ERP Selection Guide

What is ERP Software?

Enterprise resource planning (ERP) software is an integrated suite of applications designed to manage business functions, such as finance, human resources, sales and manufacturing.

How to Select an ERP System

You didn’t stumble upon this guide by accident. Perhaps you are looking to purchase new ERP software. Maybe you are in the middle of implementation and want to make sure you are on the right track. Maybe you are just a curious person. Regardless of the reason know this: selecting an ERP system can be a daunting task.

12 Steps for Selecting an ERP System

Many organizations invest in enterprise software simply because other organizations are doing so. While keeping up with the competition is smart, you need to understand the specific ways ERP will improve your business.

We recommend clearly defining your business goals prior to ERP selection so you can more effectively gather ERP requirements.

For example, if your organization wants to improve its customer service, one of your ERP requirements might be the ability to automatically order inventory when it reaches a certain level and automatically update this information for the sales department. 

(If you’re evaluating CRM functionality to improve your customer service, you may find our ERP vs. CRM blog post helpful.)

Once you’ve clarified your business goals, you should define how new technology will help you achieve these goals. This is where the value of independence comes in. An independent ERP consultant helps protect the integrity of your selection process by providing vendor-neutral guidance and ensuring your business case is driven by your specific needs—not referral relationships, reseller incentives, or implementation quotas.

Which Companies Use ERP Systems?

Historically, only large organizations were ERP customers. Today, organizations of all sizes, across all industries use ERP software. For example, many public sector organizations are pursuing digital government initiatives to modernize their operations with ERP software. In addition, the mortgage banking industry is using ERP software to improve their loan process management.

With the huge leaps in technological advancement and lowered costs to entry, ERP software is becoming more affordable, flexible and industry-specific, allowing small and mid-sized organizations to modernize their technology.

In fact, SAP and Oracle are not just for large enterprises anymore. These vendors have developed and acquired niche solutions that are affordable for smaller organizations.

A perfect example of this is when Oracle acquired Netsuite in 2016.  These types of mergers and acquisitions lower the barrier to entry while opening up more support and integration options.

Chances are, your current IT infrastructure has pain points and needs to change to support your organizational goals. An ERP selection and implementation is only part of this strategy, but is a large part and shouldn’t be overlooked.

In addition to deployment options, you’ll need to consider integration strategies. One approach is implementing a single ERP system with all the functionality you need. This is often the simplest approach requiring the fewest technical resources. However, it may not enhance your competitive advantage. Oftentimes, you will need different enterprise systems for different functional areas.

For example, a dedicated supply chain management system is often critical for organizations with complex distribution networks, high inventory variability, or multi-site manufacturing environments. In these cases, advanced demand planning, warehouse optimization, and transportation management capabilities may exceed what a core ERP module can realistically support.

Do you have a customization strategy?

While every ERP system requires some amount of customization, you should strive to minimize it. This will make upgrades a lot easier in the future.

It is essential that you have your customization approval process documented and adhere to it. If not, you may experience scope creep. We have seen this happen to dozens of companies, and people do lose jobs over it. Scope creep can easily start to cost tens of thousands, if not hundreds of thousands, of dollars.

When deciding whether to fulfill a customization request, consider whether you absolutely need that functionality and what it affects. In many cases, you may just need to train employees.

A selection team assists the project team with software requirements gathering and attends ERP vendor demos. The team should include at least one member from every department, business unit and location.

Also, be sure to include subject matter experts (SMEs) who understand how the business operates in relation to their particular department. They should understand both the upstream and downstream processes of their functional areas. 

Your selection team will have decision-making power, so you want people who aren’t afraid to share their opinions, even if these opinions are unpopular. You can’t identify pain points unless people are honest about their day-to-day challenges.

Who Should be Your ERP Project Manager?

We recommend designating one of your selection team members as the project manager.

The project manager will be responsible for keeping the ERP selection process moving and assigning roles and responsibilities. Strong project management ensures your selection (and eventually implementation) stays on time and on budget.

What if You Don’t Have Enough Resources? 

Many organizations face resource constraints when building an ERP project team to assist with software selection. There are several ways to address this challenge depending on your unique situation:

• If your organization doesn’t have sophisticated internal IT resources, consider hiring external IT resources.
• If your organization already has sufficient internal IT resources, focus on backfilling these roles with temporary contractors.
• If your organization has identified an ideal ERP project manager, but they are having difficulty balancing their day job with the project, you may want to backfill their day job. Strong ERP project management is important, and an internal project manager has the intel necessary to make difficult decisions when your team faces challenges.
• If your organization lacks ERP selection experience, then hiring an ERP consultant is essential. An independent advisor can structure an unbiased evaluation process and ensure that software decisions are based on functional fit and long-term scalability rather than sales pressure or partner affiliations.

Requirements gathering workshops are an essential component of business process management. Distributing workshop guides helps the selection team prepare for requirements gathering. These workshop guides aid team members in starting conversations with their respective departments.

As ERP and business consultants, we have experienced the full gambit when it comes to companies being prepared vs. unprepared. From people just showing up to a meeting that appeared on their calendar the night before to a well-orchestrated group with laser focus and pre-prepared notes – these scenarios are quite different both in the experience and cost.

Be Prepared – Like Boy Scouts

Working with an unprepared team makes it much more difficult to extract their knowledge and document it. An unprepared group will cost you significantly more money, not only in terms of hours lost explaining what is happening and lost labor. You also increase your consulting fees as your consultants spend time on unnecessary activities.

Not preparing your team also has the unintended consequence of making your leadership and sponsorship team look disorganized and unprepared. This has a deadly trickle-down effect on the entire ERP selection and implementation, which will truly begin to surface during your organizational change activities.

We have seen entire projects halted simply because of lack of preparation. Instead of being your organization’s dud, be your organization’s stud, and be sure to over-communicate and over-prepare your team.

What to Focus on

During requirements gathering workshops, you should focus on the “what” and not the “how.” While you do need to know each step in a process, you don’t need to know what buttons employees push to complete each step.

Business process mapping is a good tool to use when gathering requirements on how your business operates. Using a process map, you can extrapolate business requirements. This tool also will help you make decisions later on during upgrades or business process improvement exercises.

A common theme we see when facilitating business process mapping is an increased understanding among employees of inter-departmental tasks and responsibilities. This can result in an improved company culture and generate any cross-departmental respect that may have been lacking.

When determining which requirements are most important, ensure team members understand that needs and wants are not the same. Split requirements into three groups:

Define Your Requirement Priorities

If a requirement isn’t absolutely necessary, it should not determine your choice of ERP software. The final list of requirements should be a fair representation of each department’s needs.

You’ll need to make several important business decisions during requirements gathering workshops. As a result, you’ll need access to decision makers who can make timely decisions on issues such as terminology and process ownership. Clarifying process ownership is essential as process owners are responsible for validating requirements and ensuring all processes are accounted for within their respective functional areas.

During business process mapping, you may have already captured a significant amount of pain points, but now is the time to formally document them and outline process improvements.

Some projects involve more process improvement than others. If you already have optimized processes, your scope of change will be rather small. On the other hand, if you need to transform your entire operating model, your scope of change will be significant. Most organizations fall somewhere along this spectrum. While they may not improve all their processes, they’ll improve the processes related to their competitive advantage.

When performing business process reengineering, you will need to look at things as an outsider: Are you using industry best practices? Are there processes that seem redundant?

An outside set of eyes is usually best for this, but you should be involved too as you know your business better than anyone.

An example of this is one of our clients in the medical field that wanted to save money. Going digital and getting the latest equipment was their answer. While this did have some effects on the bottom line, it was not as influential as expected so an outside contractor was brought in to help. The contractor utilized some basic Six Sigma tools, and after two days of observation, was able to increase the overall efficiency of the blood lab department by roughly 20%.

Using your current state process map, you’ll document pain points, which will translate into additional requirements, such as “the ability to edit a sales order after submission.”

Documenting pain points is an opportunity to set baselines for benefits realization. For example, if you know how much time sales reps spend on a particular workaround, you can measure time savings after implementation. Similarly, if you know how long it currently takes to generate a particular financial report, you can measure the time savings that strong ERP financial reporting will bring.

While improving your processes, be sure to document the impact of each process change. Will employees need to be trained? Will employees need to be re-skilled because their processes have been automated? Answering these questions will help you communicate with employees and reduce change resistance.

Many process improvements can be implemented without technology. If this is the case for you, consider introducing these new processes before implementing ERP software. Why wait to improve the way your business operates?

Besides improving the customer experience, organizations use process improvement to break down functional silos, increase operational efficiency and enable digital operations. If this is your goal, be sure to focus on the hand-offs between functions. For example, when optimizing your supply chain processes, you should evaluate your application infrastructure.

According to Gartner, “Most supply chain management groups have fragmented portfolios of functionally independent applications and not seamlessly integrated applications.” In fact, respondents to Gartner research identify weak cross-functional collaboration as one of the top five barriers to their supply chain success.*

Without quality data, new ERP software cannot provide value to your organization. While you won’t be migrating data until implementation, now is the time to start planning and assigning data ownership.

Your data likely isn’t ready for migration.

Your data may be spread across multiple systems that each use different structures and formats. To account for this complexity, you should document and establish a data management strategy as early as possible. This strategy defines how you will migrate your data and cleanse it to resolve duplicate data and other data quality issues.

Data accuracy

Inaccurate master data is one of the leading causes of ERP implementation delays. Developing a data management strategy ensures you’re ready to perform ERP data migration at the earliest stage of implementation.

Keep in mind that software vendors almost never clean and organize your data, even though it should be ready before implementation. Panorama’s experience has shown that postponing this activity can result in budget overruns of at least 30%.

If your organization has an existing ERP system, you may want to include the latest version of that system on your long list. An ERP upgrade is certainly faster than a full software implementation. However, many organizations have customized their software to the extent that an upgrade would essentially be the equivalent of a full implementation.

Before building a long-list of ERP systems, you’ll need software selection criteria. These might include price, corporate values, industry focus and anything else your selection team deems relevant. Most importantly, your ERP software selection criteria should include your prioritized business requirements.

Common ERP Software Selection Criteria

Industry Experience

The ERP vendors on your long list should have multiple references from organizations similar to yours that have implemented similar functionality. By similar we mean size, volume of transactions, requirements and culture. Checking references helps you validate vendors’ claims about their system’s industry-specific functionality. Remember that software vendors aren’t going to provide “bad” references so be sure and do a little research outside of what they provide.

Vendor Reputation

Look for reviews from previous clients related to the vendor’s customer service and long-term support. Another telling factor is their employee tenure. If they are always hiring it could mean they are growing, or it could mean they aren’t doing so well in upper management. Read between the lines. The last thing you want to do is sign a contract for a large sum and end up playing musical chairs with project managers. When performing your due diligence, be sure to interview a set of potential project managers on their payroll.  A cultural clash can be just as troublesome as an incompetent partner. Also, investigate what customers have to say about ease of use. For example, what does the user interface look like on mobile devices? If they are in the cloud, what does their uptime and speed look like?

Cost

Scalability

You want an ERP system that can grow with your business. For example, increasing your customer base increases your required number of users and transactions. When evaluating ERP software scalability, look at vendors’ pricing models to determine the cost of additional users. It should be noted that some on-premise solutions cannot scale without additional servers. 

Vendor Viability

Look for an ERP system that is has recently been updated. This is a sign that the vendor is currently investing in this product and plans to continue in the future.

Another sign of viability is a product that is on par with other vendors’ products. If a product is lacking important functionality, it probably hasn’t been recently updated, and the vendor may be planning to discontinue it. Even if the vendor continues to support this product, the outdated functionality will hurt your organization in the long term. You’ll likely have to invest in extensive customization to keep up with your competition.

Actual Innovation vs. Fancy Buzzwords

When it comes to buzzwords, like artificial intelligence (AI) and IoT, different vendors have their own definitions of these terms.

While some vendors consider AI to be a system that autonomously learns and solves problems, other vendors may simply consider AI to be an automated workflow. It’s important to understand what a vendor means by AI because the most advanced AI is typically expensive and complicated to fully integrate.

Large organizations with the money and resources to invest in AI may achieve long-term ROI, but smaller organizations may not be able to wait this long for a payoff. For these organizations, integrating a niche application – such as robotic process automation (RPA) technology – with their main ERP, may be a better option.

Another type of niche application, besides RPA, that many small to mid-sized organizations implement is specialized cash applications. These applications can automate financial management processes, like the process of receiving a payment from a customer, applying it to the most recent invoice, entering it into the system, and processing checks for validation. These applications are designed to learn and improve over time.  

While AI is exciting, it’s not right for every organization. We recommend only implementing the technology that aligns with your short-and long-term organizational strategy.

What are the Top ERP Systems?

For example, if you’re a manufacturing company looking for an industry-specific solution, there are several niche products that may be a better fit than SAP or Oracle. Panorama’s ERP consultants have evaluated and implemented many lesser-known but highly-functional manufacturing systems, such as Syspro, IQMS, Plex and Hansaworld.

If you’re a manufacturing organization, you may be interested in reading our blog, Is ERP Good Enough to Manage Bill of Materials?

To turn your long list into a shortlist, you’ll need to schedule phone calls with vendors. During these calls, share your business requirements and connect vendors with your subject matter experts.

You should also issue requests for information (RFIs), which outline your organization’s most important ERP requirements as well as your short- and long-term goals.

It’s possible that all vendors will say they can address all your requirements. In this case, you may need a trusted third-party to read between the lines. Ask vendors how they address each requirement. Can they address it with standard functionality, or does it require configuration, customization or a third-party bolt on?

Are you ready for never-ending sales calls?

One of the advantages of using a third party ERP consulting firm is that they can act as a buffer so you don’t end up on the receiving end of hardball sales tactics. ERP companies pay their sales people on commission. Therefore, it is a simple fact that you will run into unscrupulous sales reps who will promise the world and a bag of chips, but only if you sign now. Once they get your John Hanncock they typically disappear, and you are left wondering months later what exactly you bought. Don’t fall victim to this trap.

On the flip side, if you decide to negotiate too hard the vendor may decide you are not a right fit for them because you’ll be a high-maintenance client. There is a fine line to walk.

Even after you’ve spoken with vendors on the phone, you may still have a hard time trusting that they can support your processes. This is where ERP demos are useful.

Send requests for proposal (RFPs) to each of your shortlist vendors. Your RFP should include a complete list of your business requirements. You’ll likely have hundreds of requirements so expect to wait several weeks for an RFP response.

At the same time you’re sending RFPs, you should also send demo scripts. Writing your own demo scripts allows vendors to create personalized demonstrations that address your business requirements. You may also want to offer up a small set of actual data so the demo has meaning to the observers. A good size set of data is 2-5 complete records. Allow vendors adequate time to prepare for these demos.

While vendors are preparing, it is important to keep in contact with them. Fairly often, we see vendors come in unprepared and the demo becomes the standard sales demo. YOU DO NOT WANT THIS. Your organization is unique, and the demo should be as well.

We have been known to abruptly end demos if they start going into their standard sales demo instead of what was supplied.  When a vendor does not put time into personalizing your demo and showing a vested interest, you can be assured that the same amount of effort will be placed into your ERP implementation.

Vendor demos are designed to provide your team with an in-depth look at functionality, and give your team the opportunity to ask questions. After each demo, your selection team should qualitatively and quantitatively evaluate the software’s ability to address each business requirement. If the vendor did not demonstrate the capability, then mark it accordingly. Don’t just take their word for it.

Once you have the demo scores and the RFP responses, you should conduct technical fit assessments. For each system on your shortlist, make notes on exactly how it meets each business requirement.

A major variable in this assessment is the scope of change. An ERP project involving significant organizational change requires more readiness than a project involving minimal change. For example, if your organization has high change resistance and a large scope of change, you’ll need to dedicate significant time and resources to preparing your organization for change.

Knowing how much you need to increase your organization’s change readiness will help you develop a change management strategy and plan. Determine how you will communicate with employees and what specific training each employee needs. Start acting on this plan as soon as possible – ideally before your final ERP selection.

The goal of ERP vendors is to sell. They don’t care as much about setting realistic expectations regarding budget and timeline. If you want realistic expectations, you should benchmark against other projects similar to yours.

Another way to set realistic expectations is to hire an independent ERP consultant with ERP negotiation experience. These experts are useful when you’re trying to understand and compare vendors’ statements of work.

Finding the best ERP consultant for ERP negotiations can be difficult. Look for one that will help you develop a negotiation strategy by asking which contract terms are most important to you. Then, they will create a negotiation workbook providing apples-to-apples comparisons between each system. The consultant will also conduct a long-term total cost of ownership analysis, including factors such as licensing structures and resource rates.

Vendor negotiations can last between three weeks and several months. In the end, you should achieve cost savings of 30-60%, but this depends on the vendor’s flexibility and the size of your organization.

Pause after the ERP selection process to ensure you’re fully prepared for implementation. Does your team understand your future-state processes well enough to answer design questions during the technical implementation? How effective have your change management activities been at reducing employee resistance?

While your selection team may have been enthusiastic about requirements gathering and process improvement, they may become resistant during implementation. Now is the time to ensure they support the implementation plan by allowing them to provide input. Change management should continue throughout the implementation process.

One thing you don’t want to do is take too long of a pause. You have made it this far, and the last thing you want to do is take an extended break. If you do this, you risk losing steam, experiencing turnover of key players and forgetting what was discussed. To maintain momentum, you may want to perform a team builder of some sort.

We know this is a lot of work. We do it day in and day out, but no one ever said you have to do it alone. Click the Free Consultation button below to see how Panorama Consulting Solutions can help you with your ERP selection.

The Value of a Thorough ERP Selection Process

Use this process guide as your ERP selection checklist to help you budget and plan for all essential activities. Realistic expectations will help you avoid ERP failure.

This step-by-step ERP selection process guide ensures you select a software system that helps you execute your digital strategy. A thorough ERP selection also reduces your total implementation cost – you won’t have to pay for excessive customization as a result of selecting the wrong software.

Ultimately, you’ll maximize your benefits realization, as your experience with the right ERP system continues to enable measurable process improvements.

*Gartner, Unify End-to-End Supply Chain Processes With Supply Chain Convergence, 17 July 2018