ERP Vendor Selection: Five Best Practices
Relying on an outdated ERP system makes it difficult to manage change, risk and maintain competitiveness in an uncertain and volatile market. Let's discover best practices for your small- to medium-sized manufacturing business to consider as you embark upon an ERP selection project.
Don't Be Left Behind
According to researchers at Forrester, nearly half of companies use ERP systems that are two versions behind the current release, which may be four years old or more. And, more than half of manufacturing companies operate with outdated ERP systems.
Today's pace of change places challenges on the manufacturing business process. The volatile manufacturing sector, global competition, customer requirements and expectations all push legacy systems to the limits of their capabilities.
Relying on an ERP system that is outdated, or only upgraded every four or five years at best, makes it difficult for companies to stay competitive. From limited functionality, to siloed data and security concerns, a legacy ERP can stand in the way of continuous improvement initiatives. It also makes it difficult to manage risk and maintain innovation in an uncertain and volatile market. That's why many companies eventually find their way to an ERP selection project.
The Big Question: Which ERP Vendors Should You Consider?
One of the first steps an ERP selection team usually takes is to pose the question, "What ERP vendors should we consider?"
Your company is wise to identify ERP vendors that have a proven track record in your particular sector. You may find these vendors from a variety of sources. For example, you can seek information from industry analysts and references from friends or colleagues in the industry.
You may also rely on staff members who have had past experiences with a particular ERP system, perhaps one that they helped implement at another organization.
The vendors' products should meet total cost of ownership requirements and offer a delivery model that suits your company's technical infrastructure.
Other best practices include conducting a thorough review of the ERP vendor and requesting several customer references from them.
Your ERP team also benefits from the insight and expertise of expert independent consultants who have successfully managed numerous ERP selection projects.
Poorly executed selection projects often lead to implementation failures. Therefore, it is essential to follow a strategic approach to the selection process and adhere to best practices to ensure a successful outcome.
"An effective ERP selection project is a key component to a successful ERP implementation."
A Strategic Approach
Given the strategic importance of a company's selection of an ERP system, our team strongly suggests that your company keep the focus on making a good fi t to your business process needs and to team with a vendor that will be a good partner for the future.
To that end, based on our professional experience in ERP selection and manufacturing process optimization, we've summarized here the Five Best Practices for an Effective ERP Selection Process.
Five Best Practices in ERP Selection
Select by Industry Segment
Your company should team with an ERP vendor that has proven success in your company's specifi c industry. For example, if your company makes automotive parts, seek out only the ERP vendors that specifically address the automotive industry. Make sure you learn about their success stories in your industry.
Ensure the vendor addresses your critical requirements, including regulatory mandates, customer requirements and other key considerations. The vendor needs to demonstrate a presence in your industry with recent references.
It makes no business sense to force-fi t an ERP solution to your industry. Instead, take the time to assess what ERP systems have the features and functions that address specifi c industry challenges your company faces.
Shortlist the ERP software systems that most easily accommodate your company's distinctive processes. Look for a flexible solution that fits with your company's existing systems, allowing for integrations where needed.
Talk to suppliers, customers and ERP professionals that specialize in your specifi c industry. Get opinions and feedback on ERP software and how it works with businesses of similar size and requirements as your company.
Assess Total Cost of Ownership
At the outset of an ERP project, you must establish the budget for the project in terms of initial implementation and total cost of ownership (TCO). Talk with the vendors about the budget, and see if there is a fi t between the two.
The initial costs usually involve a complete ERP system for a single site. Additional sites and modules will increase the cost.
A solution quote usually includes software, first year support and implementation consulting. TCO, however, takes into consideration per user license costs, training, maintenance, customizations, upgrades, internal costs and other fees. If the system is Cloud or Software as a Service (SaaS), take a hard look at the Service Level Agreement for any hidden costs, such as system enhancements and upgrades. It's a fact that the scale of most ERP projects makes it difficult to stick to a fixed price. ERP vendors that offer a fixed price might exclude training or other necessary elements from quoted fees.
Be aware when signing these contracts that all inclusions and exclusions are noted on the contract before signing to ensure clear expectations. An ERP consultant can assist in contract negotiation and confirm that these details are in order.
Consider Technology Strategy
Be sure to have your company's IT department weigh in on your ERP selection project. IT should mention any requirements to the project steering committee at the outset. By involving IT early in the selection process, your organization ensures that the chosen ERP solution is compatible with your current technology landscape.
IT should assess if:
- There are sufficient resources to maintain and upgrade the system
- The existing staff can manage the new technology platform
- The necessary infrastructure is in place for an on-premise system
- The new ERP system fits within the overall IT strategy of the enterprise
Scrutinize the Vendor
How important is it to your company to pick a vendor that will remain a market leader for the coming decades?
The industry has been in consolidation for some time. Vendors that were thought to be market leaders have been acquired. Does it matter if the vendor you choose gets acquired in the next few years?
Today there are four vendors with revenues over $2 Billion in annual revenues: SAP, Oracle, Microsoft and Infor. While these major vendors offer financial strength and technological advancements, smaller niche vendors may offer specialized solutions at a lower price. Therefore, it is essential to evaluate what is important to your company and whether the major players align with your company's goals.
ERP software now needs to be selected to accentuate competitive advantages that will increase your company's profitability through decreased costs and fine-tuned processes. Although no ERP software will be able to accommodate all requirements out-of-the-box, focusing on what's important will provide the best advantage in finding the right fi t.
Uncover Real Customer References
Uncover Real Customer References
Once your company has whittled its choices down to an ERP shortlist, it is commonplace for an ERP vendor to offer a small list of carefully selected customer
references to speak with. Our team suggests another approach. Ask for a list of specifi c, relevant customers that have been using the system for a year or more, in the same industry as yours, who face similar requirements.
It's also beneficial to seek references from manufacturers of a similar size. From this list, choose who to speak to, and visit at least one of those companies on-site. Prepare in advance for this on-site reference visit and bring a team of appropriate managers and department heads for the most accurate assessment.
Parting Thoughts
The strategies noted above provide a framework for an efficient and effective ERP project. A careful ERP selection process builds a foundation of information, education and documentation that will increase your company's project success.
Our team has decades of expertise in these best practices—from developing a list of vendors for consideration; to identifying the leading vendors in the vertical industry; to conducting due diligence to make sure those solutions on the short list will deliver value to your organization.
With these strategies in mind, you can quickly establish a list of vendors to be considered for the company and achieve an effective ERP selection project.
About Ultra Consultants
Ultra Consultants is an independent consulting firm serving the manufacturing and distribution industries. We help with ERP selection and implementation expertise that improves revenue and customer satisfaction, enhances financial management and real-time decision making, improves productivity and reduces time to market.
For more information and additional resources on how to bring our expertise right to your doorstep, visit us at ultraconsultants.com.