Enterprise Resource Planning (ERP) is a type of software and business application that integrates multiple business processes and functions into a single integrated system. It’s designed to help organisations manage and automate core business activities, such as finance, accounting, inventory management, manufacturing, and in many cases, human resources and customer relationship management.
The decision to invest in ERP is a significant one, and it requires collective decision making from all stakeholder groups. In this article, we break down the four phases of the ERP buying process, including how to select the right ERP system for your manufacturing business and how to choose the right ERP consulting partner.
Most businesses will get to a point where they are dealing with several challenges that they believe may be solved by an ERP solution. The first step is getting broad commitment from the business that solving these challenges is of high value.
As you grow your manufacturing business, managing risk becomes more crucial. It’s harder to get by with using small accounting systems and spreadsheets.
Here are some growing pains to look out for:
Too much or too little stock, wrong or obsolete stock.
Disrupted production plan due to stock arriving too early or late.
Production plan not centrally available or accessible, and with unauthorised changes.
Shipping problems causing excessive stress and poor Delivery In Full On Time (DIFOT).
Recall standards are difficult and stressful to achieve.
Quality control systems are paper-based and unreliable.
Support for your current system is unavailable, and it isn’t flexible or agile enough to meet your needs.
Key person risk, with overreliance on single individuals.
ERP is more than just buying and implementing software. It is about embedding best practice into your company.
Talk to similar businesses and understand what they’ve done when faced with the challenges you are experiencing. Do some initial research but be aware it’s easy to get overwhelmed with the numerous options available.
It is sensible to consider three to five ERP vendors. ERPs may be organised by level of business complexity, business size, or they may be industry focused.
Something to keep in mind is that the impact on people and processes is generally greater than the effort to actually implement the ERP. Consider this when forming opinions on the vendor. Ensure you have a good understanding of the learning curve and whether they can support your organisation with change management and adoption.
Approach solution providers that:
Have plenty of implementation experience.
Know and understand your industry and can provide solid references.
Are interested in a long-term partnership.
Have similar values and priorities to your organisation.
Have a change management and learning function incorporated in its offering.
The project will run more smoothly and have a greater chance of success if your committee includes the key areas of the business impacted by the ERP. At a minimum finance, manufacturing, logistics and warehousing should be included.
Key buying criteria needs to include what is important to your manufacturing business.
Regardless of size, every system will have the same basic functionality, so don’t spend too much time focused on this. For example, every system will have accounts receivable and accounts payable but maybe it is critical for your business to support multi-company shared services.
Be careful about using price as a criteria too early in the process. Until the benefits are truly understood you could easily exclude the best solution. Finally, remember that your chosen solution needs to grow with your organisation, so consider how well it will work over the next ten years.
Under this model you don’t have to make a final commitment until after Phase 3, but it is best to make every effort to get it right at this stage.
Some crucial areas to appraise:
Track record – speak to multiple referees.
Experience with the software.
Good communication skills at all levels of the business.
Ensure that everyone on the buying committee is heard and that their viewpoints are given adequate consideration.
This is usually the point where some billable activity begins - with your chosen vendor engaged to deliver a detailed solution design.
Completing the solution design as a discrete piece of work has several advantages:
You can see how well you work with the vendor.
The experience and expertise of the vendor (or lack of) will become apparent.
You should have a very accurate idea of exactly what is being delivered.
Pricing can be quite specific. Some vendors will offer fixed price at this point.
You can choose not to proceed further with the vendor without overcommitting.
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.
While the bulk of solution design will be done by the vendor, this is your first chance to work with them in detail and will give you a good feel of how they operate and how well they understand your business and industry.
The solution design should include the following components:
A detailed scope so you know exactly what is and isn’t included in the project. This will include; people, processes, systems, sites, companies etc.
A detailed project plan setting out roles and responsibilities. It normally takes the form of a Gantt chart.
A project charter that sets out how the project will be run, including specific responsibilities, reporting, and escalation process.
A quote that details the cost of implementing the above.
When building the solution, it is important to ensure that all the specific challenges you originally identified are covered.
Key questions to ask:
Is the project big enough that the business is getting substantial benefit from day one?
Is it sized right so that the timeframe to go-live is appropriate?
From a change management perspective, does everyone benefit in some way?
Are we aware of any work that will be pushed from one person to another as a result of the solution design?
Implementing ERP is a joint effort and once the project is complete you’ll need to be clear on your ownership of the solution.
Presenting the solution design together to your organisation’s leadership team will help ensure its success.
If the solution presentation is accepted, then any final negotiations take place. This could include pricing, contract terms and conditions, or changes in scope. It is at this point you buy the software and commit to the vendor’s quote for the bulk of the project.
You do still have the option of pulling out and taking the solution design to your second preference vendor, but this is rare.
Go-live is not the end of the journey. You now have an asset in the business that can be leveraged for continuous improvement. Additional projects 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 forever and having a culture and commitment to continuous improvement will lead to ongoing business success.