Most companies spend hundred thousands or millions to purchase ERP (Enterprise Resource Planning) system and end up with losing both money and time. Some bought a small ERP for their big and complex operation while other bought a big ERP for their small and simple operation. There's plenty of ERP systems available to choose in the market but how could we choose the right one? The following is the best practices most company in the world used before they buy an ERP system:
Choose Your ERP Implementation Method
The time it takes to implement your ERP application is time you are not using nor benefiting from your ERP system. Time lost cannot be regained. Vendors know this, of course, so they will present timeframes in the best light possible. It is important that you not take the time quoted at face value. Ask what the time estimate is based upon and what factors can throw implementation off schedule.
Waterfall ERP implementations have largely gone by the wayside in favor of phased deployments. Phased ERP implementations generally do take a bit longer—as they progress through the sequential phases of diagnostic, analysis, design, development, deployment and operation—but this approach allows lessons learned to be applied to later phases and greatly reduces risk.
While it is important to get an Enterprise Resource Planning system up and running as quickly and efficiently as possible, excessive speed can lead to errors as well. Your goal is to get accurate time and cost estimates from each of the vendors as opposed to just looking for the fastest time offered. It's similarly important to avoid excessively long projects or projects which drag on as these incur a much higher propensity for failure.
Increase the Proposed ERP Training
Software technology only works if people actually use it. You will find, if you haven’t already, that brand preferences and technical skills vary widely among company employees. Staffers in IT will invariably be more familiar and comfortable with some brands than others – but so will users in other business units.
No matter which ERP vendor you choose, some people in your company will love it and others will not. The outcome of your efforts in implementing ERP, however, rests entirely on ALL of them accepting and using it.
Therefore, it is imperative to get input from affected users early in the ERP selection process. It is equally imperative to prepare a strong training curriculum as well as the means to detect dissenters and abusers early in the implementation process. This will enable you to address real problems and red herrings before they become ingrained or too big to correct.
Unfortunately, it is common practice to short-fund training in order to reduce the time and cost of implementation. Best practice is the exact opposite and experienced ERP consultants often double or triple the vendors proposed training recommendation.
Don’t Buy Add-Ons Until You Are Ready to Use Them
ERP software add-ons can fill gaps and do some amazing tasks. However, it is easy to get carried away and buy them before you know if you actually need them. For that reason, add-ons can be budget killers and time wasters. Instead, implement your ERP software in stages and then purchase add-ons when you reach the point in implementation where you can clearly validate the need for them. That way your ERP system will be leveraged to the maximum extent and you'll further save on time and budget.
Vet the Consulting Team
Whether you use the vendor’s implementation team or third party consultants, you need to be extremely comfortable with both their skills and cultural fit. First ask for the CVs or resumes of the consultants that will participate in your implementation. Don't just review the credentials of the engagement manager, who is likely impressive and unlikely to actually participate on your deployment. Then meet the proposed consultants as part of the selection process and thoroughly vet their experiences and fit with your business.
In truth, ERP failure is far more often attributable to poor implementation than it is to poor software. Therefore, the implementation team is a huge factor in your ERP project’s success. Employ the same project management, including a meticulous team selection process, that you would with any other mission critical or business application project.
Ditch 'Dollars to Donuts' Pricing Comparisons
Notice that pricing as a selection criteria is not listed at the beginning of this report, but instead, is listed low on the list. Why? Because ERP pricing evaluations in a vacuum tell you nothing about value. In other words, software, even if it is free, is not cheap if it requires a ton of support and/or does not do the job.
It is crucial that all other salient factors are considered first, and the list of competing vendors thus narrowed to those that can provide products or services that actually perform well in the areas you most need. Then, and only then, can you accurately evaluate the pricing differences between vendors.
Also, total cost of ownership (TCO) means exactly that: the TOTAL costs. Double-check to ensure you added all costs, and ferreted out all hidden costs, for each vendor’s product before you start comparing prices.
That said, there is another pricing obstacle you need to consider: guaranteed pricing versus open-end pricing. Guaranteed pricing is an all-inclusive flat rate. It usually means a fixed fee for a fixed scope. Essentially, guaranteed pricing includes the ERP system, implementation, data conversion, training and support. Open-end pricing is an a la carte pricing system where line items are added (and adjusted) over the life of the project.
The pros of guaranteed pricing include no ugly cost surprises and easier accounting from budget planning to accounts payable. Also, this approach forces the vendor to really understand your business and specific objectives which further acts to reduce surprises. The cons? If the vendor overestimates the complexity of your ERP deployment they don’t have to adjust the price downward. The vendor may also cut corners to control loss if they underestimated your project.
The pros of open-end pricing include line item transparency and more precise cost control. In other words, you can negotiate line items separately and sometimes cut costs by redistributing the workload between your IT department and the vendor’s consultants. The cons include the potential for project costs bloat and nasty price over-runs.
In evaluating price, be sure that you know which vendors are offering you guaranteed pricing and which are offering open-ended pricing. Go over the estimates carefully to ensure everything you think is included in the price is actually included in the price. Enlarge the fine print and compare all price quotes fairly and equally.
This is also the time to determine the metrics you will use to evaluate your ERP system over time. They should be objective, hard measurements rather than soft and subjective. If you determine these metrics now, they will give you another lens with which to review and evaluate your choices of ERP systems.
ERP Vendor Profits are a Good Thing
There's a number of smaller ERP software vendors that deliver impressive niche or industry specific applications, and there's some special considerations when purchasing ERP software from these providers.
If you browbeat these smaller ERP vendors into a deal where they make too little profit, you may harm yourself. Vendors must make a profit on every deal in order to stay in business, support your ERP system for many years and to update the product regularly. Otherwise, you’ll end up with a product that soon becomes obsolete.
You will also find that the software vendor who concedes to stiff demands may make up losses in other ways either by shorting services or increasing costs in other areas. The resulting ill-will may also cost you more in subsequent add-on purchases or related costs.
Get the best deal you can, certainly, but make sure it is a good deal for the vendor too. That way you both win.
Build the Vendor Contract from Your Selection Criteria List
Too often companies make a verbal agreement with a sales rep and then send an unread contract to the legal department for review. Often, much of the detail you so painstakingly worked out with the sales rep will not make it to the vendor’s boilerplate contract and your legal department has no way of knowing anything is amiss.
To prevent finding yourself locked into a licensing agreement that doesn’t remotely look like the deal you actually agreed to, compare the contract language with your selection criteria list – the same one you used to choose the preferred vendor. This is also a quick way to identify any last minute questions you need to ask the vendor or to solidify any foggy details.
Then send the contract AND a complete list of the terms you tentatively agreed with to your legal department so that your attorneys have solid information to work with too. If you send only the contract to legal, they will only advise based on the legal language and missing terms may pass unchallenged.