Chapter 3 : Process for Selecting an ERP System Susan E. Bristow, Mary M. Dunaway (University of Arkansas)

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1 cc. Rec. Reveues Idepedet requiremet ues Ivetory Fiished chage product sale reveues cosumptio Ivetory chage Factory o Fiished Prod. products o Chapter 3 : Process for Selectig a ERP System Susa E. Bristow, Mary M. Duaway (Uiversity of Arkasas) The purpose of this chapter is to uderstad why a eterprise selects a ERP, the ERP selectio process, ad the steps ivolved i executig the process. 3.1 Itroductio A ERP acquisitio is cosidered a high expediture activity that cosumes a sigificat portio of a compay s capital budget. Why? If the purchase is made ad turs out ot to be a good fit, it ca adversely affect a compay s busiess i may differet areas ad o may differet levels (Verville, Beradas, & Haligte, 2005). More importatly, selectig a iappropriate ERP system is a major reaso why most ERP implemetatios fail (Lall & Teyarachakul, 2006). Hece, the wrog ERP selectio ca severely jeopardize a compay s operatioal performace ad its very existece (Lidley, Toppig, & Lidley, 2008). Therefore, makig the right choice durig ERP software selectio ca carry a high level of risk ad ucertaity for a compay. Whether a compay size is small, medium, or large the process for selectig a ERP system ca be tailored to a compay s specific busiess objectives ad goals. A wide variety of ERP systems have bee developed to eable compaies to become more competitive by itegratig almost all busiess fuctios that use idustry best practices oto a commo sigle database. Thus, the process ca be tedious, legthy, ad must be coducted with great care. 3.2 Basic Cocepts ad Defiitios Several cocepts ad defiitios are importat to facilitate uderstadig of the process for selectig a ERP system. May of the terms are typical of ay software procuremet process that is udertake, regardless of the type of applicatio software. This by o meas is a comprehesive list of terms, but are cocepts ad defiitios most ofte used i the ERP software acquisitio process. The ERP module is a specific applicatio ecompassig all the features of a particular busiess fuctio which may iclude, but is ot limited to, trasactios, data exchage, reports, workflow, ad processes withi the ERP system. For example, the accouts payable module s purpose is to process the value of goods ad services acquired by a compay that have ot yet bee paid for. Fuctios such as create a vedor ivoice, process paymets to a vedor, process vedor tax statemets, ad maitai a list of vedors are all commo activities foud i this type of module. purchase D DB C There are several types of vedors that provide ERP software applicatios ad are sometimes characterized as best of breed or iche market software applicatio vedors. Best of breed vedors are coied the best software applicatios of their type. These types of applicatios are typically isolated to oe process or part of a process (Magal & Word, 2009). Ofte compaies ad orgaizatios wat to purchase software from differet vedors to obtai the best solutio for each applicatio area; for example, a supply chai package from oe vedor ad a fiacial package from aother. While ERP vedors provide a wealth of applicatios for the eterprise ad advertise their itegrated system as the superior solutio, every module may ot be bestof-breed. Niche market vedors are idepedet software vedors who have a uique ad specific software applicatio focus. Typically a iche market software vedor provides highly specialized applicatios for a particular busiess idustry or fuctio to satisfy specific customer eeds. Value-Added Reseller (VAR) is a type of vedor that takes a existig product, ad adds its ow value, usually i the form a itegrated software applicatio product or complete turkey solutio. For example, a ERP vedor may sell the ERP software applicatio ad budle i value-added services, such as additioal implemetatio support, traiig delivery, or customized programmig just to ame a few. The software acquisitio process has several terms that are stadard across idustries ad are commo to ay procuremet process. Listed below are a few of these terms ad how they are defied. Prelimiary Versio - sed commets to pml@hec.ca 33 Request for Proposal, most ofte refereced as RFP, describes a feature ad fuctio list of how the compay will operate or fuctio ( Umble, Haft, & Umble, 2003). Additioally, ay applicable vedor istructios, terms ad coditios, ad forms to complete are icluded i the RFP. The complete RFP is set to the ERP vedor for a respose. Request for Iformatio (RFI) is a formal request to the ERP vedor to acquire iformatio about the ERP software solutio. A typical RFI would request a fit respose to the compay s requiremets, specific criteria questios relatig to the compay s busiess, ad the ERP software product iformatio.

2 cc. Rec. Reveues Idepedet requiremet ues Ivetory Fiished chage product sale reveues cosumptio Ivetory chage Factory o Request for Quote (RFQ), sometimes referred to as Ivitatio For Bid (IFB), is the stadard busiess process for ivitig vedors to bid for the applicatio software. The RFQ helps a compay leverage the ERP vedor selectio process competitive ature to egotiate the best possible purchase deal. Total Cost of Owership (TCO) provides visibility of all costs associated with the acquisitio of the ERP software solutio. Usually these costs iclude the direct ad idirect, maiteace, hardware, ad ay future cost related to the acquisitio (Burs, 2007). Coferece Room Pilot (CRP) or boardroom pilot is ofte used to demostrate a compay s busiess requiremets with the potetial ERP applicatio. The CRP offers a way for the ERP vedor to demostrate a uderstadig of a compay s requiremets, ad for the compay to better uderstad the ERP system before sigig a cotract to purchase. Proof of cocept typically happes oce the vedor list is arrowed dow to two or three choices. It is a process where a script is provided to the vedor for oe or more strategic busiess processes that the vedor must demostrate. Scalability is a item or cocept s ability to adjust to icreased requiremets. Service Level Agreemet (SLA) is a type of cotract that describes the parter relatioship betwee a software vedor provider ad a compay, usually defied i measureable terms to create a commo uderstadig of services, priorities, ad resposibilities. Software Maiteace Agreemet (SMA) is a type of agreemet betwee the software vedor provider ad a compay, whereby the vedor provides maiteace ad support services for the specific software applicatio. Trade-off is the replacemet of oe item, idea, or cocept for aother of more or less equal value, particularly to affect a compromise. 3.3 Tailorig the ERP Selectio Process Selectig a ERP system for implemetatio is ot like goig to a retail store ad purchasig a computer applicatio for your home computer, ad it is ot just aother computer project (Kuiper, 1998). Therefore, it is a major busiess decisio that requires much thought ad plaig. The lack of i-depth assessmet, evaluatio, ad detail ca cause major fiacial damage to a compay, ad a potetially detrimetal shift i busiess processes. That is why software selectio should be iflueced by operatioal experts i the busiess, ad ot Fiished Prod. products o purchase D DB C ecessarily just techical gurus. This will help to esure the way a compay does busiess is persoified i the ew system. Outside expertise, which most compaies use whe selectig ERP software, should be brought i as well, as they ca brig kowledge ad uderstadig of curret software offerigs. Therefore, buyig a ERP system meas acceptig the software vedor s established iterpretatio of busiess process practices for a compay s way of doig busiess (Umble et al., 2003). A compay typically accepts the ERP vedor s assumptios, providig the opportuity to map or reegieer their busiess processes to coform to the ERP applicatio. Cosequetly, a compay should try to select ad implemet a ERP system that models its uique competitive stregths, while helpig to overcome competitive weakesses (Ode, Lagewalter, & Lucier, 1993 ; Hollocks, 2001). While 80-90% of a particular ERP applicatio suite will be the same across differet implemetatios, 10-20% will be differet, ad tailored to the specific eeds of the corporate eterprise (Ptak & Schrageheim, 2004). Therefore, a compay should cocetrate o idetifyig its critical busiess eeds, ad the desired features ad characteristics of the ERP system applicatio suite. The ultimate goal should be to improve the busiess, ot to implemet software. Tailorig the ERP selectio process allows a compay to fit the tasks ad activities to their uique busiess strategy, size, idustry, ifrastructure, eviromet, ad resources. This flexibility helps esure that strategic, operatioal, ad tactical goals are met. By plaig ERP software selectio systematically ad thoroughly, compaies ca substatially icrease the likelihood that they will idetify ERP software ad vedors that geuiely meet their eeds (Verville, Palaisamy, Beras, & Haligte, 2007). I the upcomig sectios we will discuss key busiess drivers to selectig a ERP system, ad the selectio process Prelimiary Versio - sed commets to pml@hec.ca 34 steps Idetifyig Key Busiess Drivers What are the key busiess drivers for selectig a ERP system? Orgaizatios have a variety of iflueces leadig to a selectio. A good portio of compaies should expect to chage or sigificatly upgrade their computer systems at least every five to seve years (Umble, et al., 2003). Oe key busiess driver is that a orgaizatio s legacy systems could be out-dated ad/or usupported. The orgaizatio must decide to either upgrade the system if possible, or go with a completely ew system. Ofte times the legacy system ca o loger be techologically supported because of its age. Additioally, replacig the old system with a ew system reduces cost (Kale, Bawail, & Laroiya, 2010).

3 cc. Rec. Reveues Idepedet requiremet ues Ivetory Fiished chage product sale reveues cosumptio Ivetory chage Factory o Aother key busiess driver durig selectio is the eed to create efficiecies across fuctioal areas of the busiess, or the eed for silo processes to work together withi oe system. Verville ad Haligte (2002) illustrate the importace of this poit with their example of ESC, a utility compay, havig difficulty compilig the reports for the mothly closig cycle. The process took a great deal of time each moth. Four geeral ledger systems were used, with separate modules for budgetig ad accouts payable. To coduct the mothly reports, maual effort was made to collect ad iterpret the available iformatio. This cumbersome existig process short chaged the value-added aalysis the fiace ad accoutig departmets could have bee doig with a more efficiet ad itegrated system. Competitiveess is a additioal key busiess driver for selectio of a ERP system. Busiesses are i a fight to maitai competitiveess or, more aspirigly, to beat out competitio i their respective idustry. With the selectio of a ERP system, cost savigs ca be discovered i the supply chai, efficiecies ca be created i regards to customer service, buyer-seller trasactios, ivetory maagemet, ad effective decisios are more likely to be made with real time data delivered from a ERP system (Lollar, Beheshti, & Whitlow, 2010). The decisio to purchase commercial-off-the-shelve (COTS) ERP software or customized eterprise resource plaig software is a sigificat key busiess driver. There is a cost trade-off that must be cosidered. Does the compay wat a plai vailla cofiguratio that caot be easily tailored to the busiess, take out of the box, ad adopted? Or, does the compay wat to make a larger ivestmet i customized ERP software that ca be more tailored to the busiess, its eeds, ad the processes it performs? The compay ca save moey if it uses COTS ERP software, but sometimes extra ivestmet is eeded because of the compay s uique busiess requiremets. Whe choosig to pursue a customized software optio, it is importat for the compay to uderstad that the ERP software may eed to be repaired or rewritte, as periodic updates occur. The compay will icur sigificat ogoig costs that should be cosidered before makig a customized solutio commitmet. Sice the Sarbaes-Oxley 2002 legislatio i the Uited States, ad legislatios i other coutries such as Caada, Japa, Germay, Frace, Italy, Idia, South Africa, Turkey, ad the Netherlads have passed, busiesses have bee relyig o ERP systems to help their fiscal compliace. A ERP system s ability to eable the busiess to be Sarbaes-Oxley compliat is a importat key busiess driver to cosider. Fiished Prod. products o purchase D DB C A ERP system provides a audit trail of who processed the accoutig trasactio ad whe it was doe, by attachig a uique documet umber where applicable. If a busiess is experiecig oe or more of the below busiess coditios, a ERP system should strogly be cosidered for implemetatio. Oe or more busiess coditios may be a key busiess driver for the implemetatio. Rewire the orgaizatio for growth Ability to expad product categories across multiple brads Icrease sales capabilities Drive dow costs without compromisig quality Support existig processes, e.g. maufacturig, purchasig, supply chai plaig Eable the global ladscape to quickly ad effectively respod to evolvig trade ad supplier structures Support future itegratio of acquisitios ad reorgaizatios Provide greater cosistecy of reportig ad cotrol Order maagemet improvemets Stadardize ad speed up maufacturig processes Reduce ivetory Stadardize HR Iformatio Trasportatio/logistics cost reductio O-time delivery improvemets Iformatio visibility Stadardizatio across the eterprise Dismatlig iefficiet legacy systems Busiess performace Customer resposiveess ERP Selectio Process Steps Prelimiary Versio - sed commets to pml@hec.ca 35 There are may differet ways ad steps to selectig a ERP system. Software Selectio is a somewhat differet process tha developig a applicatio. Most compaies follow a similar process with some mior deviatios here ad there. However, ot all orgaizatios will follow a structured approach. Cosideratios for the kid of approach the compay chooses are size of the compay, urgecy of time to select ad implemet, kid of busiess or idustry, scale of the software, ad available huma ad fiacial resources to ame a few.

4 cc. Rec. Reveues Idepedet requiremet Ivetory Fiished chage product Factory o Accordig to Wybo, Robert, ad Léger, (2009), a compay s search strategy is the i which applicatios should be evaluated ad the coditios uder which the firm should ed the evaluatio ad pick the solutio (p. 287). The compay is tryig to maximize beefits while miimizig costs. The most sigificat activity durig applicatio developmet is the capturig of all requiremets ad clearly defiig them (Lauese, 2004). I cotrast, the most sigificat activity i selectig software is the process of evaluatig all the alteratives. Sirigiidi (2000) developed criteria to be cosidered whe selectig a ERP provider, icludig the vedor s history ad stability, ad the support offered durig implemetatio. A compay should research the ERP provider s sales records for ues the past year, as well as third party itegratio of products with the ERP, ad potetial system upgrades. Cisco Systems, Ic. took a etirely differet approach to the selectio of their ERP software. I 1993, Cisco ra o a UNIX-based software package that maitaied its trasactio processig (Austi, Nola, & Cotteleer, 2002). Fiacials, maufacturig, ad etry systems were the fuctioal areas utilized. At the time it was a $500 millio compay, but had its sights o beig a $5 billio-plus compay. The curret system could ot hadle the growth, redudacy, reliability, ad maitaiability eeded. The applicatio had become too customized for Cisco s eeds, ad the software vedor offered a upgrade. However, the size of compay the upgraded applicatio could support was $300 millio, ad this would ot be sufficiet for a rapidlygrowig Cisco. Cisco was costatly bad-aidig their existig systems, experiecig a 80% aual growth rate, ad sufferig routie system outages. I Jauary 1994, Cisco experieced a major meltdow of their legacy systems so dramatic that it caused the compay to shut dow for two days, as Cisco s cetral database had become corrupt (Austi et al., 2002). The existig systems could o loger perform. Origially Cisco s approach was for each fuctioal area to come up with its ow solutio, but they later came to the coclusio that it would take too much time. A team was put together to ivestigate optios ad replace the existig applicatio. Cisco also felt it eeded strog parters to help with the selectio ad evetual implemetatio. The ewly formed team of about 20 people had a strategy of buildig as much sale reveues kowledge as possible by leveragig the experieces of others. The team reached out to other large corporatios, the Big Six accoutig firms, ad the Garter Group (leadig idustry resource o ERP, other iformatio systems, ad maufacturig) to gather iformatio. Cisco moved quickly by decidig o 5 packages withi two days, ad arrowed the cadidacy to cosumptio Ivetory chage Fiished Prod. products o purchase D DB C two after oe week. Oe of Cisco s big cosideratios was that they wated to choose a vedor that was ot smaller i size tha their ow compay. Request for Proposals (RFP) wet out to the top two vedors ad i the meatime, Cisco visited a series of selected-vedor referece cliets. A three-day demostratio that icluded a sample of Cisco s data was requested from each vedor, ad the vedors explaied how Cisco s requiremets would be met or ot met. Throughout this time, the cost had ot eve bee cosidered. It was ot util the selectio team met with the compay s Board, that they ever cosidered the cost ad time eeded for implemetatio. The overall time from iceptio to fial selectio of a vedor took 75 days. How is Cisco s selectio process differet tha others? First, the time spet from iceptio to fial selectio was aggressive. Costs, time, ad risks were ot eve cosidered util before meetig with the Board. Cotract egotiatios had already commeced with the chose software vedor. Before goig to the Board, ad after egotiatios started, the timetable ad the budget for the project were decided o. Usually, the timeframe ad budget are defied durig the plaig phase. Typically, the ERP selectio process ca iclude the followig steps (Relevat Busiess Solutios, 2010) : Typical ERP Selectio Process Steps Selectio of the ERP Selectio Team Compay s resources idetified ad assessed Goal requiremets idetified Idetify system fuctioality requiremets Additioal ERP selectio process items to cosider The ERP selectio team is comprised of idividuals from each of the fuctioal areas of the busiess. The team made up of the best ad brightest idividuals who kow the is ad outs of their departmets. The team members will be cheerleaders Prelimiary Versio - sed commets to pml@hec.ca 36 for the positive chage to the ew eterprise system, leadig the ifusio of iformatio sharig ad itegratio. The reaso behid the chage to a ew eterprise system, ad the coditios that exist, will be commuicated to the implemetatio team. The team will also eed to uderstad what the ed result should look like.

5 cc. Rec. Reveues Idepedet requiremet Ivetory Fiished chage product Factory o Idetificatio ad assessmet of the compay s resources is eeded to ascertai what fuctioal areas are the most critical to their strategic goals, ad the aticipated compay growth (Relevat Busiess Solutios, 2010). Some areas will be uique to idividual compaies; however, geeral assessmet of persoel, techology, workflow, ad performace measuremets should be made. For persoel, a evaluatio of how employees are curretly used should occur, to determie the stregths ad weakesses i their respective areas. The curret compay techology ad ifrastructure are importat for evaluatig whether chages eed to be made to accommodate compay growth. The curret crucial processes ad workflow should be aalyzed to assess if chages should be adopted. Additioally, ues the busiess processes ad workflow should be evaluated for future compay growth ad whether it ca be sustaied. Success should be measured to determie how the compay is performig, but also to establish the compay s growth potetial. The requiremets for meetig compay goals ad success must be determied. The requiremets will be used as guidelies durig the process of selectig a ERP system. The core competecies of the busiess, the curret limitatios or problems with the busiess, ad the implemetatio requiremets for the ERP software provider are three steps ivolved i the process of determiig goal requiremets. Relevat Busiess Solutios (2010, p. 5) suggests the followig i terms of additioal items to cosider : Will a solutio that is idustry-specific i desig be a better fit tha oe that is geeric? Is the vedor s product scalable to accommodate rapid or uexpected growth? Are the solutios that are uder cosideratio cofigurable to meet the specific eeds ad busiess processes that exist ow, as well as ew oes i the future? Is the solutio flexible, so that it ca operate o a variety of IT platforms to accommodate possible chages i the future? Are the product fuctios ad features available ow? If ot, whe will they be available ad how importat is it to have that fuctio or feature? ERP Selectio Overview Diagram sale reveues The typical ERP selectio process steps are a part of the phases of selectig a ERP system. The preseted phases mirror the same stages or phases for project maagemet ad are used to simplify the selectio process. cosumptio Ivetory chage Fiished Prod. products o purchase D DB C Plaig, request for iformatio, evaluatio, ad selectio phases are ot liear or circular i ature. I the diagram, the phases overlap. They are iterative, meaig each phase may eed to be revisited ad tweaked throughout the process of selectig the ERP system. Evaluatio 3.4 Plaig Phase Plaig Selectio Let s break dow these phases eve further. The first phase is the Plaig Phase. What steps must be take whe developig a pla? What elemets should be cosidered? Durig this phase a pla eeds to be developed, a evaluatio team should be formed, ad a feasibility aalysis must be coducted. Formig the busiess objectives, comprehesio of chages, project risk uderstadig, strog leadership, ad budget watchig are imperative at this phase (Wagle, 1998). The plaig phase is oe of the most critical phases of the process. I geeral, this is the phase where may compaies fail regardless of whether it is selectio of a ERP system, implemetig a ew or updated system, or some other project. It is importat to make sure the checklist items have bee accouted for, all requiremets have Prelimiary Versio - sed commets to pml@hec.ca 37 bee gathered, ad the chages that may potetially impact existig systems or processes have bee aalyzed. Also, a visio is created to provide a explaatio of why selectio of a ERP system is cosidered (Umble, et al., 2003). Request for iformatio A feature/fuctio list is established to provide uderstadig of what the compay wats ad eeds i a ew ERP system. Verville ad Haligte (2002) suggest a compay examie the participats for each phase, specifically who, acquisitio strategies, evaluatio criteria, requiremets, ad a assessmet of the preset status.

6 cc. Rec. Reveues Idepedet requiremet ues Ivetory Fiished chage product Factory o Accordig to West ad Shields (1998, p. 5-6) maagemet should cosider ad aswer the followig questios before the fializatio of selectig a ERP software package is made : What are our busiess strategies ad plas for the ext three to five years? How are we curretly usig techology? How is techology beig used by our competitors, customers, ad suppliers? What ew techologies are beig used by other busiesses ad idustries? sale reveues cosumptio Ivetory chage What are the capabilities of our curret Iformatio Systems (IS) departmet? What are the issues for usig techology i the orgaizatio? What is the visio for how techology should be used by the orgaizatio over the ext three to five years? What are the IS strategies for achievig that visio? What projects are eeded to implemet the IS visio ad strategies? Further questios should be cosidered such as (Madal & Guasekara, 2003) : At the fuctioal area operatioal ad maagerial levels, what are the specific iformatio eeds? How are the existig systems goig to itegrate with the proposed ew ERP system? What will be the ew ERP system adaptatio schedule? Operatioal Feasibility Will the ew system place extra demads o users or require operatig chages? Will the ew system create a workforce reductio? If so, what will become of the affected employees? Ecoomic Feasibility Total Cost of Owership (TCO) Tagible beefits Itagible beefits Fiished Prod. products o purchase D DB C Coductig a feasibility aalysis for the project is also part of the plaig phase. A feasibility aalysis provides a evaluatio or aalysis of the potetial impact of a prospective project (George, Batra, Valacich, & Hoffer, 2007). The aalysis aids the evaluatio team i decidig which system to choose, ad also compares the curret ad proposed systems to oe aother. There are multiple evaluatio categories, yet most compaies will use operatioal, techical, ecoomic, ad schedule assessmets as the mai areas of focus. Operatioal feasibility determies if the system will be used effectively after implemetatio (Shelly, ma, Roseblatt, 2006). Techical feasibility refers to the techical resources eeded to develop, purchase, istall, or operate the system (p. 59). The projected beefits must be greater tha the estimated costs for ecoomic feasibility. This is commoly deemed as the Total Cost of Owership (TCO). Ecoomic feasibility will also iclude tagible ad itagible beefits. Tagible beefits ca be moetarily appraised. Itagible beefits are challegig to quatify i dollars, yet are key to the compay. Schedule feasibility is the assessmet of whether the selectio ca be made i a timely maer. So where does the iformatio for the criteria ad questios come from? Iterviews with users of the existig system are coducted to gather iformatio. It is importat to ask the right people the right questios. Here are some example criteria that would be used ad/or cosidered i a feasibility aalysis (Shelly, et al., 2006) : Techical Feasibility Are the ecessary hardware, software, ad etwork resources available? If ot, ca those resources be acquired easily? Does the proposed solutio have sufficiet capacity for the future? If ot, is expasio possible? Schedule Feasibility Has a firm timetable for the project bee established? Will a fast-track schedule pose ay risks? If so, are the risks maageable? Prelimiary Versio - sed commets to pml@hec.ca 38

7 cc. Rec. Reveues Ivetory Fiished chage product Factory o I a recet lawsuit, a major easter US uiversity claims that a ERP vedor failed to live up to the terms of the school s ERP istallatio agreemet. This case demostrates the level of misuderstadig that ca exist betwee two parties whe they udertake a complicated, joit ERP project (Babcock, 2011). The uiversity selected a ERP vedor to provide a itegrative solutio for their studet ad admiistrative requiremets, i additio to a ew Web portal for better iformatio access. Major issues arose whe the ERP vedor did ot adequately uderstad the techology ad the steps eeded to complete the project. Idepedet requiremet ues Several disputes betwee the uiversity ad the ERP vedor occurred early o i the project, as they attempted to implemet a project maagemet system for joit use betwee the uiversity ad ERP vedor. The solutio failed, ad the alterative solutio proved to be ieffective. The ERP vedor left the project ufiished. The uiversity had to complete the project through a secod ERP vedor for a estimated cost of $15 millio, while their existig project had cost overrus of approximately $20 millio. The importace of selectig the right ERP vedor is quite evidet i this example. Careful plaig is ecessary to accurately uderstad the feasibility of such a udertakig. After the plaig stage comes to a close, the request for iformatio phase begis. 3.5 Request for Iformatio (RFI) Phase Request for Iformatio (RFI) is a key phase i the ERP selectio process. Depedig o the size of the compay ad its requiremets the RFI ad RFP ca be combied to fulfill the same objectives. At this poit i the ERP selectio process the iitial plaig is completed ad marks the begiig of the acquisitio life cycle. The major plaig activities to select a team are established, detailed objectives ad goals are defied, ad the feasibility aalysis is doe. Additioally, a assessmet of the compay s requiremets is doe, usually a very high process, ad the budget is established for the acquisitio effort. It is critical whe determiig the right fit that the ERP acquisitio team has established its selectio ad evaluatio criteria prior to cotactig ay ERP vedor or cosiderig a ERP solutio (Verville et al., 2005). Typically, the RFI/RFP phase is whe a compay will idetify a comprehesive list of ERP system vedors that potetially meet the requiremets based o the selectio ad evaluatio criteria outlied durig iitial plaig. This RFI/RFP phase may be a iteractive process, as the ERP acquisitio team gathers iformatio iformatio o vedors from iteral ad exteral sources, sale reveues cosumptio Ivetory chage Fiished Prod. products o purchase D DB C ad elimiates those that do ot meet their requiremets. Iteral ad exteral sources provide a meas to obtai iformatio about potetial vedors. Iteral sources are usually sources withi the acquisitio compay such as idividual users, team members, cosultats, ad cotractors (Verville et al., 2002). Exteral sources are large professioal research groups such as Garter Group, Meta Group, ad CSC Idex. These are well-kow ad popular sources used to obtai iformatio about a compay for strategic decisio makig. Other exteral sources that may be used are tradeshows, publicatios, cofereces, ad the Iteret. Aother particularly valuable exteral source ca be a compay s idustry competitio. Compaies i the same or similar idustry who have successfully implemeted a ERP system are a excellet validatio of the ERP vedor s capability. Additioally, their experiece with the ERP vedor ca be reassurig, as well as beig a extremely reliable ad substatially accurate source of iformatio. As with ay part of the RFI/RFP phases, mistakes will be made. However, kowig the commo pitfalls ca help the ERP acquisitio team to operate more effectively ad efficietly. Kuiper (1998) cites the most commo mistakes compaies may make durig this process. Pickig a ERP system without doig a targeted search Commuicatio with ERP software vedors before requiremets are defied Not startig with a large populatio of ERP vedors Takig too much time i the prelimiary aalysis 3.6 Evaluatio Phase Prelimiary Versio - sed commets to pml@hec.ca 39 The greatest eterprise system implemetatio failures seem to occur whe the ew techology s capabilities ad eeds are mismatched with the orgaizatio s existig busiess processes ad procedures (Umble et al., 2003, p. 247). For this reaso, the evaluatio phase is a sigificat phase i the selectio process. The evaluatio phase is the process of assessig the differet vedor optios. At this poit may compaies compose a scorecard, score sheet, or check off list for the assessmet.

8 cc. Rec. Reveues Idepedet requiremet ues Ivetory Fiished chage product Factory o A umber of criteria are decided upo, ad the measured agaist prospective vedors. The umber of items o the evaluatio will vary from compay to compay. There will be some questios or scorecard items that all ERP selectig compaies should have, ad there will be others that are specific to that particular compay. The evaluatio ad criteria used to idetify the list of recommeded ERP vedors should be based o a weighted value which icludes five mai categories : fuctioality, itegratio with other applicatios, ease of implemetatio, vedor stregth ad/or reputatio, ad cost (Verville et al., 2002). The compay s assiged criteria weights reflect the level of importace. For example, if the compay heavily values the ability to upgrade or expad the proposed system, the the sale reveues cosumptio Ivetory chage compay might assig it the weight of 30% ad the other criteria may receive 10% each. The evaluatio phase is doe twice. The first time is to arrow dow to four or six vedors to cosider (Umble, et al., 2003), ad the the secod is to make the fial decisio. West ad Shields (1998, p. 6-7) speak to a umber of aspects to cosider whe compilig a short list of vedors : Who are the package software leaders i fuctioal coverage, techology visio, ad for deliverig o schedule? Which vedors are profitable, will be aroud for the log term, ad are ivestig a substatial amout back ito their products through research ad developmet efforts? How may compaies like yours are i the istalled base for the vedor, ad how may istallatios have there bee of the vedor s curret software release? What are the support capabilities of the orgaizatio : traiig courses, 24-hour help lies, olie documetatio, bug patches ad fixes, user group meetigs, ad implemetatio support through the vedor or reputable third-party orgaizatios? What is the ballpark cost of the vedor s software, ad what is a typical total cost of implemetig these packages icludig software, databases, hardware, ad implemetatio assistace? What modules ad fuctios are icluded i the curret release of the vedor s package? Performig a market aalysis of the ERP vedors who are major ad mior players i your idustry is importat. It may be wise to arrow the list based o criteria such as size of the vedor or idustry type (Umble, Haft, & Umble, 2003). Differet vedor types should be explored such as VAR, best of breed, ad iche market to esure diverse solutios are sought. Fially, comprise a list of four to six serious cadidates where the stregths ad weakesses of each vedor are evaluated alog with their Fiished Prod. products o purchase D DB C ability to be a fit with compay requiremets (Umble et al., 2003). The umber of short list vedors ca vary from compay to compay depedig o their requiremets, ad how quickly a solutio eeds to be idetified. Market Aalysis - Commo Results Adapted from (Verville et al., 2007) Idetify major ad mior players i the ERP vedor market Comprise a list of techology solutios that meet the requiremets Review Solutio capabilities agaist requiremets Esure o-quatifiable requiremets are addressed After a short list has bee compiled, ERP vedor product demostratios, a busiess case, ad maagemet commitmet must all be created or obtaied. The ERP demos require a scripted demo outlie to be developed. Typically, scripted demos idetify strategic compay busiess processes, problems facig the compay i certai orgaizatios, or both (West et al., 1998). These scripted scearios should idetify key busiess processes that may be challeges with the existig legacy system that would provide substatial beefit to the orgaizatio if they were supported by better iformatio ad fuctioality. What are the 10 to 15 key thigs that are difficult to do today with the curret systems that would provide substatial beefit to the orgaizatio if they were supported by better iformatio ad fuctioality? (West et al., 1998, p. 6). Most ofte, this separates the ERP vedors that are or are t a fit with the compay s busiess objectives ad goals. The scripts should list the detailed steps, fuctios, ad if available, sample data Prelimiary Versio - sed commets to pml@hec.ca for a particular busiess process. It is suggested that the demostratio scripts be prioritized ad keep short with elimiatig importat detail. Keepig to these guidelies allows the ERP vedor sufficiet time to prepare the scripted demos, ad puts emphasis o the most importat busiess issues. Maagemet ad users of the curret system should review ad accept the scripts. This demostrates that the selectio process is busiess drive ad ot techology drive. Subsequetly, the selectio phase commeces oce the evaluatio phase has bee completed.

9 cc. Rec. Reveues Idepedet requiremet ues Ivetory Fiished chage product Factory o May times a proof of cocept is requested from a potetial vedor. Typically, whe the vedor list is arrowed to two or three vedors is whe it is appropriate to solicit for this type of request. A vedor will put a lot of time ad effort ito the preparatio of a proof of cocept hopig to wi a compay s busiess. Whe the vedor demostrates the proof of cocept, close attetio to the existig ERP system fuctioality ad the amout of customizatio required to meet busiess requiremet are importat to ERP vedor selectio. 3.7 Selectio Phase sale reveues cosumptio Ivetory chage The ERP Selectio phase culmiates with a fial choice or recommedatio for a ERP vedor solutio (Verville et al., 2002). Site visits (also called referece calls) are a importat aspect of the ERP vedor selectio process. It allows the acquisitio team ad other iterested idividuals to see first-had a particular ERP vedor solutio i operatio. Keep i mid there are uique compay processes that may appear to be similar, but vary based o the idustry ad process. For example, compay size matters performace ad techology ifrastructure ca be differet as you icrease the umber of users or the volume of trasactios. The ERP vedor will usually provide a list of referece cliets that a compay ca visit or call o. Now the acquisitio team has re-evaluated the potetial ERP vedors as fit solutios. Further examiatio is ow the total cost of owership. All cost associated with acquisitio is thoroughly scrutiized for the ext step i the process. Clarificatio questios are posed; customizatio requiremets are refied to uderstad impact, hardware ifrastructure modificatio/additios are blue-prited, ad ERP software maiteace (icludig support ad upgrades) are dissected. If a RFP is eeded, the proposal is prepared (see RFI for detail). Expaded detail ca be added to the RFI outlie to iclude specific terms ad coditios, curret ad future costs, licese agreemets, ad prelimiary traiig ad deploymet plas. The ext step i the ERP selectio process is to egotiate with ERP vedors to fialize the recommedatio or fial choice. Negotiatio will most likely etail discussios with a compay s legal departmet ad seior maagemet or steerig committee with accoutability for the project s success. Do ot expect this process to move fast. Several iteratios of meetigs ad discussios almost always happe before fial ERP vedor selectio. The fial step is to arrive at the fial choice or recommedatio. The acquisitio team reaches a decisio ad gives a comprehesive report of the fidigs. Fiished Prod. products o purchase D DB C A decisio is commuicated with justified tagible ad itagible beefits. A go, o-go decisio is made to move o to the ERP implemetatio. I extreme cases, if ecessary, reverse the decisio, evaluate other ERP vedors, or reegotiate the cotract. 3.8 Selectio Trade-Offs What is a trade-off ad why should it be cosidered whe selectig a ERP system? Accordig to Dictioary.com (2011), a trade-off is the replacemet of oe item or cocept for aother that is of more or less equal value, particularly to affect a compromise. Trade-offs for ERP selectio will vary by compay. Here are some example trade-offs that a compay may face whe selectig a ERP system : Customized versus Vailla ERP system Vedor Module Fuctioality Offerigs Scalability of System Degree of Cosultat Ivolvemet A compay must decide whether a customized ERP System is more appropriate tha the adoptio of a COTS system. See sectio Idetifyig Key Busiess Drivers for discussio o this trade-off. Vedor module fuctioality offerigs are a additioal trade-off. Vedors will have a portfolio of module capability to offer customers. The customers selectig a ERP must choose which vedor best serves the busiess fuctioality required. A trade-off may arise whe decidig o which modules are selected due to costraits such as time, budget, or perhaps what vedor is selected. I additio, the scalability Prelimiary Versio - sed commets to pml@hec.ca 41 of a system may also be a trade-off cosideratio, as a compay may be compelled to choose a ERP vedor based o this requiremet ad what costs or resources are ivolved. A tradeoff could occur whe a compay cosiders whether the ERP selectio will be hadled by iteral teams or exteral cosultats. Exteral cosultats will be more kowledgeable based o past experiece ad will free iteral resources; however, the cosultat fees may be costly ad the cosultats may ot be as familiar with the compay or its eeds. Iteral teams will have kowledge of the compay, but may ot have the expertise or resources to put forth.

10 cc. Rec. Reveues 3.9 Coclusio Ivetory Fiished chage product Factory o The ERP selectio process ca be challegig. With careful plaig, thorough iformatio gatherig, ad close attetio durig evaluatio, the process ca lead to a successful selectio. Trade-offs, risks, ad feasibility should be comprehesively ivestigated. Selectig the best ERP optio may lead to 3.10 Flow Chart of a Prelimiary ERP Selectio Process Adopted from Karsak ad Özogul (2009). Fiished Prod. products o Compay decisio to purchase a ERP system D DB C icreased efficiecies, better data itegrity, ad i tur higher profits. I sectio 3.10, you will fid a flow chart of a prelimiary ERP selectio process to aid i the visualizatio ad comprehesio of steps ivolved. User Compay profile Vedor optios Compile evaluatio team ad review curret system(s) ad busiess processes Establish pla ad coduct feasibility aalysis Request For Iformatio or Request For Proposal for Selectio Process purchase Busiess objectives System requiremets Idepedet requiremet Establish evaluatio ad selectio criteria Perform market aalysis ues sale reveues cosumptio Vedor s RFI/RFP resposes Ivetory chage Create short list of vedor Re-evaluate RFI/RFP resposes Ca a ERP system be selected? Select best ERP system Prelimiary Versio - sed commets to pml@hec.ca 42 Yes No Request additioal ifo

11 cc. Rec. Reveues Refereces Idepedet requiremet ues Ivetory Fiished chage product sale reveues cosumptio Ivetory chage Factory o Fiished Prod. products o purchase D DB C Austi, R. D., Nola, R. L, ad Cotteleer, M. J Cisco Systems, Ic.: Implemetig ERP, Harvard Busiess School Case Study (No ), pp Babcock, C Oracle Lobs $5.3 Millio Coutersuit at Uiversity. Iformatio Week Jue, Retrieved from Burs, M How to Select ad Implemet a ERP System ERP ad More! Retrieved from Gallagher, M Implemetatio of ERP Systems A Sigificat Busiess Cotiuity Risk. Retrieved from George, J. F., Batra, D., Valachich, J. S., ad Hoffer, J.A Object-Orieted Systems Aalysis ad Desig (2d ed.), Upper Saddle River, NJ: Pearso Pretice Hall. Hollocks, B. W Eterprise Resources Plaig ad Beyod: Itegratig your Etire Orgaizatio, Joural of the Operatioal Research Society (52:12), December, pp Kale, P. T., Bawail, S. S., ad Laroiya, S. C Performace Evaluatio of ERP Implemetatio i Idia SMEs. Joural of Maufacturig Techology Maagemet (21:6), March, pp Kallig, T ERP Systems ad the Strategic Maagemet Processes that Lead to Competitive Advatage. Iformatio Resources Maagemet Joural (16:4), October-December, pp Karsak, E. E., ad Özogul, C.O., A Itegrated Decisio Makig Approach for ERP System Selectio, Expert Systems with Applicatios (36:1), Jauary, pp Koch, C Supply Chai: Hershey s Bittersweet Lesso. Retrieved from Kuiper, D The Key to a Custom Fit., Evolvig Eterprise, (1:1), Sprig, Retrieved from Lauese, S COTS Teders ad Itegratio Requiremets, Requiremets Egieerig, (11:2), May, pp Lollar, J. G., Beheshti, H. M., ad Whitlow, B. J The Role of Itegrative Techology i Competitiveess, Competitiveess Review (20:5), October, pp Lall, V., ad Teyarachakul, S Eterprise Resource Plaig (ERP) System Selectio: A Data Evelopmet Aalysis (DEA) Approach, Joural of Computer Iformatio Systems (47:1), Fall, pp Lidley, J.T., Toppig, S., ad Lidley, L.T., The Hidde Fiacial Costs of ERP Software. Maagerial Fiace (34:2), February, pp Magal, S. R., ad Word, J Essetials of Busiess Processes ad Iformatio Systems, Hoboke: Wiley. Madal,P., ad Guasekara, A Issues i Implemetig ERP: A Case Study, Europea Joural of Operatioal Research (146:2) April, pp Markus, L. M., ad Tais, C The Eterprise System Experiece -- From Adoptio to Success. I Zmud, R. W. (Ed.), Framig the Domais of IT Maagemet, Projectig the Future...through the Past. Ciciati, OH: Piaflex Educatio Resources, Ic., pp Ode, H. W., Lagewalter, G. A., ad Lucier, R. A Hadbook of Material ad Capacity Requiremets Plaig, New York, N.Y: McGraw-Hill. Ptak, C. A. ad Schrageheim, E ERP: Tools, Techiques, ad Applicatios for Itegratig the Supply Chai, Boca Rato, FL: CRC Press, LLC. Prelimiary Versio - sed commets to pml@hec.ca 43

12 cc. Rec. Reveues Ivetory Fiished chage product Factory o Fiished Prod. products o Relevat Busiess Systems The ERP Selectio Process Survival Guide. Retrieved from purchase D DB C Shelly, G. B., ma, T. J., ad Roseblatt, H. J Systems Aalysis ad Desig, Bosto, MA: Thomso Course Techology. Sirigiidi, S. R Eterprise Resource Plaig: Busiess Needs ad Techologies, Idustrial Maagemet ad Data Systems (100:2), pp Trade-off Dictioary.com Uabridged. Retrieved from Dictioary.com website: Umble, E. J., Haft, R. R., ad Umble, M. M Eterprise Resource Plaig: Implemetatio Procedures ad Critical Success Factors, Europea Joural of Operatioal Research (146:2), April, pp Verville, J A Process Approach for Selectig ERP Software: The Case of Omega Airlies. I Kosrow-Pour, M. (Ed.), Aals of Cases o Iformatio Techology (pp ). Hershey, PA: Idea Group Publishig. Verville, J., Beradas, C., ad Haligte, A So You re Thikig of Buyig a ERP? Te Critical Factors for Successful Acquisitios, Joural of Eterprise Iformatio Maagemet (18:5/6), pp Verville, J., ad Haligte, A A Ivestigatio of the Decisio Process for Selectig a ERP Software: The Case of ESC, Maagemet Decisio (:3), pp Verville, J., Palaisamy, R., Beras, C., ad Haligte, A ERP Acquisitio Plaig: A Critical Dimesio for Makig the Right Choice, Log Rage Plaig (:1), February, pp Wagle, D The Case for ERP Systems, The McKisey Quarterly (2), pp West, R., ad Shields, M Up ad ruig i ie moths, Maagemet Accoutig (80:6), December, pp Wybo, M., Robert, J., ad Léger, P. M Usig Search Theory to Determie a Applicatios Selectio Strategy, Iformatio & Maagemet (46:5), Jue, pp Idepedet requiremet ues sale reveues cosumptio Ivetory chage Prelimiary Versio - sed commets to pml@hec.ca 44

13 cc. Rec. Reveues Additioal Readigs Idepedet requiremet ues Ivetory Fiished chage product Questios sale reveues cosumptio Ivetory chage Factory o Fiished Prod. products o purchase D DB C 1. How might a small or mid-sized compay s selectio process for be similar ad/or differet from that of a large global corporatio? 2. If the fial two ERP systems beig cosidered met all the criteria ad were similar i cost, what would some additioal determiig factors used to make the selectio? Al-Mashari, M., Ghai, S., K., ad Al-Braithe, M The Eterprise Resource Plaig (ERP) Selectio Process: Case Aalysis ad Proposed Framework, Iteratioal Joural of Busiess Iformatio Systems (3:2), pp Deep, A., Guttridge, P., Dai, S., ad Burs, N Ivestigatig Factors Affectig ERP Selectio i Made-to- SME Sector, Joural of Maufacturig Techology Maagemet (19:4), pp Berroider, E., ad Koch, S ERP Selectio Process i Midsized ad Large Orgaizatios, Busiess Process Maagemet Joural (7:30), pp Jacobs, F. R., ad Whybark, D. C Why ERP? A primer o SAP implemetatio, Bosto, MA: Irwi McGraw-Hill. Karsak, E. E., ad Özogul, C.O A Itegrated Decisio Makig Approach for ERP System Selectio, Expert Systems with Applicatios (36:1), Jauary, pp Markus, L. M., ad Tais, C The Eterprise System Experiece -- From Adoptio to Success. I Zmud, R. W. (Ed.), Framig the Domais of IT Maagemet, Projectig the Future...through the Past. Ciciati, OH: Piaflex Educatio Resources, Ic. pp Verville, J A Process Approach for Selectig ERP Software: The Case of Omega Airlies. I Kosrow-Pour, M. (Ed.), Aals of Cases o Iformatio Techology (pp ). Hershey, PA: Idea Group Publishig. Verville, J., ad Haligte, A A Six-Stage Model of the Buyig Process for ERP Software, Idustrial Marketig Maagemet (32:7), October, pp Wu, J., Shi, S., ad Heg, M A Methodology for ERP Misfit Aalysis, Iformatio & Maagemet (44:8), December, pp What are some key thigs to lear from successful ERP selectio? What factors would cotribute to a usuccessful selectio? 4. Suppose the recommedatio is rejected by the stakeholders, how would you respod to this rejectio? 5. How would you structure the ERP selectio team ad idetify the reasos for your ideas? 6. Discuss the pros ad cos of the differet type ERP system vedors (i.e., VAR, best of breed, ad iche market). 7. Idetify key poits to iclude i the SLA ad SMA agreemets. Support your reasos. Prelimiary Versio - sed commets to pml@hec.ca 45