultimately, we think it comes down to five criteria (not listed in order of importance):

• Price
• Technology
• Functionality/Fit
• Vendor
• Service

In short, your goal is to get your team to agree on the relative importance of each of these criteria. Throughout the selection process, use these weightings to help narrow the field of vendors, and ultimately, to make the final decision.

5.1 PRICE

Let’s get price out of the way because it’s pretty simple. Philosophically, an ERP project should be far too important to your business for price to be a factor. Nevertheless, price—or better yet, price ranges—tends to be a key criterion. Price ranges are related to the size of vendor and type of ERP solution you’re looking at (as discussed in the Narrowing the Field of Vendors section). Price ranges will become clear as you start to narrow down the field of vendors/solutions that fit your needs. When you are further along in your project and your budget is set (based on the range you ’discover’ in your early explorations), specific solution price will become a factor as you make your final choices.

Our advice? Remember that each ERP vendor’s pricing will be structured differently, and they may be difficult to compare. Best practice is to be sure to break down the price into similar components—including the initial price plus implementation, training, and any outside assistance; plus operating costs over the designated time including annual license or subscription fees, maintenance, upgrades, operating costs (IT, devices, networking, security, etc.), services, and so on.

5.2 TECHNOLOGY

Technology can be a quick subject, too. We discussed the importance of technology in Today’s ERP Market Trends. Not everyone can be a CIO, so we need to rely on those who understand technology to make technology decisions.

The easiest piece of advice we can offer is to make sure that you ask high-level questions about technology early in the process. For example, is it important that you run on a Microsoft or Oracle platform? Or, is there a key system you’ll need your ERP system to integrate with? It is important to verify that the ERP technology you’re considering is well aligned with the technology in your existing internal stack, and that your internal resources will be able to properly support you once it’s implemented.

Another piece of advice is that when you’re evaluating technology, make sure you understand what’s behind people’s opinions. For example, when you ask about the merits of a cloud-based ERP system, the response you get may depend on who you’re talking to. Financial folks will focus on cost-benefits. Operators will want to question things like data security and performance. And IT professionals might taint their advice based on their individual experience and skills because they are worried about their jobs.

Also, make sure to balance technology with vendor and product maturity. You could end up evaluating the hottest new solution, and find it lacks the feature depth you need to effectively run your business. You want up-to-date technology but you can’t afford to be a guinea pig for unproven tech or an unproven vendor.

5.3 FUNKTIONALITY AND FIT 

What is the best way to evaluate the vast amount of functionality sitting within an ERP solution? Do you need an RFI? Should you use a third-party consultant? What is the best way to facilitate a vendor demo?

Assessing product fit is probably one of the most difficult things to do. But we’d like to help you do it. First of all—and this is a shame—companies often fail to fully leverage the functionality available to them in their ERP systems. 

What we can learn from this is that it’s important for you and your team to think about what really matters.

• What’s broken? 
• What are your competitors beating you on? 
• What works that needs to be protected? 

Once you have these processes identified, it’s time to look at core functionality.

5.4 CORE FUNCTIONALITY

Most ERP systems have the same basic functionality. They’re differentiated only in the way the system and its user interface supports the task or process. When evaluating core functionality, our advice is to return to your overarching Project Objectives, as described above. Which system best aligns with the way you track inventory today—or, which system best aligns with the way you want to track inventory?

Core functionality needs to feel right, like your favorite jeans. It is best evaluated during a detailed demo, but your evaluation should be much less about checking “yes” or “no” in an RFI, and much more about “trying it on for size.” You and your selection team should intuitively “get” core functionality when you see it. If you don’t, then maybe the fit is not there.

The Chart below offers a basic framework you can use as a starting point to organize your evaluation of core functionality in an ERP system. Note that not all of these will apply to your situation and you may need specific additional functions.

5.5 DIFFERENTIATING FUNKTIONALITY

We mentioned earlier that there are hundreds of ERP solutions on the market. The question of fit is one of the reasons why there is no clear leader internationally and why there are still so many local and niche ERP products. 

It is difficult to replace systems that are tailored to a specific group of users. Many companies rely heavily on the specific features of a particular product. Think carefully about the features that deal with

1. the size of the company and the complexity of the business's processes
2. the type of manufacturing the company works in
3. the industry in which the company operates
4. geographical areas in which the company operates.

You can use the above points to measure how well the product fits the company. 

DOWNLOAD EVALUATION FRAMEWORK 

EVALUATION GRID: OUR CORE ERP FUNCTIONALITY 

5.5 VENDOR

When it comes down to it, you really will have one of two choices when it comes to vendors:

• Indirect: You will choose an integrator (or partner) who will act as an intermediary for the ERP developer.
• Direct: You will choose a editor/integrator that not only creates and markets the software, but also provides a full range of services, support, training, etc.

We have strategically chosen the path of being both developer and integrator because we believe it is best for customers. While the integrator partner might have a more objective role to play, and can advocate on behalf of the customer, the developer/integrator will have a more well-rounded approach to solution delivery and development.

The great strategist Peter Drucker once said that, “The purpose of a business is to create and keep a customer.” Keep this in mind as you consider which type of vendor you partner with.[1]

Once you’ve decided which kind of vendor you want to work with, there’s still more find out. Any vendor can tell you a story about their well-established business, leading-edge products, and happy customers. But you need to dig in and ask the tough questions.

First, you need to know that your partner will be around for the next decade or more. Try to understand the vendor’s viability by asking about how many customers and employees they have, how long they’ve been in business, and so on.

ERP vendors wouldn’t be in business if you could do it all yourself. You will be relying on your future ERP vendor for advice, service, support, training, and continued solution delivery for years to come. Make sure you find out what it’s really like to be a customer. Ask for references, preferably customers in your industry and your approximate size, and learn from those who have traveled this road before you.

And finally, ask for product roadmaps. Find out the level of investment your vendor has planned for the solution you’re about to buy, and what they see for its future.

Source: 5 Drucker on Marketing: Lessons from the World’s Most Influential Business Thinker by William A. Cohen, PhD

5.6 SERVICE 

Evaluating service is a continuation of evaluating the vendor. To repeat, you need to find out what it’s like to be a customer.

• How do the Service Level Agreements (SLAs), implementation methodologies, and service quotes differ between vendors?
• How many consultants does the vendor have in your area? In total?
• How many years of experience do they average? What are their specialties?
• What does the support offering include? What are the support hours?
• How many support analysts does the vendor have? What languages do they speak?
• What channels can you use to submit help requests? What is the support response and resolution time?
• Is there a self-service knowledgebase and online product help?
• What is included in the education offering? What is the curriculum?

These are just a few of the questions that we think are important to ask when evaluating software. Buyers should feel connected to and trust the people behind the product they purchase because they will eventually become part of your extended team.

7 PRACTICAL TIPS TO BOOST ERP SUCCESS

6. DESIGNING AN EVALUATIONPROCESS

Having a clear selection process makes the evaluation process much simpler, but you still have some details to work out. Evaluating ERP systems is a time-consuming process that requires commitment from all team members, executive buy-in, and project leadership. The project leader can make everything go smoothly with a well-defined process.

She must ask herself questions like:

• Who will conduct online research?
• Who will take notes during the demos?
• What are the core functional requirements that need to be demonstrated?
• Will everyone on the team participate in every demo?
• Do all members of the team have equal voting power (who will really make the decision)?
• How will we use our selection criteria in the decision-making process?

There are so many more factors, especially if there are employee politics at play. In addition, the project leader should be realistic about how long it will take. One way to manage the evaluation process is to backwards-schedule the process.

• When do we want / need to be live with the product? 
• When do we have to have a product selected?
• Who will approve the decision? What happens if we are not live using the product at that time?
• What are the major project milestones and their objectives?
• What are the real consequences of not meeting these project milestones?

7. MAKING THE DECISION

If you’ve begun with clear objectives in mind and designed a strong evaluation process that is underpinned by weighted and agreed-upon selection criteria, making the final decision should be easy. After that, you will need a new guide on how to best implement a new ERP software system. That’s not this guide, but we can help you with that, too. 

All you have to do is ask! CONTACT US