The COVID-19 pandemic illustrated the importance for industrial equipment manufacturers to have the right Enterprise Resource Planning (ERP) system to be responsive to changing businesses environment. There are many choices in ERP solutions, yet half of ERP implementations fail to achieve their goals.
Selecting the right ERP at the outset is essential because the cost of replacing a system that was recently purchased is prohibitive. And having an outdated legacy system can be cost-prohibitive and the lost opportunity cost can be even greater.
Here are five best practices to follow and five big mistakes to avoid with ERP selection.
1. Choose a vendor experienced in your industry. Every organization needs to understand its business and where the business wants to be three to five years in the future. There are many financially driven ERP solutions and many generic ERP solutions. Those may not have the depth in features and functionality to address the full breadth and depth of business requirements. Many vendors have configured their solutions for a specific industry, taking the core foundational capability and building it out for a particular industry.
You need to look for a vendor with a combination of specific industry experience and the right capabilities to ensure you are buying a solution built to last and to carry you into the future.
2. Consider Total Cost of Ownership. The cost of a new ERP system goes far beyond just the cost of the software. There are also the costs of the consulting, the implementation itself, training, and then potentially even ongoing maintenance.
It’s important to understand the total cost of ownership, not just in terms of the expense outlay, but also in terms of return on investment. By making the investment in the ERP solution, where will your business gain additional value?
3. Align with your overall technology strategy. Another key consideration is to evaluate how your technology strategy aligns with that of the potential ERP vendor? For example, if you want a cloud-based technology, you can quickly eliminate vendors that don’t offer that type of solution.
4. Consider customer references. Select from vendors that have references from customers that are similar to your business. If vendors offer only references from dissimilar companies, that would be a red flag.
5. Conduct vendor due diligence. Conduct due diligence on the vendor, just as they conducted due diligence on you when they selected you as a prospect. While this can be very challenging and time-consuming, it’s a key part of the vendor evaluation process. Look at the vendor’s financials. Do they have happy customers? What is their product roadmap?
In addition to these five best practices to make the best ERP selections for their businesses, manufacturers also need to sidestep making the following mistakes:
1. Over-emphasizing feature functionality. Too many companies focus on feature functionality aspects of the solution and the beauty of the application, rather than its ability to support their overarching business objectives.
Though functionality is certainly important, it is one of only one of five or six considerations you should consider. Many clients around the world have come to the table without really understanding what their core business processes are. They assume features are going to be the solution to all their problems, however they may have organizational issues that can’t be solved with the capabilities of the system.
Having a solid understanding of your business issues is key to ERP selection. And an ERP solution’s ability to support improved adaptation, agility and resilience to meet the needs of today’s ever-changing marketplace trumps any specific feature functionality.
2. Assuming all ERP systems are equal. Not all ERP systems are the same – especially when it comes to those that are ideal for the industrial equipment manufacturing sector. The business realities include very complex bills of materials, multiple levels deep, as well as complex requirements for purchasing requirements or inventory stocking. Different ERP systems will have different capabilities to manage those complexities; it goes back to understanding your business requirements. While the base functionality of different ERP systems might be very similar, there are going to be some key differences that need to be taken into consideration.
3. Taking a short-sighted approach to the RFP process. It’s important to approach ERP selection and evaluation with the right frame of mind and frame of reference. Some companies will search the Internet for the latest and greatest version of an RFP that they can present to the vendors. The problem is that these RFPs are presented to the vendor without any context, without any company background. As a result, this type of RFP becomes just a checklist, leading to selecting the vendor that checks the most “yes” boxes.
This can be a short-sighted approach because it’s simply a referendum of technology features and functionality. In contrast, the goal should be to build a partnership with the vendor and to select the right technology for the business for the long term, as the average ERP lifespan is 15-20 years.
4. Thinking it’s just an IT project. What department is in charge of the ERP selection and evaluation process? Typically, these initiatives start in the IT group. While this department will be extremely knowledgeable about the technology and the level of feature functions that are available, IT doesn’t always understand the intricacies of the business.
A related issue is having a siloed, functional view with sales, IT etc., independently looking at its own ERP needs, rather than working together on selection. It’s important to involve cross-functional teams in the process to ensure representation of all who will be using the ERP system.
5. Focusing on big-name solutions. There’s a lot of brand awareness around the big-name ERP vendors. For the right manufacturer, those big-name ERP vendor offerings are very viable options. But if you’re not a global enterprise with very complex requirements, those big-name solutions maybe too complex for your needs – and too expensive.
Beyond the big four or five, there are many other vendors out there. But, unlike the top four or five big name vendors, there isn’t as much readily available information. So you may have to do a little digging to learn about the other alternatives.
The most vital element in ERP selection: Confidence
Due to the complexities involved in selection, installation, and implementation, an ERP selection is a multi-generational decision. The right or wrong choice will impact a manufacturer’s bottom line for many years. By following the guidelines above, a manufacturer can be confident that it is making the best ERP selection to meet its business needs now and in the future.
Michael Chesin is the Strategic Alliance Director for Ultra Consultants.
