How to select erp

enterprise resource planning

How to select your ERP without losing your mind (or your job)

Content 1. What the ERP salesperson isn’t telling you (and various claims they might) 2. Using public information to assist vendor evaluations 3. The importance of references and questions to ask 4. ERP requirements for ETO manufacturers 5. Accounting centric vs ERP systems 6. Scripting a scripted demo 7. The true cost of selecting /implementing ERP 8. ERP implementation options available 9. “Early adopter”, or are you “risk averse”?

10. SaaS, ASP & hosted ERP vs on-premise solutions 11. Industry specific ERP systems 12. Concerned you may select the wrong ERP system?

13. Should we hire an ERP selection consultant?

14. Custom versus off the shelf software 15. Fixed price or “capped” implementations 16. Conclusion

Introduction Finally … An ERP Selection Process that Guarantees Results.

There are over 1,000 manufacturing systems in North America and yet The Wall Street Journal has stated that “73.8 % of all manufacturers are dissatisfied with their current ERP systems.”

Why? • There are a number of theories why implementations have problems: • Poor planning or no planning at all • Top Management not involved or did not commit to the project • Unreliable data • Lack of training or implementation assistance • Poor selection process • Lost project momentum • Business processes are not corrected • But the main reason that implementations fail is the legacy selection process commonly used is flawed.

The Budget Approval Dance The first step in any selection process is expenditure approval.

Middle managers spend days defining their selection process plan. The more detailed the budget approval request is, the more detailed the selection plan is, the more due diligence is assumed and therefore Upper Management’s perceived risk is lessened. The legacy selection plan usually contains: • A multiple page, detailed system requirements definition (sent to a short list of vendors for confirmation), and submitted as a Request for Proposal (RFP) • Multiple, onerous “sales demos” with various systems • Telephone reference calls on the selected vendor The middle manager can get so obsessed with budget approval; and the upper manager can get so consumed in confirming the selection process is sound, that the most

So many companies simply “hope” for success with an ERP implementation.

You can plan for success.

Fact According to an article in The Wall Street Journal, 73.8% of ERP projects fail in one of three key dimensions: cost, duration, and/or realized business

important objective in selecting a new system is often overlooked. The most important goal should be to ensure your company is successful with the new system! All other consideration should be secondary.

Systems Today Are Function-Rich The more you evaluate systems, the more you realize none lack functionality. The reason they fail is not because they are missing features, it is the exact opposite. They are so feature rich they are cumbersome and too difficult to learn.

Then why do we devote our entire search to evaluating which system has the best and/or most functionality? Is it because new systems are purchased only every ten years, therefore, no one individual has the experience to learn from their mistakes?

Let’s review the legacy selection approach described above.

1. Issue a detailed multi-page novel called the “system requirements list” to all software vendors to fill out (honestly) thereby confirming which match. However software companies want to remain in consideration, and are motivated to answer each question with a carefully worded, “yes we do that!”

2. The selection team then shoulders the arduous task of reviewing “sales demos” in an attempt to decipher the differences. All “Sales demos” are designed to look good. If the “sales demo” did not look good, the software company would go out of business. Software companies hire professional presenters who know how to navigate around the weaknesses of their system and precisely which keystrokes will present their software in the best light.

3. Remember the first day you looked at the system you use now?

How difficult did it seem then versus today? How many months did it take before the haze lifted and the system became second nature?

Is it possible to recognize the pros and cons of a system you are reviewing for the first time in an 8 hour “sales demo”?

4. You now call references to confirm that companies are happy with their systems. Where did you get the references from? Did the software vendor carefully select “their very best” customers that swear the software turns water into wine?

And voila … you have selected the very best system for your company.

Or have you?

What the ERP Salesperson doesn’t tell you They say the difference between an ERP and a Car Salesperson, is that the car salesperson knows he is lying. Is the information the ERP salesperson telling you the truth?

Reviewing ERP systems is not an everyday task. So it is no wonder you don’t know the right questions to ask.

Chapter 1 will provide food for thought regarding not only what to ask, but how to interpret their answers.

|1 What the ERP Salesperson isn’t telling you

The most important goal should be to ensure your company is successful

(and various claims they might) According to an article in The Wall Street Journal, 73.8% of ERP projects fail in one of three key dimensions: cost, duration, and/or realized business benefits. Much like the characters in Charles Dickens’ novel, those trying to select and implement ERP software are faced with high hopes and great expectations, only to face significant challenges and some bad decisions along the way.

The good news is that there are some lessons to keep expectations aligned with reality. It is important to watch for the pitfalls and land mines that often lead to unrealistic expectations. For example, how many of the following statements sound familiar?

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“Let me show you how easy of software is” Salespeople or professional demonstrators are trained to present their software to appear as easy as possible. The truth is it is impossible to know how easy the software is until you have been using it for over 12 months.

Ask the Customer references you speak to if the system is as easy to use and implement as they originally anticipated.

A Suggestion .....

Ask for a list of customers in your area that have been using the system for 12+ months, preferably in the same industry (similar requirements) and a similar size. Then from that list you can choose which to speak to, and visit at least one (you might even recognize one).

If they do not have customers in your area that meet all the criteria, ask to visit a local customer that is a similar size, and to speak over the phone to a customer in a similar industry (confirming the system has had success in your industry).

“Let’s schedule a demo …”

All “sales demos” look great. If they didn’t, the software company would go out of business.

The only way to truly evaluate a system’s suitability is to visit a company that has been using it for at least 12 months.

Why do you think the salesperson is so anxious to provide a “sales demo”, but are not so quick to give you a list of local customers you can visit?

“Our software is being used by 1000s of Companies …”

But which trainers will implement the system with you and how much experience do they have? The software may be the rated best in the world, but how many companies similar to yours has the re seller worked with? Some re sellers use new customers (you) to gain experience with the software. Or would you prefer to work with a re seller that has experience already?

There may be thousands that use “a version” of the system, but how many are on the version you are being shown? Be careful with this especially if the ERP has had a complete re-write and not tested yet.

“We can implement the system for you in three months or less …”

You can have a Cheap, Fast or Quality implementation, but you only get two.

The software VAR may have one example of a fast implementation, but did they have previous experience with that ERP, how much did they pay for services, and how complex was that company’s requirements?

The ERP industry average time to implement is six to twelve months. Ask references how long it took them to implement versus what was promised.

The longer it takes to implement, the more it will cost in lost staff productivity as well as additional training costs.

Software vendors are notorious for over-simplifying the implementation process during the sales demo. Most sales reps don’t know (and in some cases, don’t care) what it takes to do an ERP implementation correctly, but they do know they want to make the sale. So it is in their best interests to downplay the potential time, costs, and risks associated with implementing their software.

Most projects take longer than and/or cost more than expected, so make sure you’re not basing your time line and budget (and career) on overly optimistic and unrealistic estimates. Instead, use benchmarks of what other companies similar to you have actually achieved. A more realistic expectation: ERP implementations are difficult and complex business transformations, so budget time, money, and resources accordingly.

“Our next version has that …”

The next version does not exist today and may never. Software developers change their Product Road Maps weekly. What is promised this week, can change next. And if the vendors’ next upgrade is a “new technology” complete re-write, the only guarantee you can bank on are that it will be completely different to what you are seeing today (and probably very buggy).

Make sure you’re not basing your time-line and budget (and career) on overly optimistic and unrealistic estimates.

The ERP industry average time to implement is six to twelve months. Ask references how long it took them to implement versus what was promised.

Search and research information from articles, to press releases, industry publications, credit history to court proceedings.

Using Public Information to Assist Vendor Evaluations When evaluating ERP systems, there is plenty of public information available.

We all know how to Google, but the resulting list is mind boggling. Chapter 2 will offer alternative resources to gather the necessary information to make an informed decision.

|2 What kinds of Public data are available and useful?

There is a wealth of public data available that can be very useful in your ERP selection process. You’ll find many sources of ERP information on the web. As in everything, some are better than others.

Google it What ever you can imagine, you can do a Google search (or other search engines) and research information from articles, to Press releases, Industry Publications, Credit History to Court Proceedings.

If you want to uncover the dirt on an ERP vendor, Google their name and the word ‘lawsuit’ or ‘problem implementations’. You may find something interesting.

Credit History As you will be their customer and paying them, maybe knowledge of credit history isn’t as pertinent as other information. But it will still help you with developing your “personality profile” of the vendor.

It is good practice to conduct a D&B (Dunn & Bradstreet) on all the ERP vendors you are evaluating. If they have a history of poor credit, that may imply poor business practices which might provide foresight on your potential business relationship with them.

Better Business Bureau More commonly this service is used for individual complaints about customer service, etc. However if the ERP vendor has a poor record established at the BBB, that may indicate potential problems that you probably do not want to get involved with.

The County Court House Over the web, it is easy to check for County public records. A majority of any legal actions will be active in the local Court House records. First locate which Counties the various ERP Vendors’ Head Quarters are located in.

Then Google the County Court House of your choice. Once you have found the local Court House website, inquire into Civil suits, that are Business related and type in the name of the software vendor. Very interesting information is available.

For example, there are many ERP vendors head quartered in Orange County, California.

Reviewing the Orange County Court House site can be very enlightening.

Their website is www.occourts.org The 3rd largest ERP vendor in the world is Infor Global Solutions and are located in Alpharetta, Georgia. The website for that County Court House is http://www.fcclkjudicialsearch.org/CivilSearch/civfrmd.html

Expect that every ERP vendor will have a few disputes.

But if you uncover a disturbingly larger number with some than others, that may be a red flag. Why would you want to risk working with a vendor that is trigger happy with legal actions?

This information can be useful when determining which of the hundreds of ERP vendors you do not want to include on your evaluation short list.

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Publicly Traded ERP Vendors Public SEC information is easily available over the web. As public firms are mandated to “full disclosure”, interpretation of their Financial Statements can provide volumes of intelligence.

For example, their Financial Statements will list their revenue source breakdown. If a majority of revenue is either maintenance or implementation and only a small % are new software licenses, then either they live off their existing customers or their products are very difficult to implement (higher $ for implementation for every $ of software).

Other Useful Research Tools You Tube Type in any ERP and you may just be surprised. Some videos are rather “salesy” but there are others that could even be used as training tools. Great way to have a look, without a salesperson looking over your shoulder.

The Inside story Press Releases/Industry Publications Realize, of any public information available, this is likely to be the most biased. Press releases and Industry Publications are usually written by the Vendor’s Marketing Department and is only the information they want you to be aware of.

However reading about similar companies as your own and the experiences they are having with the various systems, can be useful.

Especially if you call the company yourself to confirm the validity of the article.

I read an article recently about a manufacturer using a specific ERP system, describing all the wonderful benefits they were enjoying. I called the company in the article only to find out that they were not even using the system advertised. In fact the day that system was installed, they demanded their money back and ended up in litigation.

Miscellaneous Other websites Panorama Consulting Their material is quite good. They always have interesting webinars.

Panorama posts useful, free research about the pitfalls of ERP implementation, and they’re kind enough to tell you what they’ve learned about how to get it right. They look trustworthy in that they don’t

just rubber stamp the big names. Panorama also does ERP software evaluations and consulting—so they really do have people who have been there, done that, and really know the ins and outs of ERP.

Focus, an online community of business experts, offers an outstanding selection of topics. In addition to its excellent ERP Experts Guide——it also hosts a variety of topical webinars with intriguing titles such as, “See Real ROI from Your Social Media Strategy.” Is that really possible? Their experts display a deep understanding of market trends in ERP software and today’s most important business issues.

Gartner has long been a favorite of C-level finance and IT executives. They’re also more active with social media, which is a positive sign that they’re adapting in a rapidly changing market.

Aberdeen Group consistently publishes great information that digs into deeper detail. This information is rock-solid.

Do Your Homework Managing Automation is a great magazine if you still read magazines. They also have started a service called TechMatch Pro, which looks useful.

Social Media Today no matter where you turn, you can’t ignore social media. It’s becoming the “go-to” means of communication between companies and their customers. Twitter, which just celebrated its five-year anniversary. The biggest advantage to using Twitter is that it delivers relatively unfiltered news quickly in short, easy-to-digest bursts.

You can get straight talk from analysts on Twitter if you know where to look.

LinkedIn offers user groups, conversations, collaborations, networking, and company news. When you’re getting ready to implement an ERP system, it’s a great place to look for resources to help you make your software decision.

ITToolbox.com and Spiceworks.com are message boards, which are meant for current Customers of various ERPs offering advice regarding their experiences. You can ask questions, comments or offer advice about their systems or just read other posts. You will have to wade through the ERP salesperson comments, but there can be some excellent nuggets found.

Networking is probably the best way of learning the latest information about which systems are right for you. Talk to someone who has gone through an ERP project recently. Ask about ease of use, not just functionality. Ask them how long it took to implement and learn the system. Ask them what went right and what went wrong.

Besides, you’ll need all that information and more when you go back to your CFO to make your business case.

You Tube and social media are a great way to research a product, without a salesperson looking over your shoulder.

Do your homework.

The Importance of References and Questions to Ask Visiting customer references can be the most important stage of an ERP evaluation. But if the vendor only provides their 3 best customers, what can we learn? How can we interview the other, “not so carefully selected” customers?

Ask for a list of customers: • In your area • Using similar requirements • Have a similar employee size • Using the same version as the one they are presenting to you for 12+ months

|3 The Importance of References and Questions to Ask ERP Salespeople are trained to make ERP systems look as easy as possible. All “sales demos” look great. If they didn’t, the software company would go out of business. The problem is it is impossible to know how easy the software is until you have been using it for 12 mos.

The only unbiased way to evaluate a system’s suitability is to visit similar companies using it. So why not learn from others?

“Here are 3 references for you to call …”

Software Vendors usually offer three, carefully selected customer references for you to speak to. What do you learn from speaking to their three best customers? Absolutely nothing!

The vendors will often provide customers that are located near their offices.

If you are located near their training center, you may get excellent customer

service as well. Unless you are next door, the local support this customer has received may not be representative of the support you will receive.

Ask for a list of customers:

More miscellaneous questions to ask How many years since going live?

How is the software support and response time?

• In your area • Using similar requirements • Have a similar employee size.

• Been using the same version as the one they are presenting to you for 12+ months, (Everyone thinks their system is excellent at the beginning. But it takes at least one year before you know the pros and cons).

Then from that list you choose which to visit, preferably one that you know.

If they do not have customers in your area that are in your industry, ask to visit someone locally that is a similar size, and at least speak to customers in a similar industry (confirm the system works in your industry). But make sure they have been live on the version you are considering for an extended period, or else what is the value of their opinion?

Why local Companies?

Two reasons you will want to visit local companies are: 1. To confirm the quality of local support. If they give you a company three States away to visit, that can only confirm how good the local support is three States away. In fact the trainers being provided in your town probably have entirely different skill levels than the ones they provide for in Pittsburgh.

2. It forces the software vendor to not only give you their “best” customer. The odds of your experience being equivalent to their very best customer is very slim.

Besides what can you learn from a company that says the software vendor “walks on water”. Asking for local customers to visit should let you into some less than perfect implementations. Likely closer to what you will experience. You want to learn how the software vendor responded when the implementation wasn’t as smooth as silk (as none ever do).

If they say don’t have local customers using the system 12 mos. or more, they either do not (what does that tell you?) or none of their local customers are happy.

Where does “local” support come from?

Are reports easy to modify to your requirements?

Have you ever requested an enhancement and did they listen?

Has your companies’ revenue grown since going live? If so, what %?

How many employees have you added since going live?

Visit Companies that have been on the same version as being presented to you Visiting companies that have 12 months experience with the version being shown to you, is to counter another common sales strategy used by ERP vendors. Is the ERP vendor giving you references that are on the Cool new version or the older, stable (not so cool) version?

The key is to visit companies on a similar version as being promoted to you and are fluent with that version. How else will you uncover the knowledge you seek?

All ERP vendors have a defined R & D/Marketing budget and have a choice on how they spend it.

Some weigh their budget more heavily on developing new technology. Whereas some others are more conservative, spending their budget on product stability and functionality.

Just because some vendors choose to spend more on new technology Cool stuff, does not mean their product is not viable. However visiting companies that are fluent and on the newest version will help you make sure.

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Of course, all ERP vendors like to show Cool new stuff during sales demos. And it is likely that an ERP using newer technology will have more Cool stuff. However are there any Companies live or fluent on that new Cool version and if so, how many and who are they? Those are the ones you want to speak to.

A few sample questions to ask the references How much did it cost (over or under their original budget)?

Some software vendors quote a lower amount of training and services than is necessary. If you don’t budget enough for training up-front, guess who you will buy additional training from later? As the FRAM oil filter commercial used to state: “You can pay me now, or you can pay me later.”

Ask if they were above or below their original budget for services?

How long did it take to implement (longer or shorter than their original plan)?

They say you can have a Cheap, Fast or a Quality implementation, but only pick two. The software vendor may have completed a fast implementation once, but what is their average time to implement? The industry average time to implement is 6 to 12 months. If they were able to go live fast, was it because they didn’t have systems in place previously?

What system did they use before?

A person’s opinion of their current system is directly relational to the satisfaction of their previous system experience (at this company or others they’ve worked for). If it was a “poor” system previously, any average system will seem wonderful now.

What version of the ERP do they use now?

What value is there if the software vendor has been showing you the “new version” and the customers you speak to are on the “old version”.

The old could be excellent and the new, full of bugs.

The key is to visit companies on a similar version as being promoted to you and are fluent with that version.

How else will you uncover the knowledge you seek?

ERP Requirements for ETO Manufacturers Vanilla ERP systems rarely fit an ETO (Engineer to Order) manufacturer. Yet almost every system claims to meet ETO needs. This chapter will review some of the unique ETO requirements not found in every system and expose the differences.

|4 ERP Requirements for ETO Manufacturers The typical ETO organization reflects a unique style of manufacturing: • New business based on engineered quotations.

• Products designed specifically to the customer’s engineered specifications.

• Customer involvement throughout the manufacturing process; from original quote to final assembly and on-site installation.

• Complex products that often require many custom subassemblies.

• Raw materials purchased with long lead times, often times specifically for that one Job or Project

As a means of business survival, a recent shift within the North American manufacturing market has ETO organizations leading a call for change.

Vanilla ERP systems rarely fit an ETO (Engineer to Order) manufacturer Yet almost every system claims to meet ETO needs

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ETO Manufacturing Challenges Unlike more common manufacturing processes, within ETO manufacturing environments the Customer is heavily involved throughout the design and manufacturing process. This constant involvement results in frequent Customer and engineering changes.

Another constraint in the ETO manufacturing process is the historically long lead times from purchasing vendors spanning months—even years.

These raw materials are usually purchased directly to the job or for a specific phase of the overall manufacturing project.

Because ETO manufacturers treat each job as a project, all costs and materials are reported to the actual work order and variances are further compared to the original estimate. In many cases, once the production phase is complete, the product is shipped to and assembled at the client’s site.

Furthermore, aftermarket services and replacement part sales continue throughout the product life.

Requirements Differ vastly between ETO Manufacturers and Discrete Manufacturers Unlike its repetitive/discrete production counterparts, the ETO manufacturer is faced with maintaining a business model that requires skilled, and knowledgeable Engineers, who continually design innovative solutions to complex problems.

Discrete manufacturers have placed greater emphasis on manufacturing products offshore.

ETO manufacturers have continued to focus their design, engineering, and production of products domestically.

ETO Manufacturers demand more from ERP vendors In determining the ERP requirements, it is necessary to take a deeper look at the day-to-day operation challenges that ETO manufacturers face: • Synonymous with Project-Based manufacturing, actual costs are recorded against the specific project task/ operations and variance trends are analyzed (compared to the original estimate/quotation).

• Customers are involved with the project from “cradle to grave”, resulting in frequent engineering changes.

• Most materials are purchased direct to the job or project task and often require long purchasing lead times.

• Often the final step of a project will be the actual equipment installation at the customer’s site.

• ETO manufacturers rely on skilled and costly engineers, who are charged with project designs that meet the Customers’ complex, demanding and ever changing expectations.

• ETO manufacturers want to know the true labor and raw material costs through the entire multi-level Project or Job • ETO manufacturers want to schedule all associated sub-assemblies as part of one Job/Project, and drive to Promise Dates given to customers (pull-based)

Today’s ETO manufacturer should expect their ERP to include: • Strict Engineering Change Management, including workflow. This should also include revision controlled transaction security, so that obsolete items resulting from engineering changes will not be purchased, transacted, or consumed.

• Functionality such as % complete, revenue recognition, work breakdown structures (WBS) and scheduled due dates/milestones displayed in a Microsoft Project format.

• Linking Engineering with the ERP. Integration at a BOM level with popular CAD and PLM systems. (single data entry minimizing human error) • Project inventory management. Assigning a segregated “project warehouse” where inventory transactions will be isolated within the project.

• Project and work order shop floor feedback that details the actual project costs, including labor and raw material through all levels of the Job/Project • True Time & Attendance with integration to popular Payroll systems.

• A visual representation of the entire multi-level Job/ Project schedule on one screen

• These are some of the reasons why ETO manufacturers have difficulties finding capable software solutions.

• The ability to identify critical path constraints of a multilevel Job/Project

ETO Manufacturers demand more from ERP vendors

• Tighter controls regarding long lead time materials, providing for accurate material planning early in the project, and the subsequent alignment of materials to later phases just in time.

ETO Manufacturers’ have been pleading for improvements, but only a select few ERP developers have returned with a complete solution.

• Preventative maintenance (internal equipment) and warranty contracts (external aftermarket).

• A Pull-based scheduling system, which drives for on time delivery performance while minimizing Work in Process

Accounting Centric vs ERP systems Will a 3rd party module bolt-on to your current Accounting software be enough or is it time to take the plunge to an Enterprise (ERP) solution? Will your Accounting firm have the expertise you need, or would it be better to invest in an ERP Industry Specialist? What are the differences and what is best for your Firm? Let’s debate the options.

|5 Accounting Centric vs ERP systems (Enterprise Software vs 3rd Party Bolt-Ons)

What is the difference between Accounting software and ERP systems?

All your customers care about is, how good your product is, how much it will cost and “how fast can I get it”?

Accounting centric systems are just that, accounting systems. Commonly they will include standard features such as AR, AP, GL, Financial Statements, Cash Book/Bank reconciliation, Cash Flow analysis and Asset Depreciation modules.

Accounting centric systems are usually marketed through Accounting firms, that are looking to extend their business, or are in partnership with a VAR relationship.

Whereas ERP systems commonly feature what the accounting systems include, plus functionality for all areas across the Enterprise (Operations, Customer Service, Quality, Manufacturing, Traceability/Regulated requirements, etc.)

As ERP systems require more specialized staff to support and

implement, commonly ERP systems are marketed by dedicated, and exclusive re sellers or even direct from the software developer themselves.

Do the Accounting Centric systems also offer ERP add-on modules?

Yes they do. As the Accounting centric customers grow, their systems need to grow as well. To maintain their customer base, many Accounting systems developed “addon” modules or interfaces to existing “point solutions” to extend their software features and life with their customers.

Commonly these “add-ons”, which were internally developed or 3rd party, are not nearly as robust as their core accounting features. Guess where the accounting centric vendor’s core competency is?

When reviewing these add-ons, obviously you need to confirm if the functionality meets your needs. But there are other concerns to consider. Does the software vendor have experience with those specific add-ons or even with your unique business needs? Will you be dealing with multiple training/support organizations? Does the add-on have a similar look and feel as the core accounting system, or will you be learning two separate systems? Will there be any finger pointing between the two systems when problems arise?

Usually within a company, Finance is a supporting function to the value chain (as is HR, Purchasing, etc.).Whereas making parts adds to your bottom line.

Your customers could care less about how you crunch your numbers. What they care about is how good is your product, how much it will cost and “how fast can I get it”?

The advantages of the Accounting system strategy.

Commonly provided by your CPA firm or a VAR. Your CPA firm works with your company in other aspects and already has a relationship with your group which can be very comforting.

3rd party modules have been built for almost every industry target, so they probably have a solution that will appear to fit.

If a good accounting system is your priority, your CPA’s already knows your requirements.

A collection of 3rd party modules can be a “best of breed” with ready built interfaces.

Some indicators that it maybe time for ERP Users complain about system performance More in-house databases and excel spread sheets are being used to compensate Better control of operations is apparent Inventories are getting too high Competitors appear to have an advantage regarding service provided and value Shop Floor control data is lacking Purchasing costs are too high Customer service complaints Data access is just not sufficient Current IT supplier doesn’t understand your business Are you more or less efficient since going live?

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If you could do it again with what you know now, would make the same decision?

Once it becomes obvious that additional system needs are required, it is financially logical to review the add-on modules first. You will not disrupt your financial staff by forcing a new system on them, the add-on modules will be comparably inexpensive and easy to implement.

But remember that it is easier to implement the new processes and procedures an ERP system will demand when your firm is still in its infancy and can adjust easily.

If the information required to run your business efficiently is not available to your staff, the concern of short term costs and disruption may be holding your company back.

Common disadvantages of Enterprise systems You have to buy the “whole system” which means paying for functionality you might not implement today.

Regardless of how complete the Enterprise system is, it may be lacking in functionality that is critical to your firm. You can always interface to a 3rd party application for this purpose, but the interface problems described above would be the same.

ERP systems can be expensive ERP systems do appear expensive, especially the initial costs. But if you take into consideration how much you have spent over the years with “band-aid” add-on solutions the islands of information you have evolved into that may require more labor to maintain than a fully integrated system realizing what you have doesn’t provide the information you need With improved inventory control, costing, quality, the cost of ERP might be justified. Besides, an ERP system could be necessary to maintain your current business health.

Some Benefits for Enterprise Systems One Software developer. The User Interfaces is similar throughout the system for an easier learning curve and far less confusion.

One support, training and implementation team, no finger pointing.

Expertise in your industry.

The ERP system should be the only system you need for the next 10 years. You shouldn’t have to go through another implementation for a long time.

• Single data entry updates data throughout the ERP. • ERP systems are commonly more stable to run and less down time.

• New upgrades take into consideration the entire system, not just pieces.

• Will likely increase the value of your company.

Scripting a

Scripted Demo Is there an easy way to conduct a scripted ERP demo? “Will a scripted demo be easier to follow than the ERP vendor’s canned demos?” This chapter provides the necessary insight for you to decide.

|6 Scripting a Scripted Demo “Sales demos always look great”.

Usually with “sales demos”, the presenter is a professional and knows how to carefully navigate their system to make sure it is seen in the very best light.

Even when the ERP system is problematic/buggy, the presenter is aware of where to and where not to go in the “sales demo”.

One way to not fall prey to the professional presenter is to request “scripted demos”.

What is a Scripted demo?

Commonly you will provide the software vendors a script or sequence of data flow/transactions, that you experience on a daily basis, and you will expect the vendor to follow that sequence during their presentation.

How to set up a Scripted demo.

To create the script for a scripted demo means that

One way to not fall prey to the professional presenter is to request “scripted demos”

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you have: 1. A list of your critical and unique business flows.

2. Including an analysis of where you currently spend effort, money, skill, system resources, and bits of paper 3. And further an analysis of which of your internal processes are acceptable to compromise, which are current processes are critical and which, if the ERP makes less efficient, will have significant negative impact.

4. Short list 2 or 3 vendors based on this.

Lastly, write the script which asks the vendor, using their standard system, to walk you through your top 10-20 risk/reward areas and demonstrate how their system produces the key deliverable you are looking for.

The kicker, of course, is that any business that already can do 1 through 3 is probably not in the market for a new ERP system.

They are already aware of their pain points and should have already dealt with them one way or another.

The True Cost

of Selecting & Implementing ERP Software

The ERP Advantage You’ll be able to:

What will your ERP software and implementation really cost? What are the hidden costs? Have you budgeted for all possibilities?

There may be some you haven’t.

• Easily adapt to new manufacturing methods, changing customer requirements, and evolving business strategies.

|7 The cost of software systems implementations can be divided into five components.

1. Selecting a System (soft cost) 2. The time it takes you to define your system requirements, research different packages, and all other steps required to select an appropriate system.

3. The quoted price of software (hard cost)

• Streamline operations and get company-wide visibility.

• Get access to information anytime, anywhere to improve decision making and speed response times.

• Get new products to market more quickly and profitably.

• Optimize inventory and production resources to increase efficiency.

• Improve quality and customer satisfaction.

ERP solutions help you with: Service management — Manage your entire customer lifecycle.

Lean manufacturing — Adopt lean processes across your enterprise and value chain.

4. This easily defined as it will be within the software vendor’s proposal.

Quality management — Improve quality to increase productivity and reliability.

5. The cost of training and implementation services (hard cost)

Financials — Get greater financial visibility and insight.

This should also be defined within the software vendor’s proposal, but is commonly understated by both the vendor and the company implementing.

Manufacturing — Tame the complexity of your manufacturing supply chain.

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Process manufacturing — Optimize your process manufacturing to protect profit.

Wholesale and distribution — Make your extended supply chain more responsive.

The cost component that is usually the last considered is your internal labor for implementation

Why would a vendor be tempted to understate the cost of training?

They want to make sure the total quoted price is under your budget. As the software price is fixed, they may reduce services offered to lower their bid.

Also if a smaller amount of training is estimated, the perception is that the software is easier to learn.

The cost of infrastructure and hardware (hard cost) The customer can also understate the cost of training. They are attempting to keep the total project under budget but it could be because they do not have the previous ERP implementation experience.

They are using the vendor’s quote as a measuring stick of how much training will be required.

You can easily shop this component. However it may be worth a little more to work with a hardware vendor that has experience with the specific software system. This experienced vendor can minimize finger pointing between hardware and software.

Problems should be lessened, but if the “more experienced” vendor does not deal in enough hardware volume, you will pay a premium for this “peace of mind”.

Internal Costs (soft cost) The cost component that is usually the last considered is your internal labor for implementation. In budgeting and forecasting ROIs for the new system purchase, this is commonly the area paid the least attention.

Please Note: The most expensive component of implementing a new system is your time.

Either directly or indirectly, all employees at a manufacturing facility make parts. While you are implementing software, you are not doing your “real” job and therefore costing your company money.

An average implementation of an ERP system takes between 6 to 12 months. If you are not able to do your “real job” for 6 to 12 months, how much does it really cost?

ERP Implementation Options Available ERP vendors offer many implementation and training options. Web based training, Classroom training, On-site consulting, and more. They all add value to your implementation and the cost varies widely. Which methods are best for your organization. Let’s discuss the pros and cons of each.

|8 Various ERP Training Methods There are many methods to train your staff on the new system.

Classroom, On-site, You Tube videos, Web-Based and Self-study materials are common. Understanding the learning preferences of your staff can help dictate the method(s) you institute.

Most vendors provide various levels of training, from classroom only, Web based, to complete implementation assistance (Project Management, Data Conversions, Prototyping & Pilots, Module Walkthroughs, etc.). As a minimum, training on-site requires that the software supplier provide an instructor with intimate knowledge of the product.

To ensure you get the most out of the training, the vendor should prepare an agenda of topics to be covered and provide some training material that can be left with the students. Training materials can be reused as a refresher when ever you want or even to train new staff.

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Software firms have a variety of instructors, with a variety of experience levels and disciplines (from years of experience to first time instructors – from IT, to Financial to Operations and Shop Floor experience).

If the instructor is new, the training you are paying for might be more beneficial for the instructor, than for your company. The inexperienced instructor can still add value, but you should investigate their competence levels and receive compensation if deemed less than adequate.

Full Service or only Training offered?

Some Vendors are full service, from Project Management, Training, Implementation support, IT Assistance/Data Conversions, to even Business Process Improvement.

The advantage of a full service Vendor is that if there are any problems, you know who to call. They are the experts and you can rely on them.

As well, the more the one firm is involved with your company, the more they will understand your culture and needs.

The cost of a full service vendor can be higher. However the “true cost” of a system is not just the up-front cost.

Potential downtime, user frustration, loss of confidence in your software and your vendor all add up.

You may not know the “true cost” of the system implementation for at least 2 - 3 years after the original installation.

“Early Adopter” or are you “Risk Averse”?

When it comes to technology, is your firm a “New Adopter” or are you “Risk Averse”? Every Company is different.

Let’s review some of the advantages of both, and which may be best for you.

|9 Why are some ERP systems more technologically advanced and others more functionally rich?

That depends on which market each intends to target. The Early Adopters or Risk Averse.

As most ERP systems are complex, it is difficult for most to recognize the differences in functionally. Even though every system has strengths and weaknesses, it is near impossible to differentiate these in a sales demo.

However if a software company spends it’s R & D efforts in becoming the latest and greatest technology wise, the “sizzle” of current technology will be obvious to prospective customers.

What is leading edge technology?

This question is debated within the IT world more than any other. Leading technology is a moving target.

In the 1960’s & 70’s, leading edge was 3GL languages such as COBOL, Fortran, etc. In the 1980’s, 4GLs such as Progress and Informix emerged.

In the 1990’s, terms such as COM object and 32 bit relational databases were coined. In the 2000’s, we now hear terms such as HTML, .NET, 64 bit, etc.

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Is leading edge technology critical?

Yes, if you are a software development house or if you have full-time, in-house programmers writing custom code.

What type of company is most attracted to the latest in technology?

The functionality you desire may not be available off the shelf, and if you are a software developer with a staff of programmers, you can take advantage of this newer technology, creating a system that fits your requirements perfectly.

Companies that commonly take the higher risk of being a “New Adopter” are: • Companies that are in a high tech industry themselves.

• Companies that employ a staff of programmers/IT specialists and have • Excess capacity for software development.

• Companies that have unique requirements that cannot be satisfied by “off the shelf” systems.

• Companies that perceive all systems are the same, except for the technology.

What are the risks of being an Early Adopter?

Software developers budget a certain percentage of revenue to R & D. They choose to invest their fixed R & D budget towards improved functionality or technology (or a combination). When focused on technology, development of specific functionality may be sacrificed.

Just because a system boasts the latest development platform, does not mean that it includes all the same features as other systems (or even the same features it had in its previous version).

Wanting to be first to market, some software developers release their newer product before they are tested. They may even lack features their previous versions included. They hope the “sexy” new bells and whistles will cover for any deficiencies.

Others wanting to be first to market, may release their new product without sufficient testing. If you are going to be a beta site for a new untested system, you better get concessions for enduring the inevitable problems.

Which latest technology will become industry standard once the dust settles?

If you think you know, I’ve got a bridge I’d like to sell you. Do you remember Beta video machines? They were far superior to VHS in

technology. Or how about Quadraphonic stereos (you don’t remember them?). Or in the computer business, do you remember the IBM 32? Which technology in any industry will become main stream is at best a wild guess.

bleeding edge?

Why would I consider a more stable technology platform?

• You may not want to be a software developer.

• You may want to improve your internal systems, basing your new processes on the “best practices” pervasive throughout established ERP systems.

• You may want to purchase a system that many similar companies already use.

• Your company may be Risk Averse and prefers to implement the “safe bet”.

When selecting a new ERP system, how much weight should be placed on latest technology?

Will the latest technology earn your company more money? If not, should technology be a differentiating factor?

ERP systems are strategic business tools - one small feature that supports your business, can make a revenue difference of hundreds of percentage points.

How about the latest “freeware” technology?

ERP systems can help your business earn literally millions of dollars in revenue. You may save a few thousand dollars by choosing “freeware” (eg. Linux) – but isn’t that stepping over a dollar to pick up a penny?

Regardless of the perceived cost savings or ease of screen development, etc., no piece of new technology is worth risking business opportunity.

Some developers are more conservative than others, some software developers take a more conservative approach.

More often with ERP vendors in business for the long haul, will wait a few years for technology to shake out, and make sure the bugs are worked out before releasing new code.

Besides, most ERP vendors have thousands of customers that are quite happy on existing technology. Forcing a technology upgrade could be disruptive to their loyal customer base.

On the surface, the newer technology can look very “cool” in a sales demo, but as the fable says, the Tortoise usually wins the race.

Some developers are more conservative than others, some software developers take a more conservative approach.

SaaS, ASP & Hosted ERP vs On-Premise Solutions Hosted/SaaS systems versus Client Server. Is it a simple a relationship as renting versus buying? This chapter discusses the advantages for both.

| 10 What is the difference between SaaS and Hosted?

SaaS = renting the software license Hosted = renting the hardware platform and infrastructure With SaaS, you can rent the software but put it on your own machine.

There are things like State tax software that do that where you pay by a number of cases/certificates you have even though it’s running on your hardware.

With Hosted, you can have the system in a data center but may have bought the software outright. That’s where the vendor might not offer SaaS but you want to outsource the infrastructure.

All four combinations of SaaS/not and hosted/in-house are possible.

Is SaaS better than On-Premise ERP solutions?

The attraction towards SaaS commonly is with companies wanting to defer cost (eg. start ups) or those that want multiple site remote access.

For remote access, Web enabled appears “just as the Doctor ordered”.

Or is this just a “cool looking” marketing pitch?

Remote access can be accommodated with client/server as well. The software doesn’t need to be web-based to access a virtual desktop on a server (wherever it is located). Macs, smart phones, even iPads can access a virtual desktop via MS Terminal Services or even Citrix. You may be seeing vendors demo their wares off of these devices (such as an iPad).

SaaS provides two things that cater to the fear, uncertainty and doubt in the small to mid-enterprise (SME), ERP marketplace: 1. Cheaper license model 2. Reduced IT complexity

Are these benefits real or perceived?

Companies like SAP and Oracle (and others) have been spending a tremendous amount of marketing dollars trying to promote SaaS. Why? The ERP market has moved downstream to the SME segment. This is where their ERP development money is being spent. How else are these large, complex systems going to compete for small to mid-size market revenue?

The cheaper license model usually falls flat with comparisons to perpetual licenses (owning the software) and creative financing. The break even point between the two models is around 2.5 to 3 years almost every time. This means that at year 3, it will be cheaper to go the On-Premise route instead of paying the monthly fees forever. Who buys ERP thinking they are going to run it for only 3 years? Perhaps there are some, but, typically the ERP investment spans 10+ years. SaaS is much more expensive in the long run.

The reduced complexity has some merit, especially with some of the more complex ERP systems out there. If your ERP requires 2-5 servers and additional hardware to run a web-based application, and takes 2-5 IT resources to maintain, that is a sizeable investment for an SME. Not having to invest $20K+ in hardware and not having to hire 2-3 $80K+ salaried resources makes SaaS very attractive.

However, some ERP systems require less architecture (1 server and Terminal Services for Web access) and little to zero IT expertise to run, update and maintain.

Remember be it in the cloud or on premise solution, implementation time/cost will be same and the effort for upgrades will be the same.

You are still implementing an ERP system, no matter where it lives. It’s still a business process exercise that demands real engagement and commitment from the users, not something that automatically configures itself.

Which direction makes the most sense for you?

Always find the system that meets your business needs.

Technology considerations should be secondary.

A popular “in the cloud” application is with CRM deployment Again, the perceived easy web access for “travelling salespeople” is attractive on the surface.

However most companies have VPN tunnels already tied to their ERP/ CRM. And integrated ERP/CRMs have the IT advantage of maintaining only one, single database. When Customer data is updated in Accounts Receivable, it is already updated in CRM (and vice versa).

Hosted CRM offerings are promoted as being a “best of class” CRM and therefore may provide some attractive front end functionality.

But unlikely to offer the same data integration benefits as a single, integrated ERP/CRM. With an integrated system, the prospect history will transfer when they become an actual customer.

Which is best for your Company?

Always find the system that meets your business needs. Technology considerations should be secondary.

SaaS (software as a service) - On the surface they appear to be an affordable and interesting alternative. Let’s review some of the pros and the cons.

Pros: • Initial cost for the ERP solution is less than the front-end costs common ERP solutions.

• The deployment and implementation can cost less and faster.

• The hardware and software needed to run the ERP solution can be less both at the Hosted site as well as the customer’s facility.

• Internal IT staff is not typically needed with a Hosted solution.

• Up-time can be increased with a SaaS if the customer spends the additional money for infrastructure and support. (eg. redundant server, back-up data lines, etc.)

Which type of companies are SaaS systems suited for?

• Start-ups that do not have the infrastructure in place yet and are trying to conserve financial resources.

• Hosted model typically is attractive to smaller companies with limited resources.

• Contracts are typically two to three years. This means if the customer was looking at a short term solution this could be an excellent alternative. Total cost of ownership commonly is equal with standard systems after 2.5 - 3 years.

Cons: Long term viability?

• SaaS vendors tend to come and go. The market is not as stable as most On-Premise solutions.

• Risk of downtime (if you don’t make allowance for a redundant server, etc.)

• Limited ability for system modification or ad-hoc reporting • Cannot be counted as an asset on balance sheet (cannot depreciate cost).

• Like paying rent instead of buying a house.

How does long term price compare?

• The Hosted model is a run as you go with usually a definite time commitment (3-5) years, it is less expensive to get started.

• The cost for monthly support and access to the ERP application can escalate as the years go by and ROI continues to go down.

• Depending on the contract and, the SaaS solution may continue to raise their prices as you become more locked in as a customer.

• One way or the other you pay. But most often “less expensive” is all about the initial capital • Expenditure up front for the licenses and hardware.

Customer may lose control over their own data system • The customer is 100% reliant upon the telecommunications provider. If the connection goes down, you are out of business.

• Down time can be an issue with access problems or back-up data issues. Recovery for failure of the SaaS ERP application is out of your hands.

• Performance of the systems can at times be poor and affect usability.

• If updates and/or patches are needed to fix any issues with the Application the customer is relying on the Host to support and keep application updated.

• Hosted solution’s export rights of data can be limited.

Security risk. Even if a SaaS has an absolutely great privacy policy, if your data is over the Internet, there is risk of someone stealing or seeing your data.

What you’re asking for from the start has philosophical issues, let alone problems actually finding such solutions. The issue of cost isn’t about SaaS or On-Premise - it’s about who pays for it and how.

We all know there are risks in everything.

Market pressures can force software vendors to release new technology systems before they are ready for prime time. This can result in bugs, performance issues, support issues, and tens, if not

SaaS versus ASP There is a fair amount of confusion regarding the difference between these two software delivery models. As you can see below, Wikipedia’s definitions seem to contribute to the confusion: “An application service provider (ASP) is a business that provides computer-based services to customers over a network. Software offered using an ASP model is also sometimes called on-demand software or software as a service. The most limited sense of this business is that of providing access to a particular application program (such as customer relationship management) using a standard protocol such as HTTP.” “Software as a service (SaaS), sometimes referred to as “software on demand,” is software that is deployed over the internet and/or is deployed to run behind a firewall on a local area network or personal computer. With SaaS, a provider licenses an application to customers as a service on demand, through a subscription, in a “pay-as-you-go” model, or increasingly at no charge.”

As we can see, these two previous definitions don’t throw enough light on the matter to distinguish clearly between ASP and SaaS. Let’s start with their similarities: Get Top SaaS Resources...

Both an application service provider (ASP) and a SaaS provider provide access to a business software application through a network connection. This network connection could be a local area network (LAN) or a wide area network (WAN).

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SaaS Evaluation Checklist

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SaaS Total Cost of Ownership

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Compare SaaS ERP Software

The most common connection is an Internet connection, via a Webbased application. This thin client usage allows users to connect to business applications using a Web navigation tool (AKA a browser, such as Internet Explorer, Firefox, Chrome, Opera, etc.)

Another thing both models have in common is this: because of the way we connect to the business application, hardware, software, and data is allocated in a third-party location, this third party is in charge of maintaining the application and the infrastructure (hardware and software) to keep the application operating. So, companies use or consume applications “on-demand” or on a “pay as you go” basis.

To sum up: both ASP and SaaS providers enable a client (organization or individual) to use business applications, licensing them based on time periods, number of users, type of service, and functionality, as well as other factors.

So What’s the Difference?

The difference between ASP and SaaS providers lies mainly in the way they manage their respective computing resources.

Let’s start with their similarities: Both an application service provider (ASP) and a SaaS provider provide access to a business software application through a network connection. This network connection could be a local area network (LAN) or a wide area network (WAN).

The most common connection is an Internet connection, via a Webbased application. This thin client usage allows users to connect to business applications using a Web navigation tool (AKA a browser, such as Internet Explorer, Firefox, Chrome, Opera, etc.)

Another thing both models have in common is this: because of the way we connect to the business application, hardware, software, and data is allocated in a third-party location, this third party is in charge of maintaining the application and the infrastructure (hardware and software) to keep the application operating. So, companies use or consume applications “on demand” or on a “pay as you go” basis.

To sum up: both ASP and SaaS providers enable a client (organization or individual) to use business applications, licensing them based on time periods, number of users, type of service, and functionality, as well as other factors.

So What’s the Difference?

The difference between ASP and SaaS providers lies mainly in the way they manage their respective computing resources.

Figure 1. General ASP service structure As can be seen in figure 1 above, most ASPs use a single environment for each customer, which means that they provide a specific application that is set up for the individual customer. Each customer uses the

What is best for my company?

If you have the technology expertise, being an Early Adopter can be attractive. However do not assume the new technology system has the same depth of functionality. You might be surprised that even basic features might not be available in the newer version yet.

The difference in the way an ASP and SaaS provider handle their respective computing services can imply important differences in costing, service levels, and customization options.

The idea is to find the best combination for your organization.

business software as a single tenant, and does not share it with anyone else. All application setup configuration, and sometimes even server and operation configuration, is unique for each client.

Figure 2. (right) General SaaS provider service structure

The Difference: On the other hand, with a SaaS provider, all customers, get top SaaS Resources... share the same computing resources: servers, application, and database in a so-called multi tenant model, as shown in figure 2 below. So, while an ASP hosts the application environment in its own “building,” a SaaS provider uses the same application environment for all its customers, and they all share the same “building”.

The difference in the way an ASP and SaaS provider handle their respective computing services can imply important differences in costing, service levels, and customization options. The idea is to find the best combination for your organization.

Once you have decided on Hosted or SaaS solutions, what should you look for: 1. Dynamic billing You should only be billed for what you use. Companies are dynamic: Some months business goes up and some months it goes down. If your usage fluctuates, then your SaaS bills should follow suit. This is especially important in seasonal industries like retail or hospitality. Also, never agree to “software maintenance fees” or to preestablished “user licenses” because they defeat one of the primary goals of switching to a SaaS model.

2. Security This is paramount. Ask your potential SaaS vendor these questions: • Does the data center that is housing the servers have physical security 24/7?

• Is the perimeter of the data center secured—i.e., do guards walk the

perimeter at least once per 24 hours?

• Who has permission to access these servers? Is it only internal employees, or do contractors also have access?

• Is there a log that captures who came in and when they left? If so, how often are those logs audited?

• Does the application use industry-standard encryption?

• If multiple customers are housed on the same server, are they logically/physically separated to ensure your data is not viewed by unauthorized eyes?

• Does the SaaS vendor’s staff have access to your data, and if so, have they gone through a criminal background check?

• Does the vendor have a formal Business Continuity Plan? Is the vendor willing to share it with you, and does it satisfy your concerns?

3. 100 % Web-based You probably want to select a SaaS partner that offers a 100 % Web-based solution. This means avoiding vendors that require an application to be installed on your computer. Maintaining client-side software eliminates one of the largest benefits of having a Web-based application. Also ask if the SaaS application runs on all browsers. True SaaS offerings will run on any platform and on any Web browser. With the proliferation of browsers like FireFox, Safari, and Chrome, you want to be certain that if your computer crashes, you can access the application in no time on a new machine—without bothering with local installs. Seamless interaction like this means your business continuity won’t be hampered.

4. Experience You must be certain your SaaS vendor is experienced in both the execution of the application as well as the hosting of the application.

Many software companies try to “Webify” their existing client/server application and start hosting. That means they will heavily retool traditional software offerings and brand them as SaaS. This is reactive software development—not proactive—and it typically does not address issues of scalability or security. Look for your vendor to have at least three to five years of experience in hosting the application to avoid some of the issues that come with being an early adopter.

5. Upgrades One of the key advantages of SaaS is the ability to receive automated upgrades. The upgrades ensure that you are always on the latest version and using the most current functionality. Typically these upgrades should not cost you anything, and they should never require retraining for your staff. This means when new features are deployed they should be non-intrusive to doing business as usual.

6. Integration Will the SaaS solution integrate with your existing software? The service should give you the ability to transfer data in and out of the software by using multiple methods like file-based (Excel file or .csv file format) or by using Web services to exchange data with your on-premise software applications.

7. Backup Your data is essential, period. Having the proper backup is crucial when selecting a SaaS vendor. At the very minimum you want nightly backups performed in addition to weekly off-site backups. Other issues to address include how often they test for restoring a database, and if the organization is comfortable with restoring large amounts of data in emergency situations.

8. Define the data center Determine who is hosting the solution. Some vendors will host the software in-house and others have hosting agreements with third parties—called either managed-serviced or co-location. Research the data center that the vendor uses to host the SaaS solution. It is preferred that the data center has undergone a SAS 70 Type II audit.

Ask the vendor to provide you with a copy of the SAS 70 auditor’s report. In addition, you want to be certain that the data center uses an N+1 configuration; meaning every system has at least one independent backup to ensure availability in the event of system failure. Many data centers do not allow onsite tours; however, you can always visit their Web site for a virtual tour.

9. Scalability Your SaaS vendor needs to prove that it can grow with your company, as its needs grow. Ask the vendor about their largest customers. Will your needs go beyond their current largest customer? Would the vendor need any special provisions to accommodate your potential growth? An assumption is that all SaaS vendors will grow with your business, but that isn’t always the case and your diligent research will be worthwhile.

10. Monitoring It’s important to have mechanisms in place that monitor the SaaS system.

This critical issue often is overlooked or merely glazed over. Ask if the vendor simply performs “ping tests” or if they have monitoring software that checks the system inside as well as outside the firewall.

After all, even if servers are running perfectly inside the firewall, users won’t be able to access the system externally if the firewall or routing settings are off.

Industry Specific ERP Systems Industry specific systems usually include features that many generic ERP systems may not. Are there an equal number of benefits missing from the industry specific systems?

The problem is that companies assumed the industry specific systems also included all the generic ERP capabilities, which wasn’t always the case.

Some industry specific systems are functionally deep and robust, while others are not. How will you know? This Chapter will help you.

What are they?

As legacy systems became labor intensive to customize, most were developed with generic manufacturing in mind. They were developed to be all things to all people. If these generic systems had 80% of all manufacturers’ requirements, they could market to a larger audience.

All specific industries have unique business methods and use unique terminology. Some of these specific industries include contract electronics, plastic injection moldings, etc. Not finding exactly what they needed in generic ERP systems, some companies customized the systems they purchased to better meet their industry specific needs.

| 11 The Attraction These industry specific systems commonly include features and terminologies the generic systems do not have.

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It is difficult enough for anyone to recognize the differences between ERP systems. These unique features stood out as differentiators to the companies evaluating systems, and the industry specific systems’ popularity began.

The Problem The problem is that companies assumed the industry specific systems also included all the generic ERP capabilities, which wasn’t always the case.

As these industry specific systems targeted a smaller audience, new customers were few and far between. Software vendors finance their new product development with the software maintenance from their customer base. A smaller customer base (under 1,000) means limited funds to develop the system and less customer feedback to evolve new ideas around.

Having limited development funds, industry specific systems usually focus their development towards features their customer base would pay to custom develop.

Also these custom software vendors commonly have limited support staff. Answers to support questions may take days, if ever to solve.

Companies that gambled by purchasing these specific systems often found them wanting. Generic features such as accounting, material planning, etc. were found to be very weak and even non-existent.

Causing some customers to abandon them and re-purchase generic systems. This customer exodus only added grease to the skids to the lack of development to these systems.

Why are these Industry Specific systems not as popular today?

Today systems are easily modified without customizing. Unique requirements and terminology can be incorporated into the Generic systems, so companies can have the best of both worlds.

Not all Industry specific systems are dead though. Some of them have been able to continue their product life by drastically lowering their software selling price.

Potential customers may purchase these apparent good deals without realizing the pitfalls until months after they have gone live.

The school of hard knocks can be an expensive method of selecting software.

Concerned you may select the wrong ERP system?

The key to uncovering the truth, is the “Proof of Concept” method.

Evaluating ERP systems can be one of the most confusing tasks a company will ever endeavor. “Sales Demos” always look good.

They are carefully navigated and demonstrated by professional presenters. They only last a few hours, therefore it is almost impossible to sift through the “sales fluff” and get to the truth.

Historical Selection Method 1. Document a detailed list of all company requirements 2. Search internet for a list of software vendor to consider 3. Match your requirements list to all software vendors being considered 4. Compare pricing of candidates 5. Create vendor short list 6. Entertain multiple “sales demos” (for 3 hrs to 2 days each) 7. Telephone interview 3 customer references 8. Make “leap of faith” decision on which system to partner with

| 12 How many are successful using this method?

An article in The Wall Street Journal stated that “73.8% of companies are dissatisfied with their ERP system.”

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Why has this selection method not been successful?

If you are not satisfied with your first choice pilot, utilize your second vendor choice

1. Most systems today are feature rich and meet most requirements. At most, system differences are subtle and fleeting.

2. Sales demos are orchestrated by professional presenters and designed to look impressive.

3. It takes years to be fluent with an ERP system. It is impossible to evaluate which system is best from observing short “sales demos.”

4. The price quoted by software vendors is influenced by your stated budget.

5. Customer references are carefully selected and coached by the software vendor to give biased, positive feedback.

The Proof of Concept Pilot 1. Document only your company’s critical requirements.

2. Confirm your “critical list” is met by the software vendors being considered. Eliminate those that do not.

3. Request proof of financial stability. It is a long term partnership.

Eliminate those that are risky.

4. Ask for a list of local companies that: • Have been using the version demonstrated to you for at least 12 months so they have already passed the learning curve.

• Have been implemented by the same trainers as you will use (to confirm local support).

• Companies that are similar size (to confirm the software is right-sized) • Are a similar industry (similar requirements). And visit them, do not just phone.

5. After those steps you should have a favorite. However if you are still not confident with a choice, arrange for a “Proof of Concept Pilot” with their trainers (not salespeople) setting up the system around your requirements, entering your data and presenting the system so it is recognizable. Trainers charge for their time, but this fee will be much less costly than a system you are dissatisfied with or worse, a failed implementation.

6. If you are not satisfied with your first choice pilot, pilot your second vendor choice. You have “paid” for the pilot and have no obligation to continue with the first if you are not happy.

7. However if the pilot is successful, why bother reviewing any other systems? You can now begin your implementation with the peace of mind that you have the right choice and that the project will be a success.

Should we Hire an ERP Selection Consultant?

APS? MRP? Lean? RFQ? PO? BOM? FIFO? ASN? EDI?

What should we look for in a Consultant?

A Consultant should have experience in: • Selecting systems • In similar types of businesses • A variety of disciplines such as financial, manufacturing and technical

Unbiased Confirming the Consultant will not be partial towards any specific system will be difficult. A recommendation is to request references from all Consultant applicants.

When you speak to references, ask which system they selected and which others did reviewed. When the selected system is always the same, a bias may be uncovered.

Also ask the references their experience with the Consultant and the selection exercise. Just because the Consultant claims to be an expert, does not necessarily ring true.

| 13 Evaluating ERP Software can be the most difficult undertaking you ever experience.

Adding to your already busy week, you now want to evaluate a new ERP system. How much work will that require?

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• Defining Critical requirements

Many consultants have previous or existing affiliations (or just a familiarity) with specific software companies.

• Choose a short list of systems that meet your requirements • Confirming financial stability of the software vendors • Phoning and visiting companies using the various systems • Reviewing lengthy software presentations • Price comparisons These additional tasks can be overwhelming and hiring outside assistance could be attractive. ERP consultants can provide good insight, particularly those that have implemented multiple ERP systems. The consultants to trust are the ones who know the business you’re in as well as the software. They should know what you need more than want.

People who have installed Quickbooks or a financial system at a bank may not be able to help you much in your search for a manufacturing ERP solution.

There are Other Reasons for hiring a Consultant; your Company’s staff: • Lacks system selection experience.

• Doesn’t have the time for a system selection.

• Is concerned about making the wrong choice.

• It is a temporary assignment, therefore a Consultant will not increase overhead.

• The assumption is the Consultant has experience selecting similar systems successfully.

The Biggest Concern about Hiring a Consultant Will the Consultant have an unbiased opinion?

Many Consultants have previous or existing affiliations (or just a familiarity) with specific software companies.

It is human nature for a Consultant to be tempted to recommend a Software vendor they’ve had previous and positive experiences with.

There could be less risk but it may not be the best system for you.

Sometimes the Consultant is hoping to assist in the system implementation, therefore leans towards those they have experience with.

One way to eliminate this is to inform all Consultant applicants that the project is for selection only, not a software purchase or implementation.

In the worst case, some Consultants are paid “finders fees” by some Software vendors, for recommending their system.

Custom versus Off the Shelf Software When evaluating ERP software, you want to decide on the most reliable system that meets your needs. Will you require software customizations or an entire Custom solution? Will an off the shelf system be more stable? Let’s discuss both strategies.

Want the flexibility to support whatever direction your business may take?

| 14 When deciding on ERP software, you want the most reliable system that meets your needs.

A search may begin with existing, off-the-shelf systems. Having been developed with the experience and continual feedback of many companies before you, these systems are usually the easiest to implement.

With custom systems, your company’s experience is the only source of development. All development ideas and costs with be incurred by you, (enhancements, upgrades, new documentation and debugging) rather than sharing the costs across a user base of companies.

Off the Shelf systems are standard packages with industry best practices already built into them. In case a standard functionality is not suitable, these systems usually allow personalization if required. User Groups are quite common with off-the-shelf systems. Getting together with other companies to share ideas of how each uses the system can be quite useful.

When you hire a custom programmer, they write exactly what you ask for, to the best of their ability. They may not know your business or have the ability to anticipate unforeseen requirements other than the specifications that have been provided to them.

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Having access to information anytime, anywhere to improve decision making and speed response times is imperative

This places all the responsibility on you to ensure that what you have explained to the programmer, completely defines all your needs.

Sometimes custom software appears less expensive. After all, the programmer has provided a firm price and an impressive document describing the program to be written “to your exact specifications”.

However, this quote and systems document is the programmer’s interpretation of your explanation of your requirements.

As you use the application and recognize other function’s needed that hadn’t occurred to you previously, further charges will be incurred.

These continual “enhancements” can add up to be significant, unanticipated costs.

And besides, is your company in business to develop ERP software or in business to manufacture or sell products?

Years of development and millions of dollars have been spent on developing off-the-shelf solutions. A custom system cannot have the same capability without similar costs. Then how can a custom system appear less expensive? Typical cost short cuts include limited debugging, limited support documentation and lack of future support.

The newest programming tools can seem attractive. These tools can be great for developing unique and specific point capabilities, but may be limited in creating enterprise wide, fully integrated systems. The initial price of these tools can appear attractive, but the real cost and effort will not be known for months and sometimes years.

Continually searching for the next, great technology wave.

Technology centric employees can find these new tools attractive.

However do not underestimate the effort in being the first with these tools in your environment. Again, undertaking your own system development places a great deal of responsibility to ensure you define and develop all your needs. If these new tools were truly the panacea, why are not all companies flocking to them? One day these new tools could be the answer. But you might want to wait for others to be the guinea pigs, instead of placing your company at risk.

If you are unable to locate a system off-the-shelf that addresses your unique requirements, a custom solution may be your only alternative.

However if you choose this route, get as much technical expertise advise as you can, before purchasing the “new development tool” or contracting with the programmer.

Just remember the logic Henry Ford brought to us in volume manufacturing. Which is more expensive and labor intensive? Building a custom widget once or when mass producing a unit a thousand times?

Fixed Price or “Capped” Implementations Let’s review some of the advantages and pitfalls surrounding these unbelievable promises.

Do Capped or Fixed Scope ERP implementations sound attractive or too good to be true?

| 15 What is a “Capped” Implementation?

“Capped” Implementations are when the customer contractually commits the software vendor to agree to a maximum implementation cost.

Commonly the software vendor will increase their standard project cost (hours and/or rate) to compensate for the risk of capping. They need to hedge or insure against the unknown possibilities. Think of the additional cost as insurance for the software vendor.

Where did the idea originate?

ERP vendors know that evaluating systems is very difficult for companies. Therefore to help increase sales, they are continually coming up with ideas that will be perceived well and be an obvious differentiator.

The “Capped” implementation idea is one of these marketing differentiators. The problem is that once one vendor offers a “Capped” project, the customer expects that from every vendor they deal with.

On the surface, Capped implementations can sound like a great idea, but you need to research the potential implications.

Do “Capped” Implementations succeed?

I attended a seminar on “How to Select ERP systems” recently that was hosted by experienced “selection consultants”. The question was asked “What is the success regarding ERP vendors that are offering Fixed Bid or Capped implementations?” The answer was: “We know of absolutely no companies that have had successful implementations within the fixed

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Embrace new ERP, to fulfill future business objectives and drive operational efficiency

price budget. Either they have expanded the original budget or else it ended in a poor result.”

The fundamental problem with “Fixed Bid” projects is that the software vendor only has control over their implementation staff but has zero control over yours. Your staff will always have unanticipated events that will impact the implementation. Resulting in pointing fingers and continual debates whose fault the implementation delay is.

Do software vendors try to protect themselves against the risk of “Capped” Implementations?

Of course. As mentioned, commonly software vendors will charge a premium to cover their risk. And even after charging a premium, when ever I have seen the software vendor agree to a “Capped implementation”, there are so many caveats in the contracts that the guarantee is almost unenforceable.

“Capped” implementations are almost impossible to enforce.

How do you determine fault when the schedule slips? Is it the vendor’s fault or the client’s fault? How can you arbitrate disputes without jeopardizing the customer/client relationship?

So the real problem with this approach is the risk of losing trust with each other mid-implementation. The reason a company chose a software vendor in the first place is because there is a strong feeling of confidence and trust. During a capped implementation, to cover their liability, the software vendor will document anything that is out of scope. Effectively adding lines to the original contract, describing the customer’s non-compliance to the original project plan and any scope creep.

On the flip side, the customer starts pointing out all the “inefficient” meetings or engagements, to show he is not at fault for any delays. The strong bond that was in place at contract signing erodes, and soon the implementation is in jeopardy.

Then how can a company insure against extending their original budget?

Conduct the due diligence about the software vendor before you sign the software contracts. Interview the software vendor’s existing customers until you are comfortable that they are a reputable organization. Uncover the truth up front. If their current customers exceeded their budgets, yours might as well.

However regardless of the implementation challenges, if their current customers still have a strong relationship with the software vendor, and if they are happy with the out-come by not taking the Capped implementation approach, maybe you should re-consider yours.

Conclusion A Fresh Approach to Selecting ERP Systems What is the ultimate goal when selecting a system? To make sure the system will achieve the promise and results you expect.

Step 1 Justify the system purchase with a Business Case. Is your current system truly lacking the capability to meet your Company’s goals? Will a new system provide you with a measurable return on investment?

Converting to a new system is difficult enough. Make sure that the effort is warranted - or else don’t do it.

Step 2 Document current work flows and processes (current state data stream mapping). Question all processes in regards to why these steps are necessary. Are any redundant or not necessary? In addition to helping you define your ERP critical requirements, this exercise will also uncover the wasted process steps that need to be Leaned out prior to going live on a new system. While implementing a new ERP, if you do not streamline your processes, you will only be placing a pretty screen in front of your current problems.

Step 3 Document critical requirements that are unique to your company. Then match to the ERPs on your short list. Please note: Critical requirements only. We can all assume that most systems will have an “Aged Trial Balance”. This list should not be longer than two pages.

Step 4 If you plan to review Sales Demos, demand that the vendors bring in the trainer you will work post sale, to show the software. Trainers have to live with their promises after the sale, and should be quite forward about what the system can, or cannot do.

Have the trainer set up the software around your requirements and enter a sub-set of your data. The intention is to present the system as if it were live at your facility. However you may have to pay for this service.

Trainers are not offered to Companies only ‘looking’ because existing Customers are paying them to implement their projects. This “proof of concept pilot” may cost a few thousand dollars, but will be far less expensive than the time-consuming legacy method.

As stated previously, the ultimate goal when selecting a system is to make sure the system will provide the results you expect and you are happy with it. By following this simple process, emphasizing your critical requirements, you will not only get the right fit system for your company, you will be successful. Why would you use any other method.

Remember, if you fail to implement, why do you care what the software does?

A Fresh Approach to Selecting ERP Systems What is the ultimate goal when selecting a system? To make sure the system will achieve the promise and results you expect.

How to select your ERP without losing your mind (or your job)

$149.95 about the author Over the past 30 years, Andy Pratico (ex-APICS Chapter President) has worked with hundreds of manufacturers. During this time he has seen many implementation success stories, but sadly even more failures. To help companies increase their probability of success, Andy presents common sense workshops on how to select systems.