Steps to a Successful ERP Evaluation
Updated: Jun 17
Steps to a successful ERP software evaluation
Over the past 30 years, LogicData has focused on assisting manufacturing clients in choosing and implementing the right ERP solution for their specific needs. During that time, we have engaged with well over 500 diverse clients possessing a widely varying level of understanding of how to evaluate their ERP needs. The purpose of this document is to leverage what LogicData has learned from past engagements in assisting our potential clients in their ERP evaluation process.
Step 1: Defining the need
Access to actionable information, increased inter-departmental collaboration, improved productivity and automation of processes are some of the main reasons that a company may consider investing the time, money and resources in moving to a new ERP system. However, a company generally has some very specific reasons that are necessitating a different approach. The major question that needs to be answered is, “Will a change in systems address our company’s critical issues and justify the cost of the solution?”
As an example, a company may be experiencing a loss in profit margin that is traced back to inefficiencies in their current procurement processes. Those inefficiencies could then be linked to things such as not taking advantage of economic order quantities, inaccurate inventory levels, incomplete bills of materials, and/or lack of vendor oversight. Additionally, that same company may be seeing an erosion in their existing customer base due to an inability to meet required customer delivery dates.
Another example would be a company which is experiencing significant growth but is unable to meet increased demand due to current system limitations. Lack of an up-to-date ERP system can make fast expansion a problem instead of a reason for celebration.
The correctly implemented ERP solution can positively impact all these needs and should show a measurable return on the investment made.
It is important to note that the identified needs that can be positively impacted by a switch in systems should be significant to the overall health and growth of the company. Too many times a specific need in one functional area is given too much weight in the overall assessment of what is best for the company as a whole. Even worse, satisfying the need of one functional area to the exclusion of all else can have a negative impact on other functional areas within the business.
In some cases, due to the number of identified issues that can be solved with a switch in systems, a company will try to accomplish too much within a short time frame. This can disrupt current processes to the point where the health of the company is negatively impacted. This should be carefully considered when defining your need.
In summary, determining the need for moving forward with an ERP solution should consider:
The root cause issues that are negatively impacting the company’s health and future growth.
Which of those root cause issues can be positively impacted by implementing an ERP solution?
What the measurable results of addressing the root cause issues will be.
The order in which those issues should be addressed from an ERP implementation standpoint to minimize disruption of current operations.
Definition of these requirements is a highly strategic undertaking. It is recommended that this evaluation be conducted at the executive level of the company with the necessary input of all functional area management. Area managers, with input from their staff, can categorize issues in order of importance and then present them to executive team for final review. It is up to the executive team to determine the scope of issues to be addressed and whether they will be positively impacted with a system change.
Step 2: Assigning the Evaluation Team and delineating the decision-making process
Once the specific needs have been defined and prioritized, the team that will refine the wide range of available solutions should be selected. This team should consist of the functional managers of the areas that will be most affected by solving the identified needs. The team should also include at least one executive sponsor that can ensure the team members are given adequate time and resources to perform the evaluation. Appointing a project manager with the authority to drive the evaluation forward is also recommended.
All too often this important step is overlooked when a company decides to move forward with an ERP solution, and the task of engaging with possible solution providers is relegated to a front-line employee who does not fully understand the needs or desired outcomes of the organization. As a result, the organization’s identified requirements may be miscommunicated, and the best possible solution provider could be incorrectly eliminated from consideration. Assuming the completion of Step 1 has identified critical requirements that will determine the company’s future success, it stands to reason that initial evaluations should be performed by a member of the evaluation team with a clear understanding of what needs to be accomplished.
Regardless of who is assigned to narrow the field of providers, this is an opportune time to compile the defined needs and document the priorities so that all team members are working to a common purpose. In this way the assigned team member can accurately communicate the requirements to the initial list of potential vendors. As the data is compiled, the initial evaluation and the decision process that will be employed can also be defined. This is beneficial to the company to ensure miscommunication does not cause a good potential provider to be eliminated.
Step 3: Establishing a preliminary budget, time frame and deployment methodology
Depending on the defined requirements and the potential results established in Step 1, the company should have a preliminary sense of how much could be invested to realize potential benefits. This of course also needs to factor in any other financial considerations that the company may have. What can be accomplished in addressing the requirements is directly correlated to how much money is available to spend.
Some clients may feel that providing budgetary numbers to potential providers at the beginning of an evaluation is only beneficial to the vendor, but this is not the case. Pursuing a potential solution that appears to be a perfect fit to address defined needs, only to find out that the solution financially unobtainable, can be very frustrating and a is waste of company resources. Because of the wide range of solutions, functionality and pricing available in the market place, it is important to establish a budgetary range to ensure only those solutions that are cost feasible are pursued. This also allows the company to re-assess requirements if a solution addressing the defined issues does not exist in the budgeted price range.
Generally, the ERP marketplace is divided into 3 tiers, with tier 1 providers offering highly functional solutions at price points that can easily exceed millions of dollars, while tier 3 providers generally offer point solutions with very basic and limited functionality at much lower prices. There are many providers that fall within various levels of this tier structure. By establishing and sharing a budgetary range and key requirements with the potential vendors, the client can quickly adjust budgets and/or eliminate options that are not within the price range.
Once the budget has been established, implementation planning needs to be done to ensure your timing is appropriate. An ERP solution is not a “plug and play” application as it involves all functional areas within a business and needs to meet a variety of complex requirements. Allowing adequate time for implementation and training is a necessity and should not be rushed.
While a very basic solution requiring only core functions and simple requirements may take 6 months or less, complex requirements requiring high levels of functionality can take a year or more to complete. Therefore, the company needs to consider their specific requirements and business issues and involve potential vendors in a discussion on timing.
Planning for an evaluation and implementation too far in advance can create issues with changing business needs due to the time elapsed between evaluation and implementation. Occasionally, a company will start its evaluation a year or more before planning to begin implementation. During that time, needs and budgets may change, resulting in a waste of effort and resources for the company. A projected time-line is a key factor at this point in the process.
It is also wise to consider, at this stage, how the system will be deployed. Most solution providers have deployment options to fit specific customer requirements. Factors such as resources, budget, infrastructure and functionality requirements all need to be taken into account. LogicData can provide a white paper on deployment options to help the company determine its best deployment method.
Step 4: Initiating vendor engagement
As mentioned earlier, there are many available ERP options in the marketplace. Based on the completion of steps 1 through 3, the company will have a good understanding of their requirements, budget and timing to start narrowing down the field of available solutions.
Generally, a company will do a web search for potential vendors, but it is important to note that available information may be limited, so it is beneficial to engage vendors on an initial qualification call to ensure that a good potential solution is not overlooked.
In establishing a list of possible providers, it is also beneficial for the company to consider the evaluation from an implementation perspective. Choosing the right implementation partner is as, if not more, important than choosing the right software solution.
Once a list of possible providers has been identified, the company should schedule introductory calls with these vendors to determine if the provider can:
Address the company’s identified needs
Provide a solution that fits within the company’s budgetary range
Implement the solution within the required time frame
Provide the necessary amount of resources and stability to support the project into the future
At the conclusion of introductory calls, hopefully the list of viable partners has been reduced to a manageable number of 3 to 5 potential solutions. Should the list be longer than that, it is suggested that overview demonstrations be scheduled to show overall capabilities which can help in narrowing the list further.
The purpose of an overview presentation is to understand the general capabilities and usability of the system and is not meant to address the specific issues the company is experiencing. Demonstrating how specific issues will be addressed by the software solution is generally covered with a detailed demonstration later in the evaluation process. Additionally, it may be beneficial for the company to address implementation methodology and technology at this point to further narrow down the list of possible providers. Most solution providers should be able to provide these overviews to the selection committee.
Once a short list of potential solutions has been chosen, the company then has the option of initiating a formal request for information or proposal, typically referred to as an RFI or RFP. Frequently, companies will take a very generic approach to this process which is not recommended. Laboring through the review of extensive functionality requirements spreadsheets, much of which may be irrelevant, is a time consuming and possibly confusing exercise. It is much more beneficial to create an RFI or RFP that is specific to the unique requirements defined by the company in step 1. A focused, and often shorter, approach will allow for better assessment and more efficient review.
Step 5: Partnering with the vendor for discovery
A good ERP evaluation should always include a thorough discovery step. This is the opportunity for the company to educate the chosen potential providers on the details of the identified needs. Too often a company moves forward with an evaluation solely based on the documentation provided in the RFI or RFP. The company is the expert on their business and issues while the solution provider is the expert on their software and its implementation. Without detailed discovery the potential for miscommunication and misperception on both sides is greatly increased. The discovery process allows for alignment between the client and chosen solution provider to minimize potential issues during implementation.
Generally, the discovery is conducted at the client site, but could be conducted virtually if the requirements and business processes are not too complex. Complexity will also determine the length of the discovery session which can range from a few hours to a day or more.
It is important to determine company representation for the discovery process prior to the meeting. As mentioned in step 2, participants should understand the goals of the overall evaluation process, rather than focusing only on their specific job functions. A recommended format for a discovery meeting would include an executive briefing at the beginning and end of the process with individual functional area manager interviews in their work areas in between.
The scheduling of these interviews should mirror the route that orders follow as they flow through the facility. Beginning with a tour of the facility is recommended. The exact format of a discovery agenda will vary, but a simple discovery agenda may look like this:
8:00-8:30 Executive introduction meeting to discuss high level pain points. This meeting would include the executive staff and evaluation committee.
8:30-9:00 Tour of facility preferably conducted by the functional head of operations
9:00-9:30 Interview with functional manager of order entry/customer service
9:30-10:00 Interview with functional manager of procurement
10:00-10:30 Interview with functional manager of scheduling/production
10:30-11:00 Interview with functional manager of inventory/shipping/receiving
11:00-11:30 Interview with functional manager of finance (AP/AR/GL)
11:30-12:00 Debrief findings with executive team and evaluation committee.
12:00-12:15 Determine meeting space and functionality for final demonstration with evaluation team project manager
Prior to the meeting, each participant in the discovery process should meet with their respective team members to uncover pain points within their functional area. This also provides opportunity to determine which issues are relevant to achieving stated company goals and which issues correspond with the identified requirements. In this way the discovery process stays on task and time while minimizing disruptions to normal company operations. LogicData can provide a template to facilitate this exercise. The completed templates should be returned to the solution provider a few days prior to the scheduled meeting to reduce redundant questions and minimize the company’s disruption to operations.
While this step may appear somewhat time consuming, it is invaluable in ensuring that the solution provider has a detailed understanding of the company’s needs and is able to provide the right solution. By following the recommendations outlined above, the discovery process can be completed in the most efficient manner possible.
Step 6: Preparing for and conducting the detailed demonstration
After compiling the information from the discovery meeting, the potential vendors can now prepare for the final presentation. It is important for the company to allow adequate time between discovery and final demonstration so that the solution providers can tailor the demonstration to address identified needs as well as any other relevant issues uncovered during the discovery.
During this time, it may be beneficial for the company to request a preliminary budgetary estimate from the remaining solution providers to ensure that findings are still within the budget requirements.
In preparing for the detailed demonstration the following should be considered:
Attendees: It is recommended that only the evaluation committee and executive sponsor/decision maker attend the detailed presentation. Frequently, companies will invite front-line employees to the demonstration in hopes of creating buy-in for the project throughout the organization. As mentioned previously, this is generally a mistake as front-line employees tend to be too focused on only their need rather than the objectives of the company as a whole. Front-line employee participation at this point can cause disruption and a shift of focus from overall company objectives.
Venue: It is important to provide an environment for the demonstration that allows team members to focus on the information provided without distraction. Ideally, the demonstration should be conducted in an off-site facility, such as a hotel meeting room, to minimize interruptions for the group. If this is not possible the on-site facility should have sufficient space and ventilation for all attendees to be comfortable.
The conference room should include:
Overhead projector with a minimum of 1920 x 1024 resolution (if one is not available the LogicData team will bring a unit)
White board with markers
Adequate seating for everyone attending
Power outlets for the projector and presenter’s laptop
Power outlets for the attendees should they chose to bring their laptops
Wireless connection to the Internet
The presenter will be sitting at the front of the room facing the audience, and so will require a surface for his/her laptop in a position that will not obstruct the projection system.
It is recommended that lunch be brought in rather than have the group leave the premises. This will help ensure that the agenda is completed in a timely manner.
The main challenge in delivering a detail presentation is to quickly communicate how the solution will address defined needs in the time allotted. Generally, a typical demonstration can only touch the high points and key areas of the system and focus on the features and functions that are most important to your situation.
While the detail presentation may vary based on company needs and schedule, a typical agenda would follow the below guidelines:
8:30-9:00 Introductions & brief corporate overview. Review of key issues
9:00-9:45 ERP software navigation, user interface and technology
10:00-10:45 Flow of data through the system
10:45-12:00 Functional area breakdown addressing how the system handles key needs. This is typically broken into ½ to 1-hour sections and would cover Financials, AR, AP, Engineering, Planning, Production, Sales and Service.
Noon – 01:00 Break for Lunch
01:00-3:00 Continuation of functional area breakdown
03:00-4:00 Implementation overview, Q&A, next step discussion
It is recommended that all the members of the selection committee be present for the entire agenda. However, work schedules may not allow all the members of the selection committee to commit a full day to the presentation so placing important general information like navigation, user interface and data flow into a block of time where all attendees will be present is important. This should be done in the morning so that attendees of the functional sessions will have the appropriate orientation. In LogicData’s experience, individuals who have missed this part of the session will not have the appropriate orientation to the software’s navigation and logic. This can cause confusion and delay the agenda for the other attendees.
Again, as mentioned earlier, it is recommended that you do not invite clerical and departmental employees who are not members of the selection committee. The selection of a new system for your company will be the catalyst for many changes, and often clerical level employees can feel threatened or unsettled, wondering what will happen to their jobs with the new system. The detail presentation is not a good venue to try and create buy-in from front line personnel.
Depending on the number of detail demonstrations scheduled, and hopefully there are not more than three, the details of which solution offers what benefit can get confusing. Therefore, it is beneficial for the selection committee to keep detailed notes and/or a score card as to how each solution addresses the identified needs of the company.
Step 7: Evaluating solution providers and determining vendor of choice
After the detail demonstrations are completed, there are frequently additional questions or concerns that need to be addressed. The company and the solution providers should be ready to address these concerns with future discussions and/or demonstrations. These can generally be done virtually for the sake of expediency. This is also a good time to address any missing information from one solution provider that another has addressed. Because it is difficult to show all functionality of most ERP systems in a detailed presentation due to time restrictions, if one solution provider hasn’t addressed a specific topic does not mean they do not offer that functionality. It is beneficial for the company to allow all solution providers the ability to answer any open issues. In this way you ensure that an oversight in one area doesn’t eliminate the best overall solution by mistake.
As mentioned earlier, the implementation of the solution, and its underlying technology, should also be major considerations in the final decision. Different providers have specialized approaches to implementation as a result their years of experience and familiarity with your specific needs. Due to the length of implementing an ERP solution, choosing a provider who can help smooth the process as well as support it well moving forward, can make a huge difference in the success or failure of your project. If implementation methodology and technology have not been discussed to this point, we recommended that the company interview the solution providers based on these areas as well.
At this point, the remaining solution providers should have enough information to provide a comprehensive software and implementation estimate. It is very important that the company spend the necessary time to review these proposals in detail because functionality, suggested configurations, and implementation time frames may vary widely between vendors. The solution providers should be invited to discuss their respective proposals with the selection committee to ensure the proposed solution addresses all identified needs and that none of the information provided is mis-perceived.
It is also recommended that at this stage sample agreements are presented for business and legal review, as the proposed terms and conditions may need to be negotiated and could be a factor in the decision-making process.
Following the above outlined steps will ensure that a company’s ERP evaluation process yields the best possible solution to their needs and budgetary constraints. LogicData hopes that you will find this documentation useful when considering an ERP evaluation. When the time comes, do consider us as a potential solution provider for any future ERP needs.