After selecting a short list of ERP systems conduct ERP system and vendor due diligence. Commit time and resources to vendor due diligence. An experienced, independent third-party ERP professional can add significant value based on specialized knowledge of vendors and ERP systems. They can also speed up the due diligence process.
Make reference calls with the vendor’s existing customers who are currently using the proposed ERP system. Visit one of the vendor’s customer facilities to see the ERP live in operation in a production environment.
Conduct a background check on the vendor and its management team, and thoroughly investigate its financial position. The vendor's ERP product market share and financial health should be sought. Examine not just its yearly revenues but determine whether those numbers come from actual sales or from contracts that have yet to be signed. Search for early warning signs the vendor is in financial distress, such as the resignation of the chief executive, massive layoffs and restructuring announcements. Check for past and present legal proceedings and regulatory actions against the vendor.
Vendor experience and time when the ERP product was released, including new releases, should be known. Ask more specific questions about the vendor’s plans for the ERP product, such as the amount of money the vendor budgets for development, its plans for rolling out new releases, the average length of service at the vendor for developers and support staff, and the processes the vendor has in place to provide technical support.
It is critical to clearly understand the ERP system and the complete offering by the ERP vendor. Key issues include total cost of ownership (TCO), data migration, complexity of customization, data quality, data warehouse and business intelligence functions, interoperability, and vendor support.
Yet the most important factor may be ease-of-use and complete user acceptance among different departments of the organization (finance, human resources, sales, etc.). Without complete user acceptance even the best ERP system may not deliver the benefits the organization needs.
Review in detail the TCO of the ERP system, including license fees, implementation, data migration, customization, product support, hardware, networking, user training, and data quality - data warehouse - business intelligence. Consider schedule and budget goals.
Consider implementation structure, management and costs. Make a list of expenses including the expense on staffs and time directed towards ERP system implementation. How much customization is required? What is the cost and complexity of the implementation? Will a professional system integrator or vendor take charge or work together as a team. Most implementations are a three way joint venture between the organization, system integrator and vendor. Who is the lead project manager? How are realistic expectations set and managed?
Consider the cost and complexity of customization and integration of third-party products, if any. Architecting the appropriate level of customization for unique business processes is important for ERP system success. Customization is often necessary to match unique processes and maximize ERP value. Yet complex customization can result in high implementation costs and significant delays.
Complex customization often causes implementations to be delayed and invariably lead to requests for more resources. Consider how the organization should balance schedule and budget goals against the benefits of customizing the ERP system. Does the added cost and time outweigh the expected benefits?
Consider data migration issues. There is a huge amount of work required to migrate data to a new system. What are the respective data migration, data quality and structure responsibilities of the organization, system integrator and vendor? Modern ERP systems require high levels of data integrity. Inventory records, bill of materials, financial, human resources, and other data need to become highly accurate, complete and properly structured. This is tricky and may cause the implementation to be delayed and lead to requests for more resources.
Consider ERP system interoperability. How easy or complex to make modifications, or integrate third-party products. Does the ERP system need to share information and interact with other computer systems?
Consider ERP system training. Training the organization to properly use the ERP system is very important. A senior executive should be accountable for ensuring the ERP system is used effectively and delivering measurable benefits to the organization. Committing significant training resources is a wise investment to ensure the system delivers the benefits the organization needs. Ease-of-use and complete user acceptance are important factors and ought to be accorded proper weight.
Attempt to reach a consensus among users to make a selection as to the preferred ERP system and vendor. Remember to include as many users as possible to avoid selection bias.
Remember no ERP system is a perfect fit: expect to make trade-offs as each ERP system has strengths and weaknesses for your unique business processes.
Finalize ERP selection.
The goal of demonstrations is an objective comparison of ERP modules and functionality. The objective is a short list of ERP systems that best fit unique business processes and users. Ease-of-use and complete user acceptance is important.
Strongly recommend retaining an independent third-party ERP professional to assist. Make sure the ERP professional is objective with no affiliation with ERP system vendors. An experienced ERP professional has detailed specialized knowledge on vendors, ERP modules and functionality, and industry specific requirements. Adding an independent ERP professional to the team significantly increases the probability of selecting the best ERP system and implementation success.
Each ERP system has strengths and weaknesses. Certain modules will be a good fit and others weak for your unique business processes. That is expected. No ERP system is a perfect fit. It is a matter of trade-offs. But to adequately compare and analyze you must have an objective comparison of ERP modules and functionality.
Construct a written ERP demonstration script, which defines the specific business processes each ERP vendor should demonstrate during the scripted demonstration. Provide sample organization data, such as products, customers, vendors, and pricing, to make business processes more reality based.
Each vendor follows the same script guidelines to present similar functionality with the same data. Vendors are under strict instructions to exclude any customizations, modifications, or 3rd party products. The same presentations will be made during each of the scripted product demonstrations so you can easily compare between packages and select your short list for further evaluation.
Include as many participants (organization users) from different departments as possible. Beware of selection bias. Do not stack the participant deck and allow decisions to be made by one individual or by one department within the organization. In these situations, an ERP system that may be excellent at one function but weak at other processes may be imposed on the entire organization with serious negative consequences.
Participants should have scorecards to be completed during the scripted demonstration. This provides the organization the ability to gather quantitative data as to how each vendor performed relative to all of the documented processes. Include ease-of-use and complete user acceptance as factors.
It also may be helpful to compare the capabilities of the vendor teams. Did the team have a reasonable understanding of your unique business? Was the team able to answer the queries asked?
Attempt to reach a consensus for a short list of ERP systems that best meets business requirements and complete user acceptance.
Review Request for Information (RFI) responses to determine how the ERP systems match up against key business requirements.
Eliminate ERP systems that do not meet your unique business requirements. Ignore size and reputation of ERP vendors (due diligence is down the road). Focus on specific ERP modules and functions that best match business requirements and processes.
After reviewing RFI responses make a short list of ERP systems best matched with business requirements.
Review your detailed list of business processes and how they relate to business objectives. Reevaluate business processes against business objectives and strategies. Retaining a business process professional at this stage would be prudent if you determine business process redesign is warranted.
Most organizations need business process redesign from time to time. Modern ERP systems work best with updated business process design. Flawed or inefficient business processes will not be saved or improved by a modern ERP system. ERP functionality is subordinate to business processes.
Determine how specific ERP modules and functions match specific business processes to achieve business objectives and provide information and business intelligence to help make decisions and execute business strategies.
Remember the goal is to select and implement the right ERP system for your unique business requirements to support execution of business strategies that will make the organization successful and get the best return on investment (ROI).
The detailed list of unique business processes and requirements forms the core of a formal Request for Proposal (RFP) document to be distributed to selected ERP vendors for their review and written response.
The vendors’ RFP responses become the basis for evaluating and selecting ERP vendors to perform onsite scripted ERP demonstrations.
After defining in meticulous detail business requirements and processes, and ERP system success, submit a Request for Information (RFI) to ERP vendors most likely to satisfy basic business requirements.
It is important to be clear and realistic about key business drivers and requirements. Narrow the scope as much as possible. Understand business objectives and how the ERP system helps execute business strategies.
The goal in this step is to obtain information to eliminate ERP systems that do not meet your unique business requirements. It may be prudent to work with an independent third-party professional to help differentiate between relevant and useful information and marketing hype.
Document critical success factors and determine how the ERP systems match up against these factors.
Enterprise Resource Planning Selection Process Part II - Define Business Requirements and ERP System Success
Five step process:
(1) Define Business Requirements and ERP System Success
(2) Request for Information (RFI) from ERP Vendors
(3) Request for Proposal (RFP)
(4) ERP Demonstrations
(5) Due Diligence
Define Business Requirements and ERP System Success
The most important consideration is the organizations’ unique business requirements. Define in meticulous detail business requirements and processes.
Take the time and retain professional counsel to study and analyze business requirements and processes. Identify key business drivers. Spend resources here for big payoff later.
Define "success" for the ERP system. Success should be defined in terms of specific, measurable business benefits the ERP system delivers once used.
Defining in meticulous detail business requirements and ERP system success will provide the organization necessary information to make a well-informed ERP system selection with the best ROI.
Assign executive ownership for user adoption and ROI. Organizations need to assign a senior executive to be accountable for ensuring the ERP system is used effectively and delivering measurable benefits to the organization. Executives need a vested interest in ensuring the system delivers the benefits the organization needs.
Enterprise resource planning (ERP) systems provide needed business information and intelligence to execute business strategy.
The goal is to select and implement the right ERP system matching business requirements to support the ability to execute business strategies that will make the organization successful and to get a better return on investment (ROI).
Selecting a ERP system that best suits organizational needs is tricky and overwhelming. Many executives jump at the first solution they see and wind up disappointed. Not every ERP system may be right for your business – or business processes. Best in class is not always the best solution.
As in any project plan, a detailed and methodical process makes success more probable. A plan for selection and purchase of new ERP software is no different than any major project being undertaken by an organization. It requires a significant investment of time and resources, requires the involvement of the entire organization, as well as considerable research, planning, and reevaluation.
The ERP selection process is important for future ERP implementation and execution success. The best practice for selecting the best ERP system for your organization and business processes is to follow a systematic, structured, and well-executed selection process.