Wednesday, July 29, 2009

Why go ERP ? A Baker’s dozen questions to ask before you buy an ERP solution

Leslie Satenstein / July, 2009

Your business volume has grown, and your customers complain that there are too many errors in shipping quantities or wrong products, many errors in your sales invoices. Your accounting staff is complaining, the aged analysis report is showing too many overdue accounts, or accounts over the credit limits. Inventory Management seems to have misplaced goods and payables don’t seem to correspond to receipts or bin cycle counts. The supporting paperwork for must adhered to industry regulations can’t easily be matched to inventory or shipments.

The current year end financial statement makes you nervous, as numbers from your different application systems do not match. A yearly full company audit is costly because you have different systems for sales, purchasing, inventory management, and finance. You also want to do some e-commerce and are concerned about how it can be handled with your current organization. You may want to analyze sales by geographic region, by market and to generally slice and dice your analysis according to your requirements.

ERP to “The rescue”

Your business advisor recommends that you need to implement an Enterprise Resource Planning (ERP) system. You are told that the ERP system will integrate sales, purchasing, distribution, warehousing, manufacturing, ecommerce and Finance, and it will help to reduce overdue accounts, prevent overstock and dead inventory, help with finance and most of all, provide consistent financial figures for the government and auditors.

Moreover, your potential ERP system will provide business intelligence (BI) statistics about customers, product sales, and more. It can generate enough reports and information to overwhelm each manager.

You are convinced you need an ERP system but buying one, you have a few concerns about the best one, and also if your staff are going to be supportive.

Here are a Baker’s dozen questions to ask before embarking on an ERP solution!

MOST IMPORTANTLY, the following points are ones to have answers to before you make that commitment.

1.- Do you do an in-house install of the ERP system, with the necessary hardware additions and wiring?

2.- Do you choose the ERP system and outsource the hardware operation of the ERP system? (This mode allows for on-call support of the hardware, software and remote troubleshooting.)

3.- Do you search for a Software as a Service (SaaS) product and license its use? Everything is now in the hands of a provider whose system is somewhere in the world and your business is hosted therein?

4.- Have you looked at Open Source ERP software as a possibility, as well as closed source Software Vendors? There are cost advantages to the former and often, functional advantages too.

5.- Have you created a detailed Request for Quotation (RFQ) to submit to Vendors? This RFQ would be emailed to the vendors that could provide the needed solution. The RFQ would contain a list of specific business problems you need to solve, will include new features to allow for continued growth (for example, e-commerce, multi-currency, multi-warehouse, multi-company, and even new government requirements, business intelligence, statistical reporting for product trends, etc.) As an aside, in a medium sized organization, a good ERP system allows for a significant reduction in overstocked inventory, reduced stock-outs, and lower warehousing carrying costs for insurance, heating, rental, etc. After the replies, are you going to ask for a demonstration to verify the vendor claims?

6.- Are your managers volunteering to create the Key Performance Indicators (KPI)? These include managers and their staff, who need to own the new system and the accounting firm who needs to know how to use the system to conduct an audit. Are they aware that in owning the new system, the will decide which business processes are included in the ERP package, they will understand how to phase in the rollout and how to measure success with the implementation?

7.- Does your new system require application customizations, because your product is different from the norm?

8.- Are you aware of the conversion effort and costs, which include training, running the new system in test mode for a few days, and the go-live experience.

9.- If you decide to not implement the new system, you need not read further.

Completing the baker’s dozen concerns to consider before you select the vendor

10.- Can the implementation be performed in stages, as a phased approach? If the target system has modules that are nice to have, instead of essential, can you purchase the system without them and then add modules later, without undo penalties.

11.- Which managers should be involved in each implementation phase ?

12.- Do you have a good project manager, or is the vendor providing one? Oftentimes the vendor’s in-house project manager has the in-depth knowledge of the product and previous experience in its implementation. He will work with your staff to implement the system as smoothly and as cost effectively as possible. (For a single site ERP using no foreign currencies, for the implementation estimate the larger of 500 hours or the vendor’s time estimate). Review the project plan to see if it includes training, holidays, and sufficient milestones to allow biweekly tracking at first and weekly tracking as go live approaches.

Some technical considerations

13.- We hear of Service Oriented Architecture (SoA). What does this mean to you? SoA is a software system design where each module in the application is a component. There is a sales module, a finance module, etc. SoA presents the idea that we treat each module as a black box, as we would a microwave oven or a car. We don’t want to know the inner workings, but we want to use the defined interfaces (on-off and other buttons). SoA is a great concept, but thus far, it only works best or at all when all the products are supplied by a single vendor. That is, you cannot easily integrate vendor abc’s sales package with vendor def’s finance package.

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