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ERP Software Selection

Approach to Selecting ERP Software for your SMB Company

You are an owner of a small or medium size company, and you need to select ERP software to run your business. You are confused between the large availability of ERP software packages. How do you select the right one for your business, and how do you find one you can afford?

But first, you may be asking yourself what is ERP software and why do I need it in the first place? ERP stands for Enterprise Resource Planning. This software is designed to manage end-to-end processes of an enterprise. A typical ERP software help manage processes such as sales and order entry, customer invoicing, procurement, manufacturing, inventory control, shipping, quality control, and accounting just to name a few. For more information about ERP, please refer to my blog titled The Benefits of ERP Software for Small or Medium Size Businesses.

Like a typical small and medium size business, you may be running your business by deploying many spreadsheets, Access databases, and leveraging popular QuickBooks or Peachtree accounting software. However, your business is growing, and you are exceeding the number of users and records limits of QuickBooks, and managing all these spreadsheets is starting to prove inefficient and increasingly error prone - costing you real money in lost sales, missed shipments, lost inventory of some items and shortages of others. Besides, QuickBooks Enterprise seemed to have enough functionality to get you started, but you heard that real ERP software can automate many of your business processes.

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You heard of ERP software, and your initial research unveiled that there are many packages starting from the top tier SAP and Oracle systems that cost millions and ending with many PC based packages. So, how do you select the one that fits your business, and how do you find a package that will not consume your entire budget?

It turns out that selecting a complex software package that runs almost all aspects of your business is both art and science. Standard ERP selection methodologies were developed by management consulting firms. They are based on documentation of the existing business process and careful analysis and documentation of business requirements. This traditional approach includes the following main activities:

  • Document the As-Is business processes to understand the current situation
  • Document the To-Be business processes to be deployed in the new environment
  • Document business requirements for the software including any regulatory requirements
  • Document technical requirements - such as performance criteria, requirement for computing environment (for example, must run on Windows OS)
  • Identify software candidates and document gap analysis between software capability and above
  • Develop a detailed RFP based on above information and send to selected software ISVs
  • Analyze the responses, and invite the first cut of ISVs to perform demos
  • Develop final ranking by criteria that is based on best functional fit, technology, and cost considerations
  • Negotiate with final two candidates and select one to proceed to contract

Two main challenge of this approach to selecting software for a SMB is that a) it takes considerable effort, time, and expense, and b) discourages taking advantage of best-practices already built into an ERP package - by specifying in too much detail what and how you want the package to work, you may miss some best business practices that may be built into a candidate package, or end-up with a package that is overly complex for your needs.

Based on our extensive experience selecting and implementing enterprise software, we developed a more efficient approach specifically for small and medium size businesses (SMBs) -- one that assures due-diligence in software selection while optimizing the time and effort of the selection process.

First of all, as an SMB, you have to recognize that modern Open Source ERP software offer viable solutions to many companies. Today's Open Source ERP offers competitive functionality to traditional ERP software at a very low-cost that you can afford (in principle, open source is free, but most customers would not be able to implement the free version).

Our ERP software selection process is based on the following 10 steps:

1. Identify the top level processes that are needed to be supported by the future ERP solution. For example, order entry, procurement, manufacturing, inventory control, shipping.
2. Identify next level process characteristics. For example make-to-order, process/batch manufacturing, cross-dock distribution processes, drop shipment support, etc.
3. Identify industry specific regulatory requirements such as GxP and Computer Validation FDA requirements for Life Sciences industry.
4. Walk through the existing company operations review and note the following:
    a. Unique business processes that as competitive advantage and critical for your
        company operations
    b. Unique software that was developed in-house or purchased that is critical for your
        company operations
5. Identify any technical requirement specific to your company (such as must use Apple OS, or prefer Windows, or prefer minimum IT support).
6. Based on the above information, develop a high level functional fit document.
7. Match the fit document with a list of best-in-class Open Source ERP vendors and identify one package that can address your needs at a lowest cost.
8. Document and present expected customization requirements (if any) to support your business.
9. Bring the ERP software vendor (ISV) to perform demo.
10. Get final buy-in and negotiate agreements with ISV and implementation partner.
For a typical SMB customer, the selection process may take less than a week. The traditional management consulting based process takes months to complete.

Our ERP software selection methodology assumes that an experienced ERP consultant help with the evaluation and selection process. The success and efficiency of our approach is largely dependent on the ability of our experienced consultants to help you in identifying your core business needs and matching them with ERP software capability.

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We are able to distinguish between those specific processes that are truly your competitive advantage and need to be preserved, versus those that could be changed and adapt best-practices already embedded in ERP software. Recognizing this important distinction between your custom business processes is more art than science and largely dependent on experience of our consultants and principals and is the key to a successful selection of your future ERP solution in a minimum amount of time.

Therefore, if you need ERP software to grow or maintain the growth of your business, you should know that the selection and implementation of such software does not have to cost of a fortune in money and time. There are affordable solutions in the market place, and partnering with the right services provider, will help you kickoff a successful CRM and ERP implementation effort.

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Written by: Doron Farber - The Farber Consulting Group, Inc

There are 2 comments for "ERP Software Selection"

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By RamcoOnDemand | October 12,2011

Great post.This is very nice blog.I got more details over ERP Software.

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By ERP Software | January 03,2013

ERP is an integrated system which includes Financial, HRM, Inventory, and material management, SCM, CRM and HRM.

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