31 Jan 2013

6 Selection Criteria for Choosing an ERP System

In the midst of purchasing an ERP system, there are multiple decision points and numerous factors. Where to begin?  What are the primary selection criteria that you and your team need to know before you start?

As you embark on this task, here are six key considerations to guide you as you try to determine the best ERP solution for your business:

1. Company goals and objectives
The primary reason to change to a new ERP system is to support your company’s goals.  Every company has different objectives.  Some examples might be:

  • Growth goals:  Can I double my business with the resources that I have?
  • Efficiency goals:  Can I task and process redundancy, so that each element needs to occur just once, and multiple tasks can be folded together?
  • Speed to market goals:  Can I bring my product to market faster, satisfying all regulatory requirements, and thereby gain market share faster?

2. Functional software requirements
Sure, all companies share general operations: accounting and marketing, for example. But In terms of function, your specific industry will dictate the details. The needs of your company will govern the features that are most important to you. Be mindful of all the functions that occur in an average business day, and aim to review all the areas on the list even if your current processes are currently being done “outside of the system” on spreadsheets or whiteboards.  This is the one time when it’s good to sweat the small stuff.

3. Underlying technology and future scalability
There was a time where the underlying technology of an ERP system was not really a primary consideration.  Software functionality dominated when choosing a new system.  But technology moves too fast.  The cost of changing an ERP system includes much more than the price of the software, it includes business disruption, training, and lost time.  Choosing a system that is based on newer technology will give you more longevity in the long run and will make a better investment.  Look under the hood.

4. Budget and resources
There is a big variation in the price of ERP software.  The highest priced system may be five times the cost of the least expensive solution. There is a reason for this.  Some companies need the advanced functionality built into a higher priced system, but others may have less complex criteria and can choose a more moderately priced ERP solution.  Don’t necessarily think more expensive is better.  There is a cost to running each type of system.  A higher priced system might be designed for companies with single task individuals.  These systems break out functions into small pieces.  A smaller company with individuals that multi-task, might find they are doing lots of extra steps and are actually decreasing efficiency with the more expensive system.

5. A team you trust
Who will implement this system?  Who will manage this project?  Who will support it when needs and/or processes change?  The choice of people, both internal and external, is probably the most critical to the success of this project.

In a study done by Deloitte & Touche, businesses looking for a new system were asked to name the top ten criteria they used for their selection.  Those who were buying their first system were tallied separately from businesses buying their second.  Responses were ranked in order of importance.

The results are summarized below:

First-Time Buyers
Rank/ Reason

Second Time Buyers
Rank/Reason

1 Price of Software1 Level of support provided by reseller
2 Ease of Implementation2 Developer’s track record of performance
3 Ease of Use3 Ability to fit to business
4 Ability to fit to business4 Growth potential
5 Functionality5 Price of Software
6 Ability to work with existing hardware6 Quality of documentation
7 Growth potential7 Functionality
8 Level of support provided by reseller8 Ease of Use
9 Quality of documentation9 Ease of Implementation
10 Developer’s track record of performance10 Ability to work with existing hardware

 

One would think second-time buyers would be “smarter”, if for no other reason than they have the experience first-time buyers lack.  It stands to reason their rankings would be a better guide to what really matters when researching ERP system options.   Therefore, a quality consultant is a critical factor – after all, anyone can sell the product, but can just anyone support your needs?  Partner with a consulting company that has long term customers.

6. Define the process
This is the part everyone dreads. Meetings, demos and research tend to generate more questions than answers. A team approach may help the process, but it could also slow things down. It’s best to decide who’s in on the decision making team before you get started. Consider the needs of the all the stakeholders and don’t let any one group overshadow the needs of the rest of the organization.  Accounting / Finance, Distribution, Manufacturing, IT, Human Resources, Procurement, Sales, Marketing and Executive Management all have different views as to what they think is critical.  Listen to the various groups but don’t get too bogged down with any one individual’s needs.  These can usually be accommodated.