Choosing an ERP System may seem like an overwhelming task for those who have never gone through the ERP System Selection process. While most organizations can usually find a few staff members who have used an ERP System in a previous life, or maybe have even been involved with an ERP System Selection, there are a number of reasons you will want to employ a third party to manage this process. Before we get to these reasons, let us start with answering some basic questions and talking through some factors to consider when choosing a new ERP System.
What is an ERP System?
An Enterprise Resource Planning (ERP) System is an integrated suite of software applications designed to automate processes and manage business functions. These business functions often include finance, human resources, sales, procurement, and manufacturing.
What are some examples of popular ERP Systems on the market?
Some popular ERP Systems include Oracle NetSuite, Microsoft Dynamics 365, IQMS EnterpriseIQ, Epicor ERP, Workday ERP, SAP Business One, VAI, Sage Business Cloud, Infor, and Oracle SCM. This list is not exhaustive and each year new ERP solutions emerge that you may want to consider as potential candidates.
How do I choose an ERP System?
The short answer is you should invest time in an ERP System Selection. Different ERP systems are designed for different industries, company sizes, and business complexities. Many have different modules designed for specific business functions and you should understand which modules you will need. Some systems are cloud-based, and some are designed to manage hardware on-premise.
Another option is to look at a best of breed approach that might combine multiple software solutions, as opposed to choosing a single ERP. Of course, vendor pricing and the implementation approach of the vendor also weigh-in to your decision. Going through a deliberate ERP System Selection process will help you sort through what you really need in an ERP system and which solution best meets your needs.
What are the factors to consider when choosing an ERP Solution?
Although each situation and organization are unique, here is a list of considerations that are routinely discussed when we are doing an ERP System Selection.
- Functionality Alignment. You will want to understand how well the ERP System will meet your business requirements. You will want to understand the capabilities of each system you are considering, the existing modules, and the strengths and weaknesses of each compared against your high-level requirements.
- Integration Capability. Your new ERP System will need to integrate with other systems. Common examples include interfaces with major banks, internal analytics tools, ability to upload spreadsheets, and integration with 3rd party platforms like Salesforce.com. You will want to understand what integrations are already built and what might require custom code. Some systems also have flexible interface platform tools for integrations that you do not need now but may be required in the future.
- Budget / ERP System Cost. Purchasing an ERP System is a significant investment. It is not just the upfront licensing and implementation cost you need to consider, but also the Total Cost of Ownership. What will be the maintenance cost? What is the licensing model? Will you need ongoing third-party IT support? Will you need to hire system administrators? How much should you allocate for implementation? The cost of the ERP is much more than just the software cost.
- Configuration vs. Customization. Some ERP Systems are designed for configurability, where some require customization to work in your environment. Customization typically takes longer and has more inherent risk while configurable systems have already been “field proven”.
- Implementation Capability / Vendor Approach. When conducting an ERP System Selection, you are not just evaluating the software, you are also evaluating the Vendor. You will want to get comfortable with the implementation capability and the vendor’s approach to implementation. The duration of the implementation, the time investment from your staff, whether you will need a dedicated full-time team, and similar factors will all play a role in your decision.
- Cloud vs On-Premises. Whether an ERP System is cloud-based or whether your organization will host hardware on-site is often a consideration used to short-list potential vendors. In recent years, more and more organizations are choosing cloud-based solutions. If you are choosing the on-premises path, you should have well-thought through reasoning to support your decision and think through what it will take to build and maintain an in-house team to manage hardware.
- Capability in Industry Vertical. Some ERP Systems were originally designed for specific industry verticals (e.g. manufacturing) and have some inherent strengths in that vertical. You will certainly want to include in your initial list those solutions that are strong in your industry.
- Scalability. An ERP System selection is a big decision your organization will be living with for the next ten years or more. If your organization is planning for growth, you will want to choose a solution that can grow with you.
- Security. Security challenges are ubiquitous to today’s business environment and you will want to understand how different solutions compare in facing these challenges.
- The SaaS Model. A lot of ERP Systems are now employing a Software as a Service (SaaS) business model. We constantly come across clients who do not understand SaaS. SaaS is not necessarily bad, but you should understand this model and the implications.
- Credentials / References. Buyer Beware! Do your due diligence and do not let a good ERP Sales Representative take you for a ride. We employ tools like Gardner’s Magic Quadrant to help initially narrow the list of ERP Systems; however, when you start narrowing the list further, make sure you do your homework.
What are the challenges in the ERP System Selection process?
Have you heard the story about the CEO who saw a booth at a conference, got excited, let the Vendor take over the process, and two years later the organization is stalled in the middle of an implementation of a system they should have never chosen in the first place? Unfortunately, this happens all the time, and illustrates a few of the challenges organizations face in the ERP System Selection process.
- Vendor Bias. As illustrated above, a member of the leadership team or a functional group enters the process with a clear preference or favorite. Maybe they have used a particular solution in a previous organization or have an existing relationship with an executive from a specific ERP System Vendor. These biases can easily skew organizational decision making.
- Steering. Some Vendors have strong Sales Representatives that can quickly take over the selection process and steer your requirements gathering toward their solution. Without a structured process and strong leadership, we have seen these Vendors win not because they are the best solution, but because they have the best sales reps.
- No Differentiating Requirements. In today’s ERP solution market, there is a convergence of capabilities between various vendors. Requirements gathering happens near the beginning of the selection process and a good consultant will help you build requirements that will differentiate between solutions.
- Failure to Categorize Requirements. Everyone has their wish list, but not all requirements are “must have” requirements. Often, decisions come down to just a few critical requirements. When gathering requirements, your ERP System selection team should go through a deliberate process where requirements are categorized using a system such as “Must Have”, “Should Have”, and “Nice to Have”.
- Bad Scoring Systems. When it comes to evaluating vendors against requirements, it is imperative that an organization employ a good scoring system. Not all requirements have equal value, and some requirements need to be weighted more heavily than others.
- Failure to employ a 3rd Party Consultant. ERP System Selection is not the core competency of most organizations. There is usually a gap in skills, knowledge, and internal capacity. These organizations end up reinventing the wheel, getting bogged down in the process, and making poor decisions.
- Internal Politics. Getting agreement between functional departments is often challenging. We recently heard an executive mutter: “Supply Chain likes Oracle; Finance likes SAP. Who wins?” This executive was further frustrated by leaders from these business units politicizing the process. It is imperative to have a process that aligns stakeholders early.
- Logistical challenges. Scheduling vendor demonstrations, coordinating time with stakeholders, organizing meetings, getting answers to vendor questions, etc. can be a nightmare. Organizations that do not approach ERP System Selection with the appropriate rigor and discipline are often doomed to failure.
Why should you employ a 3rd Party ERP Consultant?
We strongly advise you to obtain assistance instead of attempting to manage the ERP System Selection process yourself. Here are the top five reasons to employ a 3rd Party ERP System Selection Consultant:
#1 Acquire expertise you do not have. By hiring an ERP System Selection Consultant, you can bridge the internal gaps in knowledge, skill, and capacity.
#2 Leverage selection accelerators. A third-party consultant has a structured methodology/process, tools, and templates and you will not need to re-invent the wheel.
#3 Eliminate internal bias. MSS Business Transformation Advisory is not aligned with any specific solution or vendor. We are apolitical and have your best interest at heart.
#4 It is a huge decision. You want to get it right. The total cost of ownership of an ERP System is easily into the 7 figures. Due to this cost, it is a decision you will be living with for the next 10 years or more. The ERP System Selection process is not something on which most organizations can afford to skimp. Hiring MSSBTA is like buying a cheap insurance policy.
#5. Avoid the never-ending sales calls. This might sound funny, but are you prepared for the onslaught of sales representatives knocking down the door?
How long should you plan for an ERP System Selection?
For most organizations, you can expect to invest at least 60-90 days in the ERP System Selection process. This includes developing requirements, issuing an RFP, shortlisting vendors, planning logistics to schedule demos, negotiations, and conducting the legal activities. Some variables that may impact this timeline include:
- The size and complexity of your business along with the number of your locations
- The number of vendors you are evaluating
- The availability of key business resources and subject matter experts
- The quality of your ERP System Selection consultant
- Your organizational decision-making culture
Need help with your ERP System Selection?
We would love to discuss your business. Please send us a quick note and we will get back to you shortly! Advisory@mssbta.com