shopping for a new erp system

Meaden & Moore

Scott A. Holter, CPIM December 16, 2013

Shopping for a New ERP System

5 Key Factors to Consider when Selecting an ERP System

ERP Selection

Decision Dimensions to

Consider

ERP Selection – 5 keys

1. Functionality / Fit / Features

2. Strategic Factors

3. Technology

4. Cost of Acquisition and Ownership

5. Initial Implementation and Long-Term Support Approach

ERP Selection

Functionality Requirements


Functionality requirements building • Typically 50-100 requirements per topic

• Include master files and transactions

• Should be weighted relatively (High, Medium, Low, etc.)

• Require input mainly from users

• Consider future needs, not just current, so executives must be involved

• Use industry accepted terminology from GAAP, APICS, etc.


Approach 1. Do-it-Yourself

• Online template or “clean sheet of paper”

• Online knowledge base

2. Consultant facilitator / architect

• Online knowledge base

• Proprietary tools and knowledgebase


Approach 3. Review Your Business Processes

Supported by

• Current package(s)

• Custom software

• Reports

• Excel spreadsheets and Access db’s

• Manual systems – log books

• Include the basics; focus on what’s unique

ERP Selection

Organizational Fit

Fit

What does your organization do?

1. Business Model

2. Supply chain

3. Manufacturing mode and processes

Fit

Business

• Size (revenue, employees)

• Strategic Competitive Focus • Low-cost / low-price

• Product differentiation

• Customer service

• Hybrid

Fit

Supply Chain Model(s) • Engineer-to-order

• Make-to-order

• Configure-to-order

• Assemble-to-order

• Make-to-stock

• Distribution

Material Acquisition

Manufacturing

Distribution

Fit

Manufacturing Mode • Continuous flow process

• Batch process

• Repetitive / rate-based discrete

• Intermittent / batch discrete

• Project / one-off discrete

Process Requirements

Use and Application

Requirement Use / Application in Our Company

Estimate and quote with non-existent items

Win 20% of custom jobs (job shop) and don’t want to set them up

Link a Shop Order to a Sales Order For our MTO jobs, print customer information on shop documents

Forecasting with seasonality model Products sold to construction market (25% of our revenue) are seasonal

Scheduling groups like work together Sequence paint line by color Sequence presses by raw material

Record production of co-products Many family dies produce more than 1 item when run (left side / right side)

Multiple costing methods within plant Product line ABC costed at standard Product line XYZ costed at actual

Consolidated cash application Large corporate customers central AP pays invoices for multiple customers

Features

Marketing Management Process Master Data Asset Maintenance

Sales Automation Sales Forecasting Purchasing

Quoting and Estimating Dist’n. Planning/Control Receiving

Sales Order Processing Master Prod. Scheduling Inventory Control

Shipment Processing Material Req’s. Planning Cost Accounting

Post-Sales Service Production Scheduling Accounts Payable

Product Master Data Shop Floor Control Accounts Receivable

Project Management Quality Management GL / Financial Reporting

ERP Groups/Topics to Dig Into

ERP Package Selection

Strategic Factors

Importance of Choosing

Your ERP Partner

Strategic: External

Strategic: External

• ERP Vendor/Partner is a strategic choice that:

– Touches virtually every aspect of a manufacturing business

– It is a marriage

– With rocky relations, at times

– Where divorces are painful and expensive

– That requires a careful courtship

– Requires executive leadership and mid-level management and staff support and input

Strategic: External

Vendor Criteria Continuums

• Vendor size and reach – large multi-national to boutique

• Industry / niche specialization

• Single source to best-of-breed approach

• Availability of 3rd party resources

• Local support – is it important?

Strategic: External


• Vendor Viability • Strong financials and longevity are

important but don’t prevent acquisition

• Even acquirers become targets

• Independents resist more than publics

Strategic: External


• Product Viability • Strong, modern, and accepted

technology increases odds of life after acquisition

• Large installed base (500-1,000+) increases odds of on-going support post-acquisition

Strategic: Internal

Executive Leadership and Mid-level Management Support

• Business Transformation

• Change Management

Business Transformation

Executive Leadership

• Strategies for Success • Create a project plan

• Identify stakeholders/goals

• Develop measureable criteria

• Share unified vision

• Support Management

Change Management

Mid-Level Management

• Strategies for Success • Adopt industry standards • Strive for best practice • Align business processes with ERP

solutions • Drive new capabilities across the

organization

ERP Partner Selection

Technology Requirements

Technology Topics

User Interface Query and Reporting Tools

Document Management Business Analytics

Training Aids and Help Simple Personalization Tools

Database(s) Advanced Customization Tools

Network Operating System(s) Workflow Management

End-User Access (Fat Client, Thin Client, Browser, Tablet, Phone)

Integration Tools

Security

Tend to be features, not functions

Technology

Information Technology Continuums • Technology follower / early adopter

Follower Innovator Middle of the Road

Technology

Other IT Continuums

• IT Staff: Self-sufficiency to outsourced service

• End-user autonomy / rigidity

• Data-based / intuition-based decision-making

• Customer and supplier collaboration and interchange intensity


Cost Dimensions

to ERP Purchase

Cost Evaluation

Software Cost Components

Traditional On-Premise or Hosted Model Software-as-a-Service Model

Infrastructure N/A

User Devices (handhelds) User Devices (handhelds)

Specialty Hardware (printers) Specialty Hardware (printers)

Software Licenses N/A

Lower Assurance and Support Higher Assurance and Support

Implementation Services Implementation Services

Staff Costs Lower Staff Costs

Software Evaluation

General Observations on ERP Costs • Software licenses are close within a market

segment vendor-to-vendor

• Different cost structures than manufacturers

• Multiple demonstrations and antagonistic interactions and negotiations can increase buyer’s costs

• Timing means a lot, but not everything

• Niche leaders have pricing power

• Large, stable vendors have pricing power

• Conclusion – costs are more useful when picking semi-finalists, not finalists or winner


Implementation and On-Going

Support Dimensions

Software Evaluation

ERP Implementation Observations • Companies are attempting to implement more

features and capabilities than in the past

• Business software has become more flexible – no longer “install, convert data, train, go-live”

• Companies’ personnel are already taxed running the day-to-day

• Consulting costs have gone up as software costs have come down

• ERP is a buffet – be conscious and realistic of what you can digest over a reasonable timeframe

Software Evaluation

Partner Source Considerations

• Vendor – Local? Cost? Available?

• VAR – Local? Quality?

• Other 3rd parties – Quality?

• Independents – Current? Local?

• Combination model often win-win

• Validate with customers

Software Evaluation

Implementation Sequence • Conflict between time-to-benefit and

time required per day/week

• Implement what was purchased – “All In”

• Phased approach to minimize disruption

• By module or feature

• By location or department

• Companies need to compare software vendors’ approaches with preferred strategy and confirm with customers

Software Evaluation

Internal Resource Considerations • Skills to retain in house or outsource – initial

and on-going

• Choose a vendor that fits with your strategic spot on the continuum

• Validate your choice with other companies

Do It Yourself Combination Consultant Driven

Software Evaluation

On-Going Support Options • Direct vendors typically include phone

tech support in annual assurance fee

• Phone support is not the same as consulting

• Vendors that sell through resellers generally do not offer phone / tech support

• Resellers typically offer phone support as an add-on service at additional cost


Summary and Conclusion


Decision Dimensions

• Series of hurdles or filters

• Quantitative and qualitative

• Objective and subjective

• Cannot put a weight on each dimension, compute scores, and let math pick the winner

Software Evaluation Model

On-Paper Research and Analysis

Proof of Satisfaction to Highest Weighted Requirements

Proof of Concept Demonstration / Workshop

20-30 Candidates

4-6 Candidates

2 Finalists

Winner

Using Functional and Technology Requirements


Decision Dimensions

Qualifier Dimensions Winner Dimensions

Features / Functionality / Fit

Complements the business

Strategic Factors Development of a long-term relationship, Supports Present and Future Business goals

Technology Stable and Reliable

Cost of Acquisition and Ownership

Plan, Design, Measure, and Implement

Initial implementation and Long-term Support

Proven Methodology and Success

shopping for a new erp system

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