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ERP Vendor Evaluation & Selection Guide
Evaluating and selecting ERP solutions is a tricky business with so many solutions available on the market, so in this ...
Evaluating and selecting ERP solutions is a tricky business with so many solutions available on the market, so in this guide we'll provide the best practices and common criteria for selecting an enterprise resource planning software to make your ERP project a success.
According to Market Research Engine, the ERP market remains in a phase of rapid expansion, with a total market size expected to exceed $49.5 billion by 2024.
Evidently, more and more organizations are considering evaluating ERP solutions to upgrade their ERP infrastructure, however, evaluating and selecting a new enterprise resource planning solution for your business can be a long and difficult process. According to CIO.com, only 58% of companies surveyed considered their ERP implementation and vendor selection criteria a success.
In this article, we explore the industry best practices and criteria for running a flawless ERP selection process for your business based upon hundreds of client engagements in multiple industries, in the United States and worldwide.
For our prebuilt ERP evaluation & selection criteria checklist template, click here.
For our prebuilt ERP requirements gathering template, click here.
ERP Selection Process & Criteria:
1. Selecting the right ERP implementation partner
Choosing your Internal Team
Choosing the right team is crucial during an ERP selection process. Your team needs to understand where the flaws are in your current system and must also be subject matter experts in different areas of your business. You also need to consider your internal approval process and overall project sponsorship. Someone needs to be able to sign off on the project and fight your corner during board meetings.
ERP projects also aren't easy - your team needs to have the motivation and passion for improving things or you'll be pulling them through the selection and implementation of your new solution.
At the same time, be conscious that if your team is too big, you may start to suffer from decision paralysis and your stakeholders may begin to dwell on unnecessary details that have little return on investment.
As a minimum, we recommend building the following team before your start your ERP selection process:
- ERP Project Sponsor: ideally your Chief Financial Officer, VP Finance or Board Member. Your ERP Project sponsors role is ultimately to be the voice for change within your organization, communicating to Board Members or Owners the ambitions and benefits of the new solution, but also to reign in the rest of your team and organization at critical moments.
- Project Manager/Lead: some organizations find one internally, others hire an experienced one externally. This person's role is to drive the day-to-day activities and pull your team and other stakeholders together to ensure deliverables are met throughout the process.
- Subject Matter Experts: you need SMEs from within your business that understand the day-to-day operations within specific areas such as finance, procurement, supply chain, manufacturing, project management, and beyond. These people are critical in building the correct set of requirements, selecting the right solutions in line with your business needs and then championing the new solutions during and after go-live. You may want to choose 1-2 from each area of the business.
- IT or Technology Experts: These days, ERP projects are driven less and less by IT professionals and more and more by the business itself - typically within finance or operations. Nevertheless, having members from your IT or technology team onboard with the process from Day 1 is critical. They can ensure your new system meets any information security, data or integration needs - plus vet the infrastructure whether you decide on a Cloud or On-Premise enterprise resource planning solution.
- External Consultants: for some businesses, using an external consultancy can be beneficial, especially if they can't dedicate a large headcount to the project or if they need to implement fast or avoid mistakes. External consultants can provide quick ports of call to help you plan your ERP project, get the latest information on finance, accounting & ERP systems, build your list of requirements and more.
Set your ERP Project Goals
Agreeing amongst your team on the objectives of your project is the next step in successfully choosing your ERP. You need to think about when you want your next ERP to go-live, how much you have to spend, the problems it needs to address and the ambitions it needs to fulfil.
Here are some of the goal criteria we recommend you decide on before making your ERP choice:
- ERP Go-Live date: when does your system need to go-live by? Does it need to coincide with a business event such as an expansion, IPO, M&A activity or diversification? Does this give you enough time to select, implement and adopt a solution? Have you considering a big bang or phased system implementation approach? In a survey on ERP implementation, midsize companies with $100 million to $250 million in revenue had the fastest implementations at 6.6 months. Very large companies, over $25 billion in revenue, took the longest at 12.35 months.
- KPI Improvements: what are the specific KPI's your are trying to improve by upgrading your ERP? Are you ultimately trying to improve customer satisfaction, productivity, overheads, resource utilization? What are the truly essential outcomes that any new system must be able to deliver?
- Business Case & Budget: what financial metrics are you working towards improving? Have you estimated the potential return on investment? How will this be attained? Eighty-four percent of ERP users had an expected ERP spend of less than 2% of annual income.
- Prioritize: no solution will offer everything you need - at some point you will have to make sacrifices. Decide upon which ERP functions and features are essential and which are nice to have based on your agreed project goals.
- Reality: are your goals realistic? Have other companies in your industry or of a similar size been able to do this? Have you done thorough research or consulted with a specialist?
Define your ERP Requirements
Choosing an ERP solution has to be centered around a common, agreed upon set of requirements that meet the needs or your business and the goals of the ERP project. Defining your requirements can take time and you need to pull in members of your core ERP project team to make sure all necessary information is captured. This helps you to run a smooth and well considering ERP purchasing process.
Let's look at the steps you need to go through to build a well researched ERP requirements list:
1. Decide on your ERP scope.
What functions of the business will your enterprise resource planning system touch? As a minimum it will need to address financial management - but will it just take of general ledger or stretch out to accounts payable, accounts receivable, bank reconciliation, financial planning and analysis? What other modules will the ERP tool need to bring?
Consider your needs around procurement and other modules dependent on your business industry. Modern ERP systems integrate business functions including finance, billing, procurement, supply chain, manufacturing, professional services, project management, asset management, plant maintenance, customer relationship management, service management, business intelligence and more.
Expansion of the initial project scope is the primary reason companies go over budget during implementation.
You should start this process by building an ERP requirements template, available for free, below:
2. ERP Integration
Businesses almost never rely on just one system and almost always have a series of solutions from multiple vendors that cover different areas of their business operations. ERP is just one of these solutions. What other systems do you run internally and where will you need to create integrations or manually hand offs into other solutions? For example, many organisations run ERP to cover only finance and procurement, but may use a seperate system for inventory management, project management or timesheets.
If you can consolidate multiple systems into one, then all the better for support and integration worries - but if you need to keep multiple systems, building an idea of your integration points is key.
3. Cloud or On-Premise ERP?
Many organisations still run On-Premise ERP tools & systems, hosting their application using their own servers and IT support team. However more and more, Cloud based ERP software is becoming the dominant choice during ERP selection processes.
Whereas On-Premise solutions bring greater flexibility and control, many Cloud ERP vendors argue that the Cloud brings a lower total cost of ownership, faster innovation and regulatory updates plus a modern application architecture. According to recent statistics from G2.com, '62.7% of organizations' select Cloud ERP over on-premise software. That said, for many organisations, deploying a Cloud solution doesn't meet their functional requirements and specific business processes or they may need to host and control their own data if they are heavily regulated.
It's also worth mentioning that Cloud ERP solutions bring a variety of flavours, and you need to understand the differences between Software-as-a-Service, Private Cloud and Managed Hosted before choosing.
Ultimately, each organisation has different needs that will determine whether Cloud or On-Premise is right for them. Check out our Cloud ERP buyers guide to help you decide.
4. ERP Roadmap
Whilst not completely essential, you need to understand the future strategy of your business in order to effectively select a futureproof ERP solution. Many organisations are blindsided 2-3 years after implementing a new enterprise resource planning solution by new requirements coming from the business. Perhaps when you bought your ERP system, finance and procurement drove the selection process and you based your purchasing criteria on these areas - but once these topics have been addressed, what comes next?
Too often, we find that companies make quick, short term decisions and shortly after, start exhibiting the same symptoms of having a poorly optimised ERP system such as turning towards spreadsheets, paper or disjointed solutions.
If this happens, it's not the end of the world, many ERP solutions come with prebuilt integrations into different systems that can expand it's core functionality, but in an ideal world - consider what else your ERP needs to be capable of to make a futureproof decision.
Research ERP Solutions
Researching potential ERP solutions early in the process is a great way to educate yourself on the functionality and benefits available in todays ERP market. This can help you to understand where there are efficiency gaps in your business and also it can inform your budget, go-live date and help you to build a business case for change.
Starting this process early can also help you to shortlist vendors which streamlines your selection process later on, rather than sit through hours of qualification calls, product demonstrations and scoping sessions later on. It typically takes 1-2 hours to get a basic understanding of each potential solution and 4-6 hours to get a more educated view.
There are literally hundreds of ERP solutions available on the market from Tier 1, 2 and industry niche vendors plus open source solutions. It can be difficult to trust some of the claims of ERP vendors and understand which solution truly meets your company size, budget, industry and specific functional needs. This means you can spend weeks researching potential solutions, only to find out later in the process, it can't meet some of your basic asks.
We recommend understanding the following criteria and asking these questions when assessing each ERP solution, in conjuction with the your defined requirements:
- Which of your peers are using the solution?
- How much of the offered functionality is from the vendor and what is third party?
- Does the vendor offer Cloud, On-Premise or Hybrid deployments? Where is your data stored if Cloud?
- Does the solution offer mobile apps or access?
- What is the licensing model?
- What isn't included?
- Does the technology have a robust roadmap and is the vendor actively investing in it?
- What is the support model?
- How long did other ERP projects for this solution of a similar company profile take?
- Does the market offer a large base of consultants proficient in the solution?
At ERP Research, we collate and provide functionality, implementation, peer and budget insights on all Tier 1 & Tier 2 vendors based on one 30 minute discovery call.
Alternatively, check out our independent vendor and ERP software review pages for Netsuite, SAP Business One, Sage Intacct, Oracle, Microsoft or use our comparison engine to find the perfect solution for your business.
Most implementations cost three to four times what was initially budgeted - we can help you avoid this.
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Shortlist ERP Vendors
Once you have built your team, decided on your requirements and completed your initial research, it's time to decide on a shortlist of vendors to engage with. We recommend selecting anywhere from 4-8 vendors initially, before shortlisting again down to 2-3.
Many organizations take different approaches to this, depending of their own knowledge of the market and how much data they can gather on the vendors in light of their requirements. Generally speaking, it takes a lot longer than initially planned to get to this point for most organizations as they juggle different workloads and unplanned disturbances.
You may want to run a thorough process, beginning with an RFI before moving to an RFP then final two vendors to slowly but surely whittle down vendors. If speed and flexibility is key, other organisations choose to communicate requirements over conference calls, iterating on their needs as they go.
Using an external consultancy such as ERP Research can help you to streamline this process and make more informed decisions to select your next ERP faster and with less risk.
Speak to our team to help you shortlist the best ERP solutions for your industry and company needs.
At some point, you will need to see product demonstrations. It's important to be clear on your expectations from vendors during this part of the process to avoid disappointment and ensure all vendors get a good shot and demonstrating what your organization is looking for. At the same time, we recommend watching carefully and asking key questions during the demonstration - such as:
- Is this functionality included in your commercial estimate?
- Is this functionality standard or was it custom built?
- Which of your clients use this functionality?
There can be a lot of smoke and mirrors during software product demonstrations, so it's always best to take them with a pinch of salt. Nevertheless, this is one of the most important criteria in selecting an ERP solution.
Selecting the Best ERP Implementation Partner
As well as defining the criteria for evaluating the best ERP technology, you need to define how you will choose the best partner to implement the solution.
Generally speaking, there are a few options when it comes to ERP implementation partners:
1. Do it yourself (DIY)
Some organizations choose to use their own internal teams in order to implement ERP software or may put ERP implementation consultants on their own payroll rather than outsourcing it to a dedicated consultancy.
The benefits of implementing an ERP solution yourself include having more control over the project and consultants and potentially decreasing costs as you won't have to pay a profit margin to a consultancy.
While this can sound like an attractive option, we wouldn't recommend implementing an ERP solution yourself unless you're 100% confident in your ability to do so. ERP implementation projects can be complex, requiring subject matter experts across multiple areas and without previous experience of doing this, any money saved could easily be lost by a poor implementation and the cost of turning it around or doing it again.
2. Global Systems Integrator
3. Boutique Implementation Partner
4. ERP Vendor Implementation
Criteria for Choosing the Best ERP Partner
For many companies, the most important criteria in selecting an ERP implementation partner is the cost of their services. Simply put, the cheaper the cost of implementation, the higher the ROI of your ERP project, assuming it's successful.
Whilst you may think that cheaper = better, it's worth spending the time in understanding what's behind your ERP implementation cost estimate. When comparing ERP implementation estimates between different partners, then we recommend you dig into their project plan and the amount of time dedicated to each phase of the project.
A key criteria for selecting an ERP implementation partner is their credibility and experience with companies similar to yours. We highly recommend asking your ERP partner which of their customers are similar to you in terms of industry, geography and size. If they have made companies similar to yours successful, then it's highly likely they'll also be able to make you successful as well by having the right combination of experience, proximity and understanding of your business, it's politics and industry specific needs.
Size & Reach
If you're a small business, then it's likely you'll work better with other small businesses as well and that's why evaluating the size of your ERP implementation partner is a key criteria for your ERP evaluation and selection process.
On the flipside, if you're a multinational company that plans to implement an ERP solution for several thousands of employees into 15 countries then your criteria for selecting an ERP partner should demand for a company with a similiar global implementation capability.
Experience can save hours, days, weeks, months if not years of time when it comes to implementing an ERP solution, so it's a critical criteria for your ERP evaluation. Try to ascertain which particular ERP consultants will be staffed to your ERP implementation project before selecting a systems integrator.
By doing this, you can ensure that your ERP implementation will be lead by a team of experienced consultants that have dealt with the same scenarios multiple times.
ERP Contract Negotiation
Successfully negotiating an ERP project with your chosen vendor or partner needs careful consideration. If you squeeze too much, then rather receiving a greater discount, you may actually receive a sub-standard or skeleton service which puts more emphasis on your organization meeting certain deliverables. You may also strip out important elements such as onboarding, training and end user adoption or integration. If you manage to negotiate a 50% reduction on your ERP implementation or licensing - it's certainly worth considering how that was achieved and if you still have many of the core components you need left.
Here are some of the key considerations we'd recommend you bear in mind during the negotiation process:
- Licensing Contract Term: most software vendors will negotiate for longer contract terms as this increases their own company valuations and provides them greater long term revenue certainty. You can often exchange 3+ year license agreements for steeper annual discount or other freebies. On the flip side, ensure you have pricing protection in place after the initial contract term. Some vendors are notorious for hiking prices after the first 1-2 years of the contract, leaving you with a much higher annual cost than you initially anticipated.
- Industries of Scale: if you purchase more licensing up front, or weave more users or modules into your Cloud term, you can potentially reduce the per unit cost of each license by committing to more later in the contract.
- License Add-Ons: many ERP solutions come with core and additional licenses. As the names suggest, core functionality might give you a taste of inventory or project management, but to get the full experience you may need to purchase an additional license. This can lead to unpredictable licensing costs.
- Services: ensure your services partner has provided a list of assumptions and expectations from you as a customer. Many times, we see service partners provide extremely competitive quotes, only for the customer to later realise that their partner expectated them to do 60% of the heavy lifting.
- Legals: aside from pricing protection, ensure that your contract provides you full use of the software, now and in the future. In the event your business is acquired, or if you sell off a division, some software providers will charge a penalty or transition fee.
Need more information?
If you have specific questions surrounding your project and ERP criteria, or you just want to get the latest information on solutions which could fit your needs, then schedule a call with our team - or check our more of our articles here.