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How to Select Your Next ERP System
By: Net at Work Team
Choosing your next ERP system can become a complex decision. Taking an ad-hoc approach in your selection process can result in significant unnecessary costs and interruptions to business productivity.
In many cases, companies find themselves assessing ERP systems based on market reputation, referral from a friend, or a colleagues’ past experiences with an ERP systems but what tends to occur are; incomplete requirements gathering, generic vendor demos, over-emphasis on total costs, employee bias, attempted self-implementation, and misunderstanding of requirements by the ERP vendor. We have all experienced at least one or more of these events and the financial impact can be significant thus the likelihood of a successful ERP system selection can diminish significantly. The importance of taking a structured approach will increase the probability of success – here are a few points to consider:
1. Perform a business process review and analysis
To avoid the major pitfalls in an ERP system selection requires a structured approach. The first and most important task a company must undertake is a Business Process Review (BPR) and Needs Assessment/Analysis (NAA). By performing by BPR and NAA, either internally or by engaging a professional services firm, you will be able to define the specific business and end-user requirement and determine the impact of the business process. You will find opportunities to increase efficiencies, reduce overhead costs, and gather alerts and reporting requirements at key stages of the business workflow. By clearly defining your business process and system requirements, you will be able to share your finding with the vendor to perform a solution presentation relevant to your business rather than a generic demo of their software.
By performing a full needs assessment/analysis, you will be able to calculate the financial impact of each business process to determine hard and soft costs to your business. When selecting a new ERP system, it will be much easier to determine a return on investment (ROI) by the amount of effort needed to address the inefficiencies and gaps in your current system.
2. Evaluate ERP technology platforms supported
As technology platform offerings vary such as on-premise, cloud, and managed services – selecting a right ERP solution for your business should be first and foremost in your decision making process. Technology platforms are an important part of your ERP system but each offering does have its pros and cons. The adoption of cloud based ERP systems have become more acceptable in our business cultures today but cloud solutions still hold a very small percentage of total ERP systems sold in North America. Managed Services provides outsourcing service of servers and backups and tend to be used by larger companies to control capital costs and are based on a rental model. On-premise is the traditional method where you purchase the ERP system to be installed on company owned servers. You will need to evaluate the ERP system that best fits your company and adopt the technology platform supported by the ERP system.
3. Understanding TCO
As all business owners do, we over-emphasis the cost of a new ERP system and associated technology platforms. Many companies reassess their ERP requirements between five and seven years depending on changes in the business environment. However many companies have maintained the same ERP system for over 10 years, therefore understanding the Total Cost of Ownership (TCO) is an important factor in your decision. We tend to look at the first year investment as the impact on the business, but looking at the initial investment plus additional support costs over a 5, 7, and 10 year period will give you a better sense of the total cost of a new ERP system. Today, there are several ERP software publishers offering a subscription based pricing model. The total initial investment is much lower but the total future costs can become sufficient higher. Under a subscription pricing model, you need to determine the total cost of ownership over 5, 7, and 10 years in comparison to other pricing models, including leasing options.
4. Determine potential business benefits of the new system
Understanding the potential business benefits of a new ERP system to your company should be measured in a quantitative, qualitative, and financial manner. The benefit can easily be defined by assessing the key functional areas of your business to determine the impact it will have on all stakeholders, including customers, vendors, and employees. Many business owners believe they have an intuitive feel of the impact to all stakeholders, but to truly understand the measurable benefits a needs analysis should be performed to validate and confirm the investment needed to maximize a return.
5. Determine the impact on personnel
Let’s not underestimate the impact a new ERP system will have on your personnel especially if they are not involved in the decision making process. Your employees have a detailed understanding of the requirements needed to assist them in performing their day-to-day job responsibilities and empowering those in the selection process will definitely help attain the commitment needed during the implementation process to achieve success.
6. Selecting the right business partner
Engaging a professional service firm which specializes in the ERP system which best fits your company will help expedite the implementation of the solution. You will need to determine the services and expertise offered by the business partner beyond the ERP system since many technologies impact your entire IT infrastructure. You should partner with a professional service firms which offers a one stop shop approach which includes CRM solutions, Enterprise Content Management, Infrastructure solutions, and Web solutions to name a few. The professional service firm can help you determine the best platforms across multiple offerings which best supports the ERP system you selected and can work directly with vendors and publishers on your behalf when needed.
Selecting a new ERP system for your company can be a daunting and time consuming task. By partnering with a professional service firm that has industry experience and knowledge in ERP system selection, you’ll minimize the impact of your company and employees while maximizing efficiency gains and return on investment.