Enterprise resource planning (ERP) software can be a valuable tool for manufacturers, but many companies struggle when it comes to choosing the right system and implementing it correctly. Richard Penman offers some pointers.
A previous edition of AMT magazine included a first-rate article on how software systems such as ERP platforms assist businesses in driving innovation. Done correctly they do; and I am sure that the majority of business today would agree with this. However, most business are also faced with conflicting messages and confusion in regard to ERP success.
To add to the drama, in 2013 Gartner told us that 75% of all ERP projects fail and more recently have stated that until 2018 that 80% of enterprises will lack the capability to successfully deliver a “postmodern” ERP strategy – “postmodern” representing a fundamental shift away from a single-vendor (on-premise) mega-suite, toward a more loosely coupled, federated and cloud-based ERP environment.
Consequently, when businesses embark on an ERP project the fear of choosing poorly has a profound effect on both the length of time and quality of the ERP selection and evaluation process –so much so that we actually have a term for this: ‘paralysis by analysis’. Understandably, selecting software is not an easy task, there is no ‘one-size-fits-all’ solution, regardless of what vendors tell you. Each business differs in terms of technical and business maturity, size, workflow, functional requirements, context, activities, culture, budget and so on. As such the dreaded word ‘customisation’ will eventually be raised.
Without a proverbial magic wand, the selection and evaluation process can be a lonely and confusing place. There are however a broad set of steps that, if followed, assist in the approach and may go some way to filling that hollow feeling you have when selected to manage an ERP project. By having a structured process you are increasing your chances of a successful implementation that you and the business can be proud of. This is a rather large topic to cover in a single article, so bear with me if it seems a little condensed.
So you have gone through the strategy meetings and the outcome is an ERP project! The project team has been created, the action plan generated, the gap analysis completed, and the business needs prioritised. The outcome of all these steps is a requirements document, which defines the functionality requirements for each of your processes and the criteria they have to meet. This document can and should be used to create a shopping list of useful features to use in pre-qualifying ERP vendors.
Most businesses get to this point OK, but struggle with their options in terms of creating a shortlist of ERP vendors that could suit their industry and organisation? There are three choices. First you can do your own research, both online, direct calling vendor sales departments, and approaching businesses in your sector. Second you can hire an independent consultant to facilitate, which can be hard as most consulting entities are not independent but are affiliated with particular ERP products – they have to earn money too. Or thirdly, you can utilise Government-funded services such as the Entrepreneurs’ Programme, which provide a light-touch advisory service.
Regardless of the route chosen, it’s important to remember that selecting and subsequently implementing ERP is one of the most resource-intensive activities a business will undertake and you only get one chance to do it well. So no cutting corners.
Having chosen a shortlist route, the aim is to have no more than three after the initial pre-qualifying or shortlist stage. To assist in cutting down the list you could ask for general vendor information in a format that you can score or weigh each response. In a formal world this stage is often known as the request for information (RFI) stage and is aimed at receiving a written response from each shortlisted vendor in regard to their capabilities, experience, product fit, reference sites, etc.
Once responses are in, it’s time to evaluate the vendor, a process just as important as evaluating the ERP product. Hopefully you can whittle the list down to two products/vendors and can move on to the proposal stage. If you are not down to two or three vendors, you may ask for ballpark costings from the shortlisted vendors. They will be extremely reticent to do this and quote the old ‘too many factors’ argument. This step also doesn’t tend to work too well with ERPs and their pricing models which mostly range from the convoluted to the outright absurdly complicated.
Once down to two or three products/vendors, share your requirements document with them and arrange for demonstrations of their products – note they have a pre-set presentation agenda, so prior to the presentation, send through a list of functionalities you want them to demonstrate. Score each demonstration against your requirements document and your vendor evaluation criteria. When down to the last two standing, ask for formal proposals.
Pricing can be notoriously complex with ERP vendors, so ask for a plainly worded costing sheet that clearly identifies the costs for each project element (software licences, training, data migration, support, ongoings, etc.). Make sure the vendor proposal includes a full total cost of ownership (TCO) analysis for the number of years you reasonably envisage owning the software. Such an analysis attempts to uncover all the obvious costs and hidden costs of ownership across the anticipated lifecycle of an ERP.
After this you should have a pretty good idea of the frontrunner that best meets your industry, activity, culture, business and budget requirements. Move on to final negotiations and ensure you have a thorough scope of works (detailing each party’s responsibilities) in place before moving to the implementation stage. Implementation is another discussion entirely, but by having undertaken a well-structured approach to selecting and evaluating ERPs, you can move forward with confidence.
Richard Penman is a national IT Systems Innovation Facilitator with the Federal Government’s Entrepreneurs’ Programme (EP). AMTIL is a partner organisation working with the Department of Industry in the delivery of the EP.