How to Select Enterprise Resource Planning Software

Introduction

Enterprise Resource Planning (ERP) software brings about many benefits to companies and organizations. However, for those who are new to ERP, selecting and evaluating Enterprise Resource Planning (ERP) Software and vendors can be a hit and missed process.  So, how to select and evaluate your ERP software and vendor? And, how can companies minimize risks and conduct a good ERP selection and evaluation process?

When companies select and evaluate enterprise resource planning (ERP) solutions, there are two important parts that they should look at:

• Software
• Implementation Services

This article looks at the evaluation of the ERP software and will follow by another article on evaluating the implementation services.

According to SelectHub, 88% of organizations consider their ERP implementation helped them to succeed. So, the importance of Enterprise Resource Planning solutions cannot be understated in today’s business environment.

Methodology in ERP Solution Selection and Evaluation

Evaluation and selection of ERP solutions is a complex process, especially for people who have no prior experience. For simplicity, this article will cover two aspects of ERP selection: the methodology, and key considerations.

The high-level evaluation process for ERP evaluation can be summarized as follows:

1. Form Project Committee
2. Gather Business Information and requirements
3. Define Project Objectives and Scope
4. Initial research for suitable solutions and vendors
5. Shortlist solutions
6. Design Demo Flow
7. Solution Presentation (Demo) and Evaluation
8. Evaluation of project proposal and implementation service provider
9. Interview vendor Project Manager and key Consultants
10. Compile evaluation assessment
11. Contract Negotiation

Each step is complex with many detailed analyses, design, and planning involved. This process should usually be conducted by experienced professionals.

Key Considerations for ERP Software Selection and Evaluation

To make this easier for those who are selecting ERP for the first time, I will cover more of the key considerations for ERP selection instead. And these can be summarized as follows:

Big ERP that Cost Millions is Out

If you calculate the project ROI, you will understand why a more extensive ERP that cost millions and takes years to implement should not be on your shortlist.  Of course, there may be exceptions when you have a large organization that requires a large ERP to handle the huge business transaction volume.

ERP is a Multiplier, the Bigger your Company, the Bigger the Impact

Understand the ROI of your ERP project.  You will have a better ROI to select a more comprehensive ERP if your company revenue is higher.

Think Big, Start Small, and Slowly Progress to the Perfect Solution

When possible, consider your plan for the next 5 to 10 years. Always select an ERP that can eventually grow and expand to support what you want to do in years to come.

Very often, I see companies who implemented a cheaper ERP solution only having to go through the painful change again a few years later to implement a more advanced ERP.

But often, they just had to stick with their existing underpowered ERP and struggle to handle their new growing business.  This is because the switching costs to a new ERP can be high and the process can be time-consuming.

People People People

Get the right people involved, not just IT persons. ERP is not an IT Project.
Involve your key persons in the selection and implementation. The right people will make change management more manageable.

Business Owner/Senior Management should Lead

More than 50% of the troubled ERP projects that I encountered over the years did not have top management involvement. And usually, these turned into challenging projects. Since ERP is a critical business project, do not leave it to your junior managers.

Set Clear Objectives and List Down What you Want to Solve

Set clear objectives of what you want to achieve with your ERP project. And measure the result once the project is complete.  Try to maintain the same objectives throughout the project. These objectives will help you to control the scope of the project and minimize budget overruns.

List down the issues that you are trying to solve with the ERP and expand them into your evaluation criteria.

Design a Demo Flow

Yet, ERP Selection is not as complicated as it seems. But users often got carried away when the ERP vendors start to show their “Bells and Whistles”.

Draw out a demo flow using a few of your key business scenarios with some of your sample data. Ask the vendors to show you how their ERP system executes your demo flow.

This method will give you some near real-life experience of the system according to your business operations. It will also help you to do an apple to apple comparison between the various ERP solutions.

Preference for ERP with more Local Presence

ERP is a long-term investment and it is important to ensure that the ERP software and vendor will be with you for many years to come.

An ERP software that has a larger local presence often assure that the software has been acclimated to local market requirements. The larger consultant pool will provide larger choices of service providers with lower switching costs.

Cloud, On-Premise, or Hybrid

With more deployment options for ERP, it can be confusing. Cloud ERPs have their benefits but also come along with some risks. It is important to understand, compare and decide based on your current and future business requirements.

Comprehensive Proposal

Make sure that the proposal and contract from your vendors provide a detailed breakdown. It should be clear what is included and what is not. Do not accept a lump sum proposal without a breakdown. Ask questions if you do not understand.

The proposal must be clear on how your project will be implemented and managed. Project Management is essential, not just consultant technical services.

It is crucial to put all agreements in writing, either in the proposal or by email.
I had come across cases that which the salesperson from the ERP vendor made promises that were not aware of by their implementation team, which end up with arguments when the project commenced.

Implementation is Key

I often found from troubled ERP projects, that they selected the right ERP, but neglected the implementation.

Often, the lack of project management happened in these projects.  The reduction in project management effort and costs are probably due to the need to lower implementation costs that make the ERP vendors cut corners. Worse still, some ERP vendors do not see the importance of good project management in ERP projects.

Minimize Customization

Nearly all the troubled ERP projects that I saw had unnecessarily or non-optimized customizations.

Some companies failed to manage user expectations. However, sometimes the heavy customizations were due to incompetent consultants. Often, vendors quoted lower initial prices and tried to make money back later when they execute the project. Or worse, ERP vendors intentionally try to make it sticky so that the customer cannot change to other vendors later.

It is not wrong to have some extent of customizations in an ERP project. However, companies should avoid customizations that alter the core flow of the ERP software. These often lead to project instability and long-term project troubles, and in the worst-case scenario, ERP project failure.

Be Fair to Your Selected ERP Vendor

ERP business is a business of trust.  Visit and talk to the customers of the ERP vendor, especially those who had implemented it within the last two years. Ask questions to understand how the project was implemented, and what they like and dislike.

After you have selected the vendor, be fair to your selected ERP vendor. If you do not trust your selected vendor enough, think twice before signing the contract.

Do not try to overly squeeze and take advantage of your selected ERP vendor.  This behavior will only leave both parties with bitter experiences and sour relationships. Eventually, it will make the implementation and future support difficult.

In reality, you are less experienced with ERP than the ERP vendor who is dealing with ERP day-in-day-out.  How likely do you think you will ultimately benefit by behaving unfairly in your ERP project?

Conclusion on ERP Selection

ERP selection and evaluation is not an exact science. Often it is more an art.  Furthermore, there is no perfect ERP software or vendor.  The key is to manage the risks, increase the project ROI, and select an ERP software that is closest to your business objectives.

Moreover, the critical nature of the ERP project dictates that top management put enough attention and effort into selecting the right ERP for their business.

Learn More about the author, Raymond Yap, and how we can help you.

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