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5 Keys For Maximising Your ROI Through Optimal ERP Performance: Key 3 - Selecting Your ERP Solution
Key No. 3 - 7 essential criteria for selecting your ERP solution and technology partner
Once you've made your decision as to why you are considering an ERP implementation (covered in article #1 in this series) and investigated the total cost of ownership (article #2), there are several aspects you should consider in detail when selecting a specific system for your situation.
The seven most important of these are
• Functional compatibility with current and future business requirements
• Total cost of ownership
• Operational Metrics
• Flexibility
• Time and ease of implementation
• Vendor support and relationships
• Industry expertise and customer references
A survey by the Aberdeen Group (June 2007) found when it asked respondents what criteria were most important in selecting an ERP vendor, "remarkably little variation was visible across company size ... functionality is the clear top priority for all companies, followed by total cost of ownership".
1. Functional compatibility
The first question you need to ask is: what applications can accommodate your business needs?
As Christina Soh and Siew Kien Sia point out (MIS Quarterly, 2005), vendors create enterprise systems based around a number of common structures - "ES packages are not custom-built for each implementing organisation".
"Vendors must make many assumptions about organisational requirements in such areas as organisational policies, structures, standard operating procedures, user knowledge, and interfaces. These assumptions manifest themselves in the processes and features in the ES package", which the authors refer to as 'package-embedded structures'.
"ES vendors claim that their package-embedded structures reflect best practice, However, many customers have found that these configuration options do not meet all their specific needs, and many question whether the 'best practices' truly do apply to all organisations.
"Developers' context - that is, their reference organisations - may differ from potential implementers' contexts, particularly those located in different countries or industries. Even within the same country and industry, contextual differences can exist."
The system should be able to provide functionality for all of your current and future business processes. To ascertain that this is the case, you first need to define and prioritise your company's processes, identifying the core business functions and developing a comprehensive requirements list based on input from all stakeholders.
This means that, as Soh et al recommend, "implementing organisations identify, as early as possible, misfits between the package and their organisation. They should create a basis for ascertaining when to align through organisational adaptation and when to align through package customisation."
'Misfits', missing critical features or unsupported business processes, could be the elements that transform an otherwise great fit into a complete mismatch. Very often, these only surface upon implementation.
Buyers should be very wary of future promises from software vendors. If the system does not have the necessary functionality right now in the current release, then you should discount any claims of functionality being available in the future.
The Aberdeen survey warns that, while functionality may be the top selection criterion, "ERP is often considered a commodity today. Don't assume the functionality you need is available. Take a 'show me' attitude in demonstration."
One who has documented this 'road test' guide to assess the suitability of a specific solution is Esref Akpinar (2005), who describes a software selection process for a liner shipping company using fuzzy logic decision making. This entailed five scripted scenarios to understand how software packages would handle specific key operational situations. A demonstration evaluation document was prepared, with every question in the document given a weighting according to their importance. An evaluation table was prepared of the results of the demonstrations which clearly indicated which product best fitted the company's operations and requirements.
2. Total cost of ownership
Prospective buyers should ensure they fully understand the true cost of ownership beyond the initial software licence fees and hardware cost. These may include costs such as those for integration, interfaces, systems communications , extra staff required, upgrades and helpline support. This topic is so important that it has been covered in great detail by the second article in this series, "Managing The Total Cost Of Ownership - What You Need To Know".
3. Operational Metrics
It is imperative to ensure that not only the costs, but also the benefits of an ERP system are controlled and measured during the implementation project. The benefits generally come in the form of cost savings and operational improvements (e.g. lead time reduction). Cost savings should be built into budgets and operation measures progressively tracked.
Legacy systems often do not support the operational metrics and these have to be assessed manually. A key selection criterion for the new system is thus also the ability to support these operational metrics.
4. Flexibility
Can the application be modified and scaled according to the changing needs of a dynamic and growing business?
Look for an ERP solution that will accommodate new operating protocols, future business growth, market expansion and any other initiatives that might arise.
Things to consider when evaluating flexibility:
• System parameters and default settings;
• Customer screen and menu options;
• Tools for modifying standard forms;
• Data access options and custom reporting; and modular format.
5. Time and ease of implementation
Key questions you should ask regarding the implementation process itself include:
• How long will it take to implement the ERP system?
• Will it cause any major disruptions to your normal business operations?
• Is there an implementation control process (ICP) in place to manage this?
• What sort of business process re-engineering will be required in order to implement the system?
• How long will it take to train staff to use the system?
6. Vendor support and relationships
Your software vendor decision is one that, hopefully, continues well beyond the normal, five-year decision cycle. To that end, three questions are important:
• Does the vendor have a sustainable presence backed up by experience in your industry and a proven track record on installations to similar sized organisations as your own?
• Will you and your management team have a comfortable working relationship that extends to their knowing you and your business intimately? Do they show a sense of responsibility and accountability for making your system choice a success?
• Do you have 'one throat to choke'? In the event that issues need to be resolved, do you have a direct executive contact who is accountable for making sure your customer service experience is consistently at the highest level?
• How many total vendors will you deal with on your ERP package? Sustaining multiple vendors is cumbersome.
7.I ndustry expertise and customer references
Key questions that will determine the reliability of the vendor include:
• Does the vendor have a proven track record in your specific industry?
• Can the vendor point to a number of companies in your industry who are already using the software and who will confirm that they made a sound decision.
One issue that cuts across many of these selection criteria is the issue of customisation of the software, so it is worth briefly flagging the topic in this context. As Aberdeen Group points out (July 2007), only 11 per cent of respondents to one of its surveys got away with zero customisation.
According to Soh et al, the simplest form of implementation - so-called 'vanilla' implementation - requires the organisation to bend to accommodate the software package. "[Vanilla] promotes organisational adaptation, either by conscious redesign and substantial change management, or by piecemeal, evolutionary workarounds, such as individuals and groups adapting. Their adapted practices lead to new organisational structures. Package [software] modification can range from customising the package code to interfacing with custom-developed modules or modules from other vendors.
"Users tend to push for package modification to minimise the amount of change they will have to make. Consultants and project managers tend to advocate organisational adaptation, to simplify package implementation and avoid the tangible costs (time, resources and risks) of package modification."
The playoff between these two apparently conflicting viewpoints can be a key ingredient to the success of the ERP project, particularly the total cost of ownership, and should therefore be a prime consideration among your selection criteria.
References:
•Akpinar, E., "Software selection for a liner shipping company using fuzzy logic decision making", paper submitted to the Institute for Graduate Studies in Science & Engineering, Systems and Control Engineering, Bogazici University, 2005
•IBS, "6 Essential considerations when selecting an ERP system", IBS Australia, February 2008
•Jutras, C., and Dalle Tezze, H., "When relacing ERP - Size matters", Aberdeen Group, June 2007
•Jutras, C., Trost, J., and Dalle Tezze, H., "Taking the ERP plunge for the first time", July 2007
•Soh, C., and Siew Kien Sia, "The challenges of implementing 'vanilla' versions of enterprise software", MIS Quarterly Executive, September 2005
About the Author
Peter Clarke, Chief Technology Officer IBS Asia Pacific has over 20 years experience in
ERP Software
,
ERP Systems
,
Supply Chain Management Software
and
EAI
. http://www.supplychainsecrets.com.au