Top 10 ERP selection criteria to consider when choosing your solution
First, ask the question: “Why are we looking for an enterprise resource planning solution?” There are many reasons companies invest in new ERP systems. If you are using older software systems or you have outgrown your essential accounting software, there may be issues warranting the need for a new ERP solution.
Signs You Need an ERP Solution
- You and your team are constantly dealing with manual workarounds for simple tasks which can be easily automated.
- Much of your data is stored in Excel spreadsheets on multiple systems across the company.
- There are no automated workflows (such as approvals for purchase orders or AP processing).
- You are unable to easily modify the software to work with your company’s processes.
- You are always facing a laborious month-end close process.
- Accruals, allocations, and deferred revenues are an issue.
- You lack the ability to manage multiple companies within one system and provide consolidated reporting.
These types of issues affect the productivity of your team and the company as a whole and warrant investigating a modern solution.
It is essential to look at a new ERP system as an investment. An ERP system is a seven to ten year (or more) commitment of time and resources and will be responsible for handling some of the most critical aspects of the organization. In addition to looking at the cost of licensing and implementation, also look at the tangible benefits your company will receive from a new ERP system in terms of ROI:
- More accuracy
- Fewer person-hours
- Less fraud and waste
- Better regulatory compliance
- Better reporting with real-time data and at-a-glance dashboards
- More proactive analysis for strategic decision-making
It’s also important to look at what might be holding you back from getting a new ERP system. Most often, it’s about cost. While it might be tempting to stay on your existing system, consider this: older software systems often lack the functionalities that are a part of modern ERP platforms, such as advanced dashboards, reporting, and usability features that will improve productivity and save money.
Consider the maintenance and renewal costs of your system, and you will often find that these fees (usually about 16%-20% of the purchase price) mean that you are essentially buying a new system every five to six years. And if you have let your software maintenance lapse, you are not receiving the benefit of software upgrades, which not only add new features and functionality but also include security updates that keep you safe from cyber-attacks. In the end, get the system you need, not just the one you think you can afford.
In addition to the cost of the software itself, most ERP vendors will charge a fee for every user of the system. Software vendors usually charge more for users that require access to the system as part of their work compared to “light” users, who only require occasional access for minor tasks, such as price lookups or to enter time and expenses. Users’ licenses are either assigned to specific users (named users), or the license is based on the total number of users who can access the system simultaneously (concurrent users).
What to look for in a new ERP system
The next step is to get more specific regarding the “what.” This means creating a list of requirements containing those essential features that must be in the new system. You will use this list to help potential software vendors understand your needs and help them prepare a demonstration of their software’s ability to meet your requirements. This means that you must take the time upfront to be very clear on what you need. Get key stakeholders together to provide a thorough answer to this question. Don’t take anything for granted; this is the time to look at your company with a critical eye and determine how a new ERP system can help you address your challenges and attain your goals. Interview not just the financial team but everyone who will be using the system—from shipping and receiving to sales and marketing. Determine the features and functions that are necessary, those that would be nice to have, and those that will be required in the future.
Since the system will have to serve your needs today as well as tomorrow, look for a system—and a company —that will be around ten years from now. A system that is flexible, easy to use, and works with the way your company does business. In other words, look for a system that:
- Uses common and widely used technologies. Avoid proprietary languages and systems because you are at the whim of the authoring company for support and the talent pool for these systems is limited.
- Can be deployed either in the cloud or on-premises, according to your business need.
- Is easily modified for basic tasks by the average user and customized by any technically savvy person.
For any ERP solution, audibility is a must. While all companies should audit their financial transactions, public companies and companies seeking outside funding require it.
- Does the software provide an audit trail of each transaction?
- Can I drill down into each transaction for more granular detail?
- How easy is it to perform an audit using this software?
Security takes many forms. Because an ERP solution shows the details of the company’s inner workings, there is a need to safeguard sensitive data from being seen or altered by certain employees. Moreover, the system must be secured from malicious attacks from outside the company as well.
- Does the software allow me to assign access privileges by user and role?
- Does the software allow me to automate approval processes?
- Does the software have safeguards against hackers, and does it alert me when there are unauthorized access attempts?
One of the most critical functions of the financial staff is to extract important information from the ERP system, along with combining data from other systems, for your company’s internal use and for investors, bankers, auditors, and others.
- Does the system come with dashboards to display key information to the user?
- Can dashboards be created for specific roles in the organization? Can these dashboards be modified by the user?
- Can dashboards be created with both ERP and non-ERP information? Are integrations with the ERP available?
- What reports come standard with the system?
- Can reports be easily modified? How do I create a new report?
- How do I access information from the system?
- How easy is it to create my own queries for information? Can data queries be used in dashboards and reports?
- Can reports and queries be exported to Excel files? Pivot tables?
- Can I get real-time data from the system?
It is often desirable to have access to a test system or “sandbox” that mirrors your live system. This can be used to test upgrades before putting them into production or for developing new customizations to verify they work before putting them on the live system. This is the standard operating procedure for systems installed on-premises but can be an issue when using a cloud system. Some Cloud vendors charge extra for a test system, some do not, and some do not offer a test system at all.
- Do I have access to a test system or sandbox?
- Do you charge extra for this?
ERP Data Storage & Backup
The ability to create and restore backups from the ERP database is essential in the event of catastrophic failures, natural disasters, migration to another ERP system, or simply to upgrade on-premises hardware components. Ironically, not all cloud ERP systems give you the ability to create and restore data backups or to import your live data to a test system. Of the ones that do, some do not allow you to control when these backups are performed.
- Does the ERP vendor automatically back up my data?
- Can I backup my data? Is my backup in the form of an accurate relational database?
- How easy would it be if I want to move my data to another ERP? How does that process work?
Even the best ERP system is useless if your staff won’t use it because it is too hard to learn. Many will revert to “the old way of doing things,” relying on spreadsheets and manual entry to bypass learning the new software.
- How easy is the system to learn?
- How much of the user interface can be customized by the user?
- Is your documentation available online?
- How complete is your documentation?
- Is user training available? Is training included with the software purchase?
Since every company is different, few ERP solutions will do everything you need out-of-the-box. There will almost always be some degree of modification needed for the software to work for your company and your industry. Some of these modifications are simple; some can be more complex. Most modern ERP systems provide simple graphical tools, so non-technical personnel can make minor adjustments to the system. More advanced customizations are provided through application programming interfaces (APIs) for more technical staff and consultants.
- Can the system be customized to fit the way my company does business?
- Are there graphical tools available that allow me to customize the software without knowing how to write a program? What parts of the system can be customized using these tools?
- How difficult is it to customize the software? What software tools do I need, or what software languages will I need to use?
- Is user training available? Is training included with the software purchase?
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Various industries require different features and functions. Service companies require different features than a manufacturer or a retailer. Most ERP solution products are modular, offering a base financial product with additional modules to extend the product’s functionality, such as inventory management, field service, or customer relationship management. Plus, third parties provide specific functions that integrate with the ERP product to extend its usefulness, such as payroll, credit card acceptance, and warehouse management.
- What is included in the base product?
- What are other modules available aside from the base product? How much do these modules cost?
- Are there other third-party software tools that I require that are not part of the base system?
On-Premises or Cloud ERP
The cloud is where software is going, but you still have a choice—and some companies, for various reasons, prefer to stay on-premises. Most ERP vendors only provide a single option: you can either run the software on your hardware on-premises or run the software in the cloud. Ideally, though, you want a solution that runs equally well in either setting. This lets you decide the deployment option that works best for you and enables you to change that option if your situation changes. As you look at ERP vendors, you will find both options, so it’s important to understand the advantages and disadvantages to on-premises and cloud deployments.
As you look at the features and functions of prospective ERP solution products, it is equally important to take a close look at the essential viability of the product as well as the company that produces it:
Longevity and Maturity
Look at the history and maturity of the company. How long has it been in business? Are there news stories and user reviews of the company, either good or bad? Has the company management been stable, or has there been a history of changes in leadership? Has the company been the target of a recent takeover? If so, how has that impacted the product?
Recognition and Awards
Look for analyst reviews of the company and the software. Were these reviews favorable? Has the software received any awards from recognized third-party organizations? Most vendor websites will proudly display the awards and recognition they have received.
Some ERP products are better suited for certain industries and not others. Look for references within your industry and talk to their CFOs to see how well the software has performed for them. Most vendors will provide references of users of their software in your industry.
Support after the sale is important for any major purchase, and ERP is no exception. Identify the levels of support available to you along with the costs. Talk to other users and read user reviews to verify their satisfaction with the support they receive from their software vendor.
Partner or Direct Sales
Rarely will a company attempt to install an ERP system on its own. ERP solution software is complex and requires experts to work with your company to install it, configure it, and tune it, so it works correctly for your company. Different vendors approach software sales differently. Most fall into three categories: Direct sales, sales through partners, or a mix of both.
Some software companies sell directly to the end-user. Here, the customer deals directly with the software vendor for all sales, implementation, support, and training. One advantage is that the software is installed by the creator of the software itself, so their knowledge of the system is quite extensive. A downside is that the company may not have hands-on experience working with companies in your industry.
Some software companies prefer to sell their products through partners who are trained and certified in the application. Partners often specialize in specific industries and have a wealth of experience implementing the software for companies like yours and in your industry. Also, clients can select a partner that is located close by for consultation and support.
Direct and Partner Sales
Software companies may choose to sell through partners for smaller, local clients and reserve a direct sales force for larger, geographically diverse clients.
The ERP buying process
So, how do you go about researching, selecting, and buying your next ERP solution? The following process outlines the steps that will help you through the buying cycle:
Identify the need. Document your need to move to a new system. Include the costs to maintain the outdated system as well as the budget to implement and maintain the new system.
Estimate the cost savings expected through streamlined processes and worker productivity. There are ROI and TC0 tools available to help in determining the costs and savings. Get buy-in at all levels You don’t just need executive management to agree to spend the money; you also need buy-in from the individuals who will be using the system.
Gather requirements and list the features and functions necessary for your company to move forward.
Ask all potential users for their input. This will not only help you capture all requirements, but it will also help with user buy-in and adoption because they are part of the process.
In addition, separate the required features from “nice-to-have” features, and keep an eye on the future: What other functionality do you anticipate needing in the next three to five years and beyond?
Choosing your next ERP solution is an important decision. The information in this guide should help you identify the important ideas to bear in mind as you go through the vendor selection process.