David Panitch: Why Replace Your ERP System?
Part 2: Evaluating your needs and options.
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In part one of this series, published in the October/
November 2013 issue of Contractor Supply, we explored some of the main competitive reasons why you should look at replacing your ERP system. This article will look at the key factors that you should consider to help you make the right choice for your company.
If your organization has gotten to the point that your software is inhibiting your company growth due to its inability to help you perform important tasks, then you have a very important decision to make.
Do you continue to struggle with manual (outside the core system) work-arounds or modifications to your existing technology?
OR
Do you decide to upgrade your current system to the latest version?
OR
Do you explore the software landscape to find a new system that can help support your growth plans?
If you are considering upgrading your current system or replacing it with something better, here are some ideas that can make the process less arduous. Although, we have seen a number of software consolidations over the past decade there are still a plethora of choices when it comes to Enterprise Resource Planning (ERP) software systems. Your first step is to learn about the available choices. This is probably easier said than done for a couple of reasons:
1) Software developers have various ways that they sell and implement their systems today. Some offer the ability to buy directly from the developer; others have a network of resellers that you need to select from and others offer a hybrid in which you may license the software from one organization and get it implemented by another.
2) The information that you will find on websites and in printed brochures is purposefully generic so that the developers can attract a wider potential audience. So to make your life a bit easier, here are some guidelines to follow when doing your initial research.
- Check with your trade association. What are others in your industry using? This doesn’t mean that you should follow the trend, but you should be aware of what others in your industry are using as a starting point.
- Create a brief list of the critical processes that a new system must be able to perform. We suggest you ask your departmental managers for two or three top functionalities that they cannot live without.
- Decide in advance if there is an operating system that you must use in the future — Microsoft, Linux, Apple, Unix, etc. If there is a constraint, you will be able to narrow your search.
- Decide if “size does matter.” Will you only be comfortable with a software developer that is a billion dollar organization or does it not matter to you?
- Don’t fill out forms on a software developer’s website in much detail. Once you give them info about your organization (location, size, number of employees, industry) you will be dropped into their CRM system and assigned to either an internal sales lead or an external value-added reseller. This will make it very difficult for you to work with any other resource during the sales process.
If you don’t have the time or expertise to travel down this road; all is not lost. We have the expertise to perform this work on behalf of your organization.
The following are key steps that you should follow in selecting a new ERP system for your organization:
A. Determine viable software solution providers to consider. This should be done through a clear process that involves documenting what you need a system to do for you and your other key requirements in addition to functionality. A series of interviews with your people and documenting processes — including ones that are outside of your
current system — and getting answers from the potential software solution providers will move you in the right direction.
B. See exactly what the software can do for your specific organization. The only way to do this is to tell the software solution providers exactly what you need the software to do for your company. You will need to actively participate in detailed demonstrations with multiple solutions to make the best decision for your organization.
Don’t get too focused on the exact way in which the software is shown to work. In most cases, there are multiple ways to process a sales order, for instance. You want to make sure that the system has a logic that you can agree with and then during the implementation process you will get a chance to tailor the system exactly how you want it to react to your business needs.
C. Develop a budget for software, ongoing maintenance, implementation services, training services and hardware. In putting a budget together, you can rely on information shared with you by the software solution providers. But, make sure that they are providing you with ALL of the numbers. One area that we almost always see companies scrimp on is training and education. Don’t short-change your organization!
D. Analyze your choices and make a decision based on both quantitative and qualitative measures. Develop a quantitative matrix that you can use to “score” the software solution providers. There is something to be said about “gut feel,” too. Analyze your decision utilizing both methods.
E. Negotiate fair and comprehensive agreements. Almost every agreement that we have seen favors the software developer and software solution provider. While you may not be able to turn the tables completely, there is room to make the agreements fair for both parties concerned.
You also should consider including details about the most important functionality that you want the system to perform. This is your last point of leverage. Once you have signed agreements, the leverage is in the hands of the software solution provider.
As you navigate through the process of selecting your next ERP system, follow these steps and you will have a greater chance of success. If we can help you with this important decision, please feel free to reach out to our senior technology partner, David Panitch. We are always happy to answer questions and provide guidance with your selection efforts.
While this may be a selection process that you undertake once or twice in your career, we help multiple organizations every year make thoughtful decisions related to technology.
In our next article, we will cover what to avoid while drinking the software “Kool-Aid,” how to best manage internal expectations and the the key elements of a successful implementation. CS
David Panitch is a partner in The Distributor Board, which builds value for distribution companies through expertise in planning, sales, marketing, M&A, organizational development and related disciplines. Contact him at 847-868-2004; David@TheDistributorBoard.com; or at www.TheDistributorBoard.com.
CONTRACTOR SUPPLY MAGAZINE
The April/May 2024 issue of Contractor Supply magazine is here!
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