For decades ERP software has been used to streamline business processes, reduce inefficiencies, facilitate data-driven decision making, and foster company-wide collaboration between key stakeholders. For manufacturers embarking on digital transformation involving ERP replacement or upgrade, it’s one of the most significant decisions they’ll make, effecting all areas of their business. But the complex process of selecting the right Enterprise Resource Planning (ERP) system presents challenges that could derail the best laid plans.
This post will provide a step-by-step roadmap to ERP selection. We’ll explore key considerations, common mistakes and practical advice for manufacturers selecting a new ERP system. Let’s begin by reviewing the need for ERP in manufacturing, then we’ll approach the steps for successful ERP selection.
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Understanding the Need for ERP in Manufacturing
In today’s competitive environment, manufacturers are embracing modern ERP technology to bring visibility to key data, control costs, improve operational efficiency and enhance collaboration across departments. The right ERP system allows all areas of the company to work from the same data, eliminating silos and automating routine tasks.
Without an ERP system, manufacturers may experience operational challenges including:
- Lack of visibility into real-time production status
- Difficulty managing inventory and raw material procurement
- Inconsistent and delayed reporting
- Manual, error-prone data entry
- Poor coordination between departments (sales, finance, procurement, etc.)
Implementing a new ERP solution provides a single platform for managing operations. But given the investment in time and resources, it’s critical to select the right ERP system.
Roadmap to ERP Selection: Step-by-Step
Step 1: Define Your Business Requirements
You know you need a new ERP, but there’s work to do before reaching out to potential ERP vendors. First, you need to do a deep dive into your business requirements. What do you need the ERP solution to accomplish for project success? Where are the gaps in your legacy system’s functionality? How can your processes be improved to add more efficiency?
Identify the pain points in your current processes and determine what you need the ERP to address. Key areas of focus for manufacturers may include:
- Inventory Management: Real-time tracking of stock levels, order fulfillment, and inventory forecasting.
- Production Planning & Scheduling: Optimization of production workflows, equipment utilization, and capacity planning.
- Supply Chain Management: Integration of supplier and vendor data for more efficient procurement and logistics.
- Quality Control: Ensuring consistent product quality, with the ability to track defects, returns, and compliance.
- Accounting & Finance: Integration of financials, from budgeting and costing to financial reporting and tax compliance.
- Customer Relationship Management (CRM): Managing customer orders, feedback, and relationships in a streamlined manner.
Involve key stakeholders to understand their needs from the new system and to develop a list of essential features and functionalities. Remember to consider future goals of the company, keeping growth and scalability in mind.
Step 2: Set a Realistic Budget
ERP cost can vary depending on several factors including the vendor, range of functionality and modules, number of users, as well as whether deployment is on-premise or in the cloud. Research ERP pricing to get an idea of what a realistic budget might be for your requirements.
Some of the main costs to consider include:
- Software Licensing: The upfront cost of acquiring the software.
- Implementation Costs: Costs related to installation, configuration, and testing.
- Training Costs: Educating your team on how to use the ERP system.
- Maintenance and Support: Ongoing fees for technical support, software updates, and system upgrades.
- Customization: Additional costs for adapting the system to your specific needs.
Set a realistic budget based on your business’s size, complexity, and requirements. While it’s important to keep your requirements front-of-mind, be sure to consider the total cost of ownership (TCO) to understand both the initial and ongoing costs.
Step 3: Research Available ERP Solutions
With your requirements and budget in place, the next step is to begin researching potential ERP solutions. There are hundreds of ERP vendors in the market, each offering different functionality and pricing. Don’t discount smaller, niche solutions or systems that focus exclusively on the manufacturing industry or sub-industries.
Some of the most popular ERP systems for manufacturers include:
- SAP S/4HANA: A powerful, highly customizable ERP system known for its deep functionality in complex industries.
- Oracle NetSuite: A cloud-based ERP offering for mid-sized to large manufacturers, providing comprehensive features for financial management, inventory control, and production planning.
- Microsoft Dynamics 365: A flexible ERP solution that integrates with Microsoft products and offers modules for manufacturing, supply chain management, and more.
- Epicor: A well-known ERP solution designed specifically for manufacturers, with features like production scheduling, inventory management, and quality control.
When it comes time to evaluate potential ERP software solutions, it’s important to consider several key factors. First, evaluate the vendor’s experience in your industry to make sure they understand your unique business functions and that the ERP system can be configured to your requirements. Also, consider the deployment options, keeping in mind that an on-premise system offers more control over your data, while a cloud solution may provide lower upfront cost. In addition, examine the user interface to ensure that it has an easy-to-navigate design for user buy-in and efficiency. Finally, look for data analytics capabilities that offer real-time reporting that lets you track your key performance indicators (KPIs).
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Step 4: Evaluate Vendor Capabilities
With your shortlist of ERPs complete, it’s time to take a closer look at the ERP vendors. Here are a few factors to consider:
- Vendor Reputation: Research the vendor’s reputation in the market. Request customer case studies and testimonials, and look for reviews from other manufacturers in similar industries.
- Customer Support: Ensure the vendor offers ongoing support options, including 24/7 assistance, user training, online resources, and a dedicated support team.
- Security & Compliance: The ERP must adhere to industry regulations, especially if your company handles sensitive customer or financial data. Check if the system complies with standards like ISO, GDPR, and HIPAA. Security is especially important during the data migration process as financial records and customer information is transferred.
- Technology & Innovation: Evaluate the vendor’s commitment to innovation. Are they constantly improving the product? Do they invest in emerging technologies like AI, machine learning, and IoT? How often are upgrades made available? You’ll also want to understand the lifecycle of the ERP software. Is it nearing end-of-life, and how long will the product be supported?
Step 5: Involve Key Stakeholders
ERP selection and implementation aren’t just an IT project. The new ERP will affect every area of your business, impacting users in every department. Therefore, it’s crucial to involve stakeholders and get feedback from end users and managers will use the system. Their input will provide valuable insight to ensure the ERP meets each department’s needs:
- Operations Team: Ensure the ERP can optimize production planning, scheduling, and inventory management.
- Sales & Marketing: Look for features that integrate with CRM systems, track customer orders, and manage sales data.
- Finance: Ensure the ERP offers robust accounting and financial reporting capabilities.
- IT Team: Your IT team will assess the ERP’s compatibility with your current infrastructure, ease of integration with existing systems, and security features.
Stakeholder feedback also fosters buy-in and a sense of ownership in the project among the team. Regular communication with end-users is a part of effective change management, leading to greater user adoption and faster return on your investment.
Step 6: Conduct a Detailed Vendor Demo and Testing
Once you’ve narrowed down your list of ERP vendors, schedule in-depth product demonstrations. During these demos, ensure the vendor covers the key functionalities relevant to your manufacturing business. It’s important to see how the system performs under real-world conditions.
Step 7: Assess Integration and Scalability
As part of the evaluation process, you’ll want to consider other software systems you use such as inventory management systems, human resource software or CAD systems. Smooth integration with the new ERP will ensure the accurate and real-time data flow between the systems without requiring manual data entry.
Another consideration is scalability. Keep your company’s long-term goals in mind and choose an ERP that can grow with your business, accommodating increases in data volume, more users and even additional locations.
Step 8: Prioritize Implementation Support
While the selection process is key, keep an eye toward the next phase: implementation. A successful ERP implementation process requires careful planning. When evaluating ERP vendors, consider their methodology, along with that of any implementation partner who might be involved.
- Project Management: Does the vendor offer a dedicated project manager to guide the implementation?
- Training: How comprehensive are the training materials and sessions for your team?
- Timeline: Understand the estimated timeline for full implementation and potential delays. What is the process for testing? Will they implement a phased approach to go-live or a “big bang” approach with a hard cutover?
- Change Management: Ensure the vendor provides support in managing the organizational change associated with the new ERP system.
Step 9: Final Selection and Contract Negotiation
After following the previous steps, you’re now ready to make your final ERP selection. Just the contract negotiation remains. Here are some points to review in the contract negotiation process to ensure that both you and the vendor have clear expectations and a solid framework for success:
- Understand Pricing Models: Review the vendor’s pricing structure carefully, including any hidden costs for features, customization, training, and ongoing support. Ensure it fits within your budget.
- Negotiate Payment Terms: Agree on payment schedules that align with your financial plans, whether it’s upfront, phased payments, or subscription-based.
- Clarify Licensing and User Access: Ensure that licensing terms are clear, including the number of users, any additional fees for extra users, and how scaling up or down is handled.
- Agree on Service Level Agreements (SLAs): Establish clear SLAs that define the vendor’s responsibilities for uptime, response times, and system maintenance. This ensures you get the support you need when issues arise.
- Define Implementation and Support Timelines: Agree on a realistic timeline for implementation, including milestones, deliverables, and the scope of support during and after the go-live phase.
- Establish Data Security and Compliance Terms: Ensure the contract includes provisions for data security, privacy, and compliance with relevant regulations (e.g., GDPR, HIPAA) to protect your company’s information.
- Negotiate Post-Implementation Support: Agree on the terms for ongoing support, including system updates, bug fixes, and any additional support fees post-implementation.
- Outline Termination Clauses: Ensure the contract includes terms for terminating the agreement if the ERP system fails to meet expectations, including any penalties, exit strategies, and data transfer provisions.
Conclusion
Selecting the right ERP system for your manufacturing business is a critical project for your company and requires a structured approach to ensure a successful outcome. By following a defined roadmap—including defining your requirements, setting your budget, carefully evaluating potential vendors, and negotiating the contract—you can implement an ERP that helps make your business goals a reality.
With decades of experience working with manufacturers like your company, Ultra Consultants can help steer your ERP project to a successful outcome. From setting the stage with improved business processes, evaluating your current state, future state visioning, ERP evaluation, contract negotiation and managing your implementation, we’re with you every step of the way. The result is an ERP system that delivers real results for your company, from the factory floor to the front office. Get started today by requesting your free discovery call with an Ultra expert.
