What is ERP?
Enterprise resource planning (ERP) is a software category that integrates and supports the management of several core business processes. Functions such as financials, purchasing management, human resources, and more are usually included. The specific functions often vary, such as including manufacturing management and inventory management for manufacturing ERP systems, while retail and commerce functionality along with supply chain management functionality might be included in an ERP solution for distribution industries. At the most basic level, ERP software solutions are meant to streamline multiple business processes and facilitate the collaboration and sharing of information between various departments.
Does Your Company Need an ERP?
Smaller businesses typically use spreadsheet programs and other function-specific software (such as an account program or a standalone payroll management system). Once an organization has grown to certain size, however, maintaining disparate systems becomes increasingly complex and unwieldly.
In a business that has not yet implemented ERP, different departments using separate software will experience a lag in sharing information with other departments. This can lead to delays and possible communication errors that can affect the overall efficiency of the business. Because ERP software integrates processes among different departments and largely automates the sharing of necessary information between them, it can save both time and money through increases in productivity and efficiency.
The streamlining of the various core processes brought about by a properly-selected ERP system can boost employee productivity and can support further growth and expansion. While ERP systems were originally developed for large businesses, mostly in manufacturing, the proliferation of different ERP software solutions over the past couple of decades – often targeted to particular types of business – has led to organizations of all types and sizes implementing ERP solutions.
Criteria for Selecting an ERP Solution for Your Business
There’s no doubt a properly-selected ERP solution can realize a significant return on investment (ROI) – especially in terms of the cost savings that can be realized with automation. However, investing in a new ERP solution is costly, both in terms of the money spent on licenses and maintenance, and the expense and time commitment of implementing your newly-purchased ERP. If not appropriately chosen and properly implemented, it can become a huge liability for your business.
The following are some of the critical factors to consider before you choose ERP software for your business.
1. Current Business Needs and Objectives
It is essential to analyze the specific requirements of your organization before shopping for an ERP system. Much like clothes shopping, ERP software is not a one-size-fits-all. In addition, just because a particular ERP is designed for your category of business does not automatically mean that it will cover all the functions and features your organization requires or that it won’t include a lot of things your organization does not need. Keep upcoming objectives in mind along with current requirements – especially because any new ERP you implement will have a working life of several years. So, for example, if your organization is not currently processing foreign currency transactions but you expect it to be doing cross-border business in the future, take that into consideration when identifying your requirements.
The best approach is to form a software selection group made up of stakeholders from each of the various user groups that will be working with the chosen ERP on a day to day basis. In other words, it is not enough to include a few senior executives and IT staff on the selection team. If one of the functions of a new ERP will be to better manage inventory, for example, be sure to include someone from inventory, and so forth. It is most often the people “in the trenches” who will be most acutely aware of their department’s current pain points, what current best practices are in the industry for their particular function (human resources, production, sales management, compliance and regulatory reporting, etc.) and what makes for a good user interface (UI) for them and others in their department. Simply guessing what will work best for everyone is a recipe to get things wrong.
It’s also advisable to work with some kind of request for information (RFI) or request for proposal (RFP) template tailored toward the particular type of ERP software you are considering. These templates usually list all the potential features found in various ERP solutions, organized by functional area. By having your selection team comb through the list, it becomes easy to identify which software features will be must-haves, which would be nice to have but not required, and which features your organization really does not need.
2. Software Requirements
Once you have identified your organization’s specific requirements, the next step is identifying which ERP software solutions most closely align with those requirements. Here are some essential factors to consider when evaluation ERP software:
- ERP software can be deployed as on premise, cloud-based, hybrid cloud. While some ERP solutions are available in more than one type of deployment (such as on premise or cloud), many are only available on the cloud. The type of deployment you choose will have much to do with your organization’s IT. If it has the networking hardware and IT staff to make on premise ERP software viable, choosing an on premise ERP can make sense. If it does not, you will want to consider only cloud-based solutions. Ramping up your IT backbone to make on premise enterprise software viable for you, if it previously wasn’t cloud involved, can mean considerable additional expense.
- An intuitive, easy-to-learn, and reasonably configurable user interface (UI) is very important. Much of whether or not new software is quickly adopted by users, and whether or not they are able to get up to speed and be productive with it, depends on how well designed the UI is. When your software selection team has narrowed down the possibilities to a short list of only a few ERP solutions that are all good matches for your requirements, be sure to spend time evaluating the UI of each, as a good UI is a vital consideration.
- If your organization employs a mobile workforce, even if only in some departments, then mobility will likely be an important factor when considering ERP software. Choosing a solution that facilitates mobile access helps your business to be more responsive to your customer’s needs and empowers your employees.
- The enterprise software market is one of rapid change, and that change is mostly driven by users’ adoption of new technologies. Think of the Internet of Things (IoT), for example. With more and more businesses incorporating some form of IoT, more and more business software is making use of IoT as well. Make sure to ask the ERP vendors you are considering about potential upgrades (what to expect and when), along with how easy it would be for your organization to upgrade to the latest release and what costs, if any, would be involved.
- Last but not least, keep scalability in mind. For example, if your company has ambitions of going global, you’ll want to make sure your ERP software can scale up to those demands and will support the sharing of resources across borders.
3. Budget Considerations
An ERP software solution is expensive, even before you factor in the separate cost of implementation. It is vital to view any new ERP as a long-term investment. The following are some of the ways you can make sure the ERP software you opt for fits into your company’s budget:
- If you already have some kind of legacy ERP system in place, find out whether you can work with an upgrade instead of a complete replacement of the software. Upgrading to a current release of software you already have in place can bring down the expenditure and also help in the transition phase when users learn to use the new software.
- If you must purchase and implement new ERP software, beginning your search with ERP software solutions designed for your particular industry will likely mean getting more of the functions and features you need, reducing the need to purchase add-on modules or pay for extensive configuration or even customizations, which can get expensive quickly.
- If possible, choose an ERP platform that allows you to choose various functional modules. This can make it easier to tailor a new ERP solution to your specific business needs while also avoiding paying for functionality your business will not use.
Once you have vetted competing ERP solutions based on the above criteria, you can compare the prices among those vendors and choose a moderately priced ERP solution for your company.
Comparing ERP Vendors
Once you have clearly identified the requirements of your company and have applied those requirements to produce a short list of potential ERP solutions, the next is evaluating the ERP software vendors to select the best ERP for your organization from your short list.
First, you will want to invite each of those shortlisted ERP vendors to present a demo to your selection team, following a script your team has prepared for them to follow. Think of it in this way: you might want to conduct interviews to fulfill an important job role at your company, therefore, you’d have each candidate answer the same well-thought-out questions, comparing their answers to decide which one would make the best fit. This is where you will be able to compare the UIs of each shortlisted ERP solution, be able to ask vendors about forthcoming releases, and get an idea of how responsive and easy to work with each vendor might be.
It would also be helpful to read software reviews of each shortlisted ERP solution your team is considering, both form actual users and reviews written by software analyst firms.
Be sure to ask each vendor for customer references for deployments in companies similar to yours. Talking to others who purchases and implemented the ERP, especially if they had requirements similar to your own, can yield terrific insights that can help you further narrow down your short list.
Finally, you want to compare prices and proposed service contracts in order to decide on the right ERP solution for your company.
Even though the process of selecting an ERP solution can seem daunting, you can find the right solution with a little research and analysis. Never forget, choosing an ERP solution is too large and significant an investment to be relegated to chance or simply choosing something based on a recommendation.