Considerations for Choosing ERP Software

Enterprise Resource Planning / Financial
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There is an old Chinese proverb: “May you live in interesting times.” This double-edged blessing/curse applies today more than ever to those looking at enterprise resource planning (ERP) software. The choices available to potential ERP users are overwhelming yet ripe with opportunities. In the end, ERP is nothing if not fraught with new possibilities for nurturing today’s businesses, the most golden of these opportunities being e-business.

But ERP decision-makers must do their homework, as easy answers and obvious choices no longer apply. ERP selection is more complicated today than it was only a few years ago. This is largely because of Web-based e-commerce and the new requirements this places on businesses. A new world of business-to-business and business-to-consumer paradigms has materialized that simply was not conceived of 10 years ago. Even if the Internet has not yet created specific needs for Web-based business transactions for an enterprise, the growing potential looms larger every day, and that the Internet will have an impact, great or small, is certain. Ultimately, the need for enterprise applications to support any long-range efforts on the Internet will still exist.

Even after making the philosophical commitment to e-business, deciding how an enterprise obtains an ERP system is no longer a simple matter. Selecting a vendor, purchasing a software license, and going through an implementation cycle is not the only option. Application service providers (ASPs), which own and operate the hardware and sometimes even the business processes, open a new alternative and make ERP more viable, especially for midsize enterprises.

No matter the roads traveled, whether you’re deciding to buy or rent an ERP software suite, the process can be as rewarding and pressured as purchasing a vehicle. In fact, they can be very similar experiences; both involve major purchases or leasing arrangements that impact you on a daily basis, and both are decisions that you will live with for a long time.

In software selection, the needs of the enterprise users are paramount. These needs, of course, also spill over into wants. This explains why some ERP users wind up with the equivalent of a gas-guzzling sport utility vehicle with all the bells and whistles imaginable while others drive away in a featureless yet highly efficient compact car.

What you get with an ERP solution also depends on where you shop. But there are things to keep in mind as the process starts. ERP is concerned with storing information and processing business transactions. The ERP solutions offered by various vendors are designed to apply best practices across the whole organizational infrastructure and to open up the exchange of information across traditional boundaries.

There is a connection between business practices and the technology needed to facilitate good business processes for maximum benefit for a company. When considering ERP, it is of benefit to consider the overall business process as opposed to distinct business processes. Although individual ERP solutions address distinct processes for specific functionality, they are implemented to strengthen the overall enterprise. In the final analysis, the business enterprise exists for two purposes: to provide a service and to make a profit. ERP is a solution that can enhance both of these functions.

But the first question is this: How should an ERP solution be implemented? The answer is rarely straightforward. The sheer range and scope of an ERP system will make it the largest software investment that many organizations will ever make. An implementation can cost large amounts of money, especially when the price of any new hardware required and ongoing services needed are added into the mix. And, because of their highly complex nature, ERP solutions are not so much “turned on” as they are insinuated into the enterprise. Again, time translates into money, and both add up.

Going the ASP Route

Smaller enterprises with limited IT resources and funding might consider outsourcing their ERP system to a third party, or application service provider. With the ASP model, businesses are afforded the opportunity to determine if software rented on a monthly basis is cost-effective. Application hosting is designed for businesses that wish to maintain full control over the use of their software but don’t want to manage the software and supporting infrastructure themselves.

In this model, applications normally reside on the infrastructure of an ASP, which configures, implements, and maintains the ERP applications for its customers. Users access the applications through a private network or the Internet. In turn, customers contract directly with the ASP for use of the software, paying a fixed fee on a per-month or term basis.

Other forms of this model include business process outsourcing, by which a company uses a consulting partner to perform some or all of its business processes. A business process outsourcer hosts software on its computing infrastructure and offers software as a value-add to its existing services. A business process outsourcer can also provide the staff to manage business processes such as payroll, invoicing, or order entry.

In addition to companies that are purely and singularly ASPs, some enterprise software vendors are now starting to package themselves as ASPs. However, potential users should beware of the potential limitations of going with a vendor that is also offering its own ASP services. Users may find themselves limited to that particular vendor’s software or that of its partners. Therefore, an enterprise may not necessarily find a vendor- ASP to be the best fit down the road as the needs of the company change and grow over time. Software choices and limitations could eventually paint users into a corner. A vendor- ASP may also have less incentive to find and offer cheaper, less-complex applications for its customers. Being “stuck” with more-complex applications will also impact other areas with higher maintenance and support and, eventually, higher cost to the enterprise itself.

The Nitty-gritty

Before the review and implementation cycle for an ERP system begin or the decision is made for either in-house ERP or an ASP, there are mundane exercises to complete. For one, a detailed assessment of business requirements and business goals needs to be performed before you decide how to commit to an ERP solution. Members of all levels of

the business, from top to bottom, from the CEO to the sales team, should be required to provide input and expectations that one would be derived from a potential ERP system.

Another important part of the preliminary process involves a detailed cost analysis, which should include all costs, benefits, and risks involved in adopting an ERP system. ROI is an important issue to all businesses when determining whether to invest in a system. Benefits such as lower transaction costs, business cycle transactions, and increased customer satisfaction are commonly sought.

Many companies have been working with homegrown systems cobbled together over the years. While this approach normally falls in on itself eventually, there are cases in which a number of standalone products work well together. They can continue to provide some, if not most, of the functionality required by an organization. In this case, the only possible justification for adopting an ERP system would be if the cost of maintenance of a number of single applications is considerably more in the long term than the costs associated with the implementation and maintenance of an ERP system.

Trying to quantify the benefits of ERP also depends on specific business goals and why the ERP product is bought. For example, to improve service to customers, some ERP solutions are implemented so that the sales force is better integrated into the rest of the company and the right product and customer information is automatically made available to the sales team. In this case, there are various factors involved in estimating the value of ERP. The cost of making sales may increase overall when factoring in the cost of ERP, but, if a sizable jump in sales volume is gained, profits should shoot up substantially and offset the associated costs.

While the early ERP client/server models aimed for (and never achieved) certain cost reductions, today’s ERP solutions focus on business efficiencies, better information access, and analytical opportunities to impact customer satisfaction (and therefore increase business revenue). Today’s organizations and businesses are more customer-centric in their outlook, and ERP can help achieve this focus with improvements throughout the supply chain. Overall customer care quality can be monitored and improved, customer choices can be enhanced, and information can be made more relevant with easier access. When looking for a good ERP solution, you should start from this overview and keep in mind these important end goals of today’s business requirements.

Outside Help?

If all of this sounds daunting, outside consulting firms can play a prominent role in assessing both the hardware and software requirements of a company. A consultant can document an enterprise’s legacy systems, look at current practices without bias, investigate where savings can be made, and determine the future requirements of a company. This, too, may involve major reengineering of the business processes and will not be accomplished without major time and expense outlays. However, the whole exercise can be of immeasurable benefit to large, multinational organizations where there are a number of diverse systems and processes in place.


With the groundwork laid and the decision made to go with an in-house ERP system, it is time to look at the selection process itself. A steering committee of IT staff, business users, and higher-level executives should be assembled and given the authority to make the judgments and decisions necessary to navigate the waters to conclusion. This committee will have the job of finding and assessing software vendors that are potential matches for the business and its particular industry needs. For example, suppose a retail or professional-services business needs to leverage IT services to achieve greater efficiency and maximize slim margins in its industry. A good software vendor, backed by the right team, will be able to increase those margins for a user.

Another important part of the review process for the committee will be asking for and looking at other ERP customers served by the vendor. Examining customers closest to your own industry, while desirable, may not be practical, as business rivals will not be looking to help the competition. If you’re not looking to couple beta test customization gains with the inherent first-generation hiccups, be sure your vendor has at least one user installed with similar application requirements.

Product demonstrations are also part of the mix. The applications themselves, which should be impressive and useful to your company, should also be looked at and questioned for other features. For one, are the applications themselves self-evident to the user? Software can be made to do many things, but applications that are convoluted and confusing can turn users off. The most compelling software in the world is of no value to your company if people are not prone to use it.

Required Features of an ERP System

There are a number of vendors providing ERP solutions that are targeted at niche vertical markets, and, for a customer within one of these market sectors, these systems will probably provide the best fit. Selecting a modular ERP solution enables an organization to purchase only the applications it requires. Not only do these individual modules need to integrate with one another to allow the free passage of data from one module to another, but they must also integrate with third-party products, enabling the user to access information owned by these other systems and eliminating dual keying. With the increasing emphasis on the customer and customer relations, the integration of peripheral products, such as call center technologies and data management systems, is critical.

You should select an ERP system that has at least most of the functionality required for the future development plans of your organization and not just its current requirements. Failure to plan for the future is likely to end in failure of the implementation. For example, even if a United States-based company does not currently trade in Europe, the increasing globalization of trade makes it a fair assumption that, unless a company sells solely within its own national boundaries, it will at some stage have to trade overseas. Therefore, selecting a solution not compliant with the Euro (or other currencies) might, in the future, render the entire financial package useless.

As your company’s committee reviews products—considering price, ease of use, and technical merit—encourage the members to discuss points of difference openly. This is the time to address everyone’s concerns—not after a decision has been reached. Fighting it out now will ensure that everyone is satisfied later on, after a decision has been made and the wheels are set in motion.

Each company will have different needs, but other factors to consider during this review cycle include vendor technical support, software options and upgrades, financial terms of the ERP system, financial stability of the vendor, and vendor partnering agreements for expanding functionality.

How and When to Implement an ERP Solution

Once the decision to adopt an ERP solution has been made and the solution chosen, the first issue to consider is the timing of the implementation. With the momentous event of Year 2000 having passed and an economy of unprecedented strength, many organizations are now in a good position to make essential changes to their IT systems. (Incidentally, as most ERP vendors claimed their product to be Year-2000-compliant, the new millennium really shouldn’t have been the issue it was.)

The next issue is the choice of platform. Most ERP solution providers, having originally limited their availability to UNIX, AS/400, and other proprietary systems, have redeveloped their products for the Microsoft Windows NT and, now, the Windows 2000 platforms. Although a Windows GUI generally means a friendlier environment for the user and an easier system to navigate, there are some important issues with Windows-type

platforms that need to be considered. The major concern is the scalability of Windows and whether it can handle a large-scale, multinational implementation, where there may be thousands of users located throughout the world accessing a single, centralized implementation. Another concern is the stability of the product. No company can afford downtime, and servers that crash or require rebooting on a regular basis are going to cause any company considerable problems.

Commitment Is Key

During the entire ERP implementation project, an organization needs to be totally committed to the ERP solution. It has to fully understand and appreciate the benefits that such a solution will bring and also acknowledge the problems that are likely to occur during the implementation phase. The processes involved in implementation can be long and will cause a certain amount of disruption of the ongoing business processes. The secret behind a successful implementation is to minimize the pain as much as possible. Most important, when the decision is made in favor of ERP, the decision has to stand and be supported by all down the corporate line.

The Fun Begins

Many ERP vendors provide what they consider a total solution, offering everything from pre-sales assessment to post-sales training and support. The componetized, modular configuration of many solutions enables vendors to supply the expertise to customize the product to fit most of the requirements of the customer. This process often consists of the use of some form of modeling tool, built into the system and based on a work flow model, that allows the user to drag and drop components representing specific tasks onto the model and build up the ERP solution based on specified requirements.

Whenever possible, a staged implementation is preferable, with applications or modules being introduced one at a time, especially when the ERP solution is going to touch every aspect of the business. Any major implementation is going to disrupt the normal working routines of an organization, but, with careful planning, disruptions can be anticipated and a workaround can be arranged. A staged implementation also affords the opportunity to train small numbers of staff on a single application at a time. Further, it makes it easier to set up any new database structure and the static data required.

The Result

Everyone knows stories of what happens when a major piece of software is badly chosen, poorly installed, or both. ERP can have an impact on so many activities within the organization that the penalties for failure are higher than usual.

The benefits of a successful installation include intangibles as well. Better morale and teamwork develop as people in previously separated activities find themselves working productively with enterprisewide shared information. Results are achieved quicker than before; for example, a smoother supply chain turns orders around more quickly and makes customers happier. And easier design administration can bring new products to market much faster.

As a result, the profile of the company is improved by having enterprisewide financial results quickly at hand. Such factors eventually benefit the company’s bottom line, although not in ways that are always easy to quantify. Successful ERP users will have these factors clearly in mind. After all, it is people who make the system work, not the other way around.

The issues surrounding adoption of an ERP solution are as complicated as the products themselves. There is no doubt that an organization running efficient, well- integrated systems in which the information required is immediately at hand can gain a competitive advantage over its competitors. Efficient systems and procedures can shorten the time to market, and the careful and detailed management of customer information

creates a high level of customer loyalty. This is the bottom line that should be driving users to their ERP destination.



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