How to buy ERP in four steps
Buying ERP is something most people will do no more than one or two times in their career. The following is a guide on the process starting with the idea of exploring ERP as an idea through to go-live and beyond.
Where are my issues – Discovery
The first step is to decide that you have issues that might be solved by an ERP solution. To do this, you need to be clear about the issues you need to solve, be educated about the options and get broad commitment from the business that solving these issues is of high value.
Identify growing pains
Smaller manufacturing companies can get by with small accounting systems and Excel. As you grow though, it gets harder and harder and managing risk becomes so much more important.
Some examples of growing pains you may be experiencing:
- Too much stock, not enough stock, the wrong stock, obsolesce.
- Stock arriving too late or too early. When you go to manufacture a product, you only need one component missing to disrupt your entire production plan.
- Production plan on paper and key people have different versions or have made changes without authorisation.
- Shipping problems causing excessive stress and poor DIFOT.
- Difficulty achieving recall standards demanded by customers.
- Quality systems paper based and unreliable. Recalls are high stress and difficult.
- You can’t get support for your current system and it can’t be as agile as your company needs to be.
- Too much reliance on competent individuals. When they leave or even just take a holiday, massive disruption follows.
ERP is more than just buying and implementing software. It is about embedding best practice into your company.
Often a good place to start is to make sure you have embraced Good manufacturing practices (GMP) or APICS. This will give you a solid foundation for a good implementation and a good selection.
Also, talk to other businesses that are like yours and understand what they have done when faced with the challenges you have.
Of course, Google is part of any modern research, but it is easy to get lost with all of the options and competing opinions on the Internet.
Initial Discussions with solution providers
It is now time to start talking to possible solution providers.
At this time it is often better to have a couple too many than keep the list too short. Most ERP’s are targeted at a level of complexity for a business. Some cater to smaller, single site businesses. Some to large, diverse multinationals. Some ERPs are focused on industries and some try to appeal to a very broad range.
You will be forming opinions on the implementation provider and the software but the focus is on continuing the education process and understanding what is possible.
The ERP functionality is important but so too is the experience of the implementation team. Knowing your industry is critical. Implementing technology in an ERP project is only a small part. It is far more about people and process. The technology is normally the easy bit.
This is a long term partnership, so knowing your business has similar values and priorities to the implementation company is also important.
You are buying a system for the future, it has to be able to grow with you – so think next 10 years at least.
Identify key buying criteria
Every system you look at from the smallest to the largest will have some basic functionality. You don’t want to spend too much time focused on this. For example, every system will have accounts receivable and accounts payable but maybe it is important for your business to support multi-company shared services.
The key buying criteria needs to identify what is important to you.
Be careful about using price too early as a criteria. Of course, price is important but until the benefits are truly understood you could easily exclude the best solution.
Get commitment from business
This is critical and often under appreciated. Of course, senior management need to approve the budget but if you have key areas of the business who are impacted by an ERP who are not involved in the selection, the project will be difficult.
Who can solve my issues? – Diagnose
The second step is picking the likely solution provider. In most cases, you will work with this provider through to the completion of the project but you don’t make a full commitment until the end of the third step.
Invite providers to better understand my business
Your initial discussions will have narrowed down your list of providers but you should still have an open mind at this stage. It is critical any providers you are considering have a good understanding of your business. You need to take the time to make sure they are as educated as possible about how you operate. This includes current processes, culture and your key buying criteria.
Providers propose options with indicative pricing
At this stage you should expect a document setting out the benefits of the solution being offered. Software costs at this stage should be quite accurate and services should be indicative with enough information to get a good idea of what is included or not included.
Identify who we can best work with long term
Under this model you will not be making a final commitment until after the next stage but it is best to make every effort to get it right now.
Some important considerations when making this decision are:
- Track record – speak to multiple reference sites
- Industry knowledge
- Experience with the software
- Good communication skills at all levels of the business
When deciding everyone needs to be listened to. This includes people in finance, manufacturing, logistics, and warehousing to name a few.
Approve solution design
This is the point where you choose the solution provider to perform a detailed solution design. This would normally be a billable activity.
Doing the solution design as a discreet piece of work has several advantages.
- You can see how well you work with the provider
- You should have a very accurate idea of exactly what is being delivered.
- Pricing can be quite specific. Some providers will offer fixed price at this point.
You need to be clear that the solution design document itself is yours to take to another vendor if required. Commercially sensitive information such as any pricing cannot be shared though.
How will we solve our issues? – Design
This is the start of the project. At the end of this phase you will have a very clear scope and approach which will be approved by the business. It is at this point you buy the software and commit to the service provider’s quote for the bulk of the project.
Together we design the solution
While the bulk of the work will be done by the solution provider, this is your first chance to work with them in detail. This is important as you get a much better understanding of how well they will be able to work with your team and how well they understand your business and industry generally.
The solution design will include the following components:
- A detailed scope. Exactly what is included and not included in the project. This will include; people, processes, systems, sites, companies etc.
- A detailed project plan. This sets out who is doing what and when and normally takes the form of a Gantt chart.
- A project charter. This sets out how the project will be run including specific responsibilities and reporting.
- A quote. Unlike the above, this is not a chargeable activity but will detail the cost of implementing the above.
When building the solution, you need to make sure all the specific challenges you originally identified are covered. It is common that you have a minor annoyance you initially wanted covered but the cost of solving it is not justified. What you are not doing is just as important to specify as what you are doing. The clearer this document, the better.
This phase will have a number of decision points. The project needs to be big enough that the business is getting substantial benefit from day one but not so large that it takes too long to get to go-live. From a change management perspective, it is important that “everyone has a win”. That is, everyone in the business who is asked to work on the project gets something in return. By its nature, ERP can involve pushing work from one person to another person. The solution design needs to be aware of this.
Management and provider present solution
It is important this be done as a joint effort. It will be your system, not the vendors and once the project is complete you need to be clear on your ownership of the solution.
The sooner you and the provider are working together the better. You will always be the customer and they the supplier but if you can’t work together very well from the beginning and milestones are seen as joint commitments of both of you, then the project will struggle.
If the solution presentation is accepted by management, then any final negotiations take place. This could include pricing, contract terms and conditions or changes in scope.
It is very likely that once the solution design is approved, you will proceed with this vendor but you do have the option of pulling out and taking the work done to your second preference. This is rare but does happen.
Solve our issues – Deliver
This step includes the core of the project implementation, but it is important to note, that delivery doesn’t stop with go-live. The business must be committed to the ongoing improvement of how it operates including its use of ERP.
Rollout new solution
Once a project is started, it is very important that the reasons you embarked on this project are continuously focused on during the project. It is easy for the project team to lose site of the key business objectives when working through the detail and reporting to the steering committee should always include progress against business goals.
Measure the results
At the end of the project there will be a number of lessons learnt, not just in of the running of the project but the nature of an ERP project is that you are taking a deep look at how your business operates. It is also important that the business has the discipline to look at the original objectives of the project and reports on their achievement of these goals. It may be that any missed goals can now be relatively easily achieved now that the new ERP is in place.
Go live is not the end of the journey. You now have a significant asset in the business that can be leveraged for continuous improvement. Additional project often have significant return on investment as the ERP is already paid for.
The processes and systems built during the project will not be relevant for ever and having a culture of continuous improvement will lead to on going business success.