How to choose the right ERP solution. A step-by-step guide to choosing an ERP solution for mid-sized and enterprise businesses

Transcription

1 How to choose the right ERP solution A step-by-step guide to choosing an ERP solution for mid-sized and enterprise businesses

2 Introduction Enterprise Resource Planning (abbreviated to ERP) solutions are now commonplace in the day-to-day business of industrial, commercial and service providing companies. Also referred to as company software, business software, business management or commercial software, these solutions support and manage all the important business processes in communication, development, production and sales, and provide transparency in stock and the flow of goods. Scenarios for use are as varied, individual and complex as the companies in which they are used. Given the sheer number of ERP solutions on the market, with their different applications, technology concepts and scope of features, it is a real challenge to find the right solution for each individual organisation. The focus should be on initially determining the basic objectives for using an ERP system. What needs to be achieved? Process optimisation, improved efficiency and cost reduction are frequent answers to this question. But what exactly does this mean for the individual company? And how can the benefits of a piece of software be measured and evaluated? Also, should such an investment be costed and paid for over the long-term? The software must be an exact fit for the company s strategy, and cover not just current but future needs. This applies equally to current and future technology requirements and innovations. The search for an ERP solution should therefore be well planned. Time is needed to determine current and future requirements and to scrutinise the market for the most appropriate provider. The company s aim is to achieve its objectives by choosing the most appropriate ERP solution and to thereby gain a long-term competitive advantage. The following guide gives decision-makers a step-by-step guide to choosing the most appropriate ERP solution, along with practical tips to facilitate the decision-making process.

3 A step-by-step approach to choosing the right ERP solution Despite vast differences in products offered, line of business, employees etc, the same principle applies to all companies: The use of appropriate business software supports the running of the business and its success. An ERP solution contributes to growth and enables a company to react more quickly to changes in market demand and therefore be more successful in the long-term. It manages all processes within the company, provides an appropriate information base, increases transparency about the financial situation of the company, optimises the distribution and customer communication processes, makes the manufacturing process not just more efficient but shorter, and much more. According to a Gartner Study, top business priorities have shifted in recent years, from cost-saving to growth and profitability. For no less than 41% of companies, growth is now one of the top 3 priorities and IT solutions play a pivotal role in making this happen. (1) Therefore Enterprise Resource Planning software can help businesses to meet their priorities. In the following sections, there is a step-by-step outline of the fundamental questions decision-makers need to answer before they can begin their search for the appropriate software. Only if the corporate goals and strategy have been clearly defined can the best ERP solution be found and its introduction can be considered a success. And this applies to all businesses. The software needs to fit the company needs. (1) Gartner, CEO and Senior Executive Survey 2013: CFO Turns to Growth, p.3 Yes Fact check: Consolidating your ERP systems 16% Do you plan to consolidate your ERP systems in the next 24 months? Source: RAAD

4 6 steps to the right ERP solution Step 1: Determine your reasons and objectives Make the decision collaboratively with your departments, your managers and your IT support. As a team identify the weak points in your organisation and opportunities to optimise. You can only recognise and effectively evaluate your requirements and goals together. Keep asking the question: what do we want to achieve by introducing an ERP solution? Your to-be processes should be defined on this basis and included in a specification document. This will detail the requirements of the software. Step 2: Scrutinise the company strategy and establish the requirements Take another look at your company strategy, including the strategic goals of individual departments. The strategy is significant in the appropriate choice of software. Note down in your specification all the requirements of the ERP solution which derive from the company strategy. Step 3: Scrutinise cost effectiveness capital expenditure budgeting As far as is possible, analyse the cost effectiveness of the planned software deployment. In this you should assess the cost of the current as-is processes, the future cost of the to-be processes and of any knock-on effects as well as all investment costs. Compare them all. From this you will be able to estimate the project s profitability and the payback period. You should also evaluate the effects that are not directly measurable such as transparency, flexibility, customer and employee satisfaction. These are as important as the financial aspects. Finally, draw up an overall list of priorities. Step 4: Determine the required functionality and level of specialisation Determine the extent to which your company needs specific industry functionality, or whether it is a question of deploying a more flexible generic software. Again this needs to take your company strategy into consideration. How dynamic and flexible must the software be? As a guide, the more specialist, well-established and constant an organisation is, the more suitable industryspecifc software would be. The more dynamic, flexible and international a company is, the more appropriate generic software. Also, involve the main users from the affected company divisions and include them in the decision-making process. They are obviously closer to the day-to-day business and often know the processes better than management or an IT specialist. Step 5: Architecture check All approaches have advantages and disadvantages. For this reason, they must be assessed both for their practical and financial viability. See how the as-is position of your existing IT infrastructure and the to-be position of the application scenarios fit with the architecture and technology approaches. By doing this, you will establish the most appropriate approach and combination. Consider your priorities according to your individual criteria. In particular think about independence, security, flexibility, openness, initial outlay and operating costs etc. Ask your IT department to draw up an architecture roadmap and weigh up alternatives. Step 6: Evaluate soft factors Assess the soft factors as well and include them in your selection process. They are as relevant in your decision as the hard factors, especially if different ERP systems work out almost identical in cost and characteristics.

5 Objectives: What improvements should the ERP solution make? The reasons for investing in ERP solutions are very different. Commercial companies, for example, might hope to gain full transparency across all branches, markets, product ranges and client from an ERP solution. On the other hand, the manufacturing industry requires efficient production processes, precise materials planning, adherence to formulations, batch tracking and control of the supply chain, including the supply chain to clients and suppliers. Both industrial and commercial businesses could suffer increased storage costs which they want to reduce. The following examples demonstrate how varied the objectives of an ERP solution can be. They can roughly be classified as follows: Function-operational objectives For example: Streamlining production and delivery processes Ensuring continuity of data format Standardising and accelerating the manufacturing process Gaining transparency over the financial, ordering and human resources Improving information and reporting resources Strategic objectives For example: Networking of departments and locations Gaining new markets and using new channels of distribution Expanding nationally and internationally Establishing and integrating new partner and supplier networks External objectives For example: Complying with national and international legal provisions, for example, finance or international standard accounting practices such as the International Financial Reporting Standard IFRS Supporting foreign legislatures and currency systems Cost objectives For example: Reducing process and production costs Reducing storage costs Reducing IT costs i.e. software, hardware, telecommunications and service

6 We needed industry-specific software, adapted to our business processes which allowed a single, continuous flow of data across the organisation, so that we would be prepared for any bulk orders. Previously we had one commercial software for our accounts, one for the management of our inventory plus production software, without any interface between the three. Using three independent solutions lead to errors and an enormous amount of work maintaining data. Marko Kimme Manager, INTAX

7 Strategy: Is the software appropriate for the strategy of the organisation? Since each company is individual, the software must be a tailored fit today and in the future. For instance, if there are current plans within the organisation to conquer the international market, one should anticipate purchasing software suitable for worldwide use. Otherwise, at the point of expansion, the ERP solution will hit barriers. The consequence would be that the organisation would be obliged to start the selection process from scratch again. So in principle, the software usage must be compliant with the current and future company strategy. It is essential to carry out a precise analysis, and to establish long-term business objectives, so that the investment is future-proof. This means that decision-makers must take a very close look at the company s strategy. It will make certain basic demands of the software from the outset. The following examples explain the relationship between the strategy and the software: International Strategy For mid-sized to enterprise companies already active internationally or those planning international expansion in the next few years, an international ERP solution with national expertise is recommended. In addition to the multi-lingual nature of the solution, this would require above all a cross-country and cross-currency business data consolidation in the accounts, as well as the support of local legislatures. Only then would the ERP system provide a complete overview of the whole organisation including foreign subsidiaries. Multi-company strategy Many medium-sized companies in the United Kingdom are not single-site operations. For the ERP solution to meet longterm requirements, it is important to scrutinise the existing company structure or one planning the integration of firms, plants or branches in the longer term but also maintain the flexibility of individual sites. Only in this way is the investment secured in the long-term. Industry-specific strategy Last but not least, the suitability of an ERP solution is often decided by specific industry requirements. The commercial, industrial and service sectors each have their individual requirements. These must also be taken into account in the strategy. Growth strategy Also not to be forgotten is the planned company growth. A software application is suitable for companies with strong growth aspirations only if it is expandable upwards and also demonstrates scalability. Decision-makers need to be aware of this in their choice. Of course there are always more strategic business units, so consideration must be given not only to the overall strategy but to certain aspects of the strategic business planning, such as cost or sales planning. Yes 13% Fact check: Internationalisation and expansion Does your organisation plan to open new branches/plants within the next 24 months (in which countries, incl. Germany)? Germany, Jan. Mar. 2011, n=678, Source: RAAD

8 Company strategy checklist International Are you currently active nationally and internationally and do you intend to be so in the future? Sites Do you maintain several national sites with, for example, independent subsidiaries? Should these be integrated? If yes, how? Structure How should your future organisational structure be built? Positioning Are you planning a restructuring or new positioning? Sales Are you considering using new sales channels and addressing new markets? Network What is the current position with your partner and supply networks? Would you like to include these in your ERP solution? Growth What plans for growth do you have over the next few years? Expansion Would you want to expand your business vertically? Tip: Take time to plan! The most successful ERP introduction projects are those which are aligned with the organisational and cultural development of the company. Plan these early. Take time for your strategy and setting targets.

9 Cost effectiveness: Identify profitability and prioritise When entrepreneurs take an external look into their business, they invariably identify potential opportunities for optimisation. These include, for example, bar codes and radio-frequency identification (RFID) in logistics, mobile solutions for the sales force, the optimisation of the supply chain or even linking production machines in the manufacturing process. Where there are investment decisions to be made, individual departments often compete over the greatest optimisation potential. However, since financial and human resources are usually too scarce to fulfill all objectives and wishlists, there is only one thing to do: Set priorities. But according to what criteria? First of all, it helps to identify the expectations with regard to the return on investment (ROI), i.e. to make an economic and temporal comparison of the investment costs and the actual benefits. That means at least roughly estimating the expected benefits of the investment for example process costs saved or the anticipated additional turnover and profit through, say, international expansion - and facing up to the expected investment costs. In determining this, those costs which are incurred through the use of the software itself must be taken into account: How much does the consultancy service, adaptation work, maintenance and operation cost? What additional hardware is required? Is the software already technologically current or will there be a technology upgrade in the near future? In the event of a new release, can there be adaptation to the new release without major outlay or will additional service expenses be incurred? Would the new system, for example, also allow adjustments to be carried out by the company itself, rather than by engaging expensive service suppliers? What are the maintenance costs in the long-term in comparison with current ones? Will there be extra costs for scaling the software in the future if the requirement arises? If the overall costs exceed the measureable commercial value, the project implementation is not viable from an economic point of view. However, it is short-sighted to merely consider profitability when making the decision as to whether or not to invest in an ERP solution. Company software provides numerous improvements, which cannot be directly translated in monetary terms and which can be set against the investment costs. For example, these include increased transparency, and better employee and customer satisfaction. For instance if a company gains a better overview of the status of orders, each sales representative can view the customer history and respond quickly and accurately to customer requests. In this way the ERP solution improves reliability and the customer s confidence in the company - thus retaining a customer in the long-term. If a manufacturing company can respond more quickly than its competitors to new market requirements and meet these, it has the competitive advantage that cannot be directly measured in pure financial terms. For these reasons decision-makers are well advised to include all anticipated benefits in the prioritising exercise, even those which are not directly measureable.

10 Functionality, dynamism, flexibility: Generic or custom? Using the preceding steps, the organisation has defined its initial selection criteria for choosing the right ERP solution and has therefore already substantially reduced the number of ERP candidates for consideration. Now it is a question of subjecting the software solutions themselves to greater scrutiny. Two types of software can be identified: the generic and the custom. They each have different objectives and these are outlined below. A generic or standard software is designed to be functionally broad and already covers all company divisions from financial accounting to production, purchase and sales to inventory and distribution. As a result it is highly varied in its application possibilities. This is an advantage for companies with strong dynamics, which require a particular degree of flexibility: for instance young and growing companies often find themselves in a phase where they have yet to establish a strategy. They are in the process of considering various options as to their direction of development. Perhaps they plan marketing to other countries or a vertical expansion of their business. In other words, distributors may be considering whether or not in the long-term to move into manufacturing. They may be asking in which countries they want to have production and how they can expand their distribution. However they have less experience in this than traditional companies which are already established in the market. So for the newcomers a flexible scalable software is very useful, as it can easily adapt to new processes and procedures and allow expansion into international markets. In addition, generic solutions are very suited to companies with diverse business areas and multinational organisations, as they integrate all business areas and sites into one solution with a common database. They can provide company-wide transparency, consolidated figures and an up-to-date overview of the financial situation even across country borders. Custom or industry-specific solutions, however, are mainly used when companies want to continue with their existing business and thereby want to optimise their current processes over the whole process chain. A custom solution already covers all industry requirements in depth in its generic version and in this way avoids additional costs for adaptation. An example of an industry-specific solution for an automotive parts dealership would be one which provides functions such as used parts tax analysis or a link to the leading B2Bplatform TecCom for the Automotive Aftermarket, checking availability with the producer and ordering online through the parts manufacturer. There are also industry-specific solutions available, for example, for the motor industry, plastics processing industry, retail and wholesale trade, the electrical and electronic engineering sector, food and pharmaceutical sectors, cosmetics and healthcare. Furthermore it should be possible to adapt both generic and custom software to the individual requirements and processes of a given company without huge programming expense. Tip: Include your IT department If you have not done so already, now is the time to call upon the expertise and experience of your IT department. They will understand the advantages and disadvantages of the various architecture models and will know which will be the best to implement in your company.

11 We wanted user-friendly software, which would enable EDI data transfer with our clients at a reasonable price, as well as mapping workflow in our branches. Being a supplier in this sector is complex. Customer requirements are all about the small details and special features and we have to respond on an ad-hoc basis. Without the software this looked nearly impossible. Thomas Fickenscher Managing Director, Gealan Formteile GmbH (Gealan Mouldings GmbH)

12 Architecture and technology: Approaches compared When choosing software not only functionality but also the architecture and technology play an important part. There are different and at times conflicting approaches, which are outlined below: Best of Breed The basic idea in this approach is to choose the best solution for each area. This means that custom solutions for different areas are used which are connected via interfaces or integration. The Best of Breed approach is one common corporate practice, for example, when financial accounting, materials management and quality assurance run on different systems from different manufacturers. These are always individually highly efficient software solutions with their own operating logic and user interfaces. Their advantage lies in their specialisation and independence of any single vendor, their disadvantage in the increased outlay in adaptation and coordination. Best of Suite Best of Suite solutions take the opposite approach. With these the organisation gets a fully integrated total concept, in which all functions are integrated including all custom solutions for particular areas such as financial accounting, manufacturing and sales. They enable a look at the whole and follow the same operating logic in a single user interface, i.e. users require minimal training. However they do not offer some of the functionality of custom solutions. They also create a dependency by the organisation on a single vendor the so-called vendor-lock-in-effect. Service-oriented architecture A recent successful development using the Best of Breed approach is service-oriented architecture (SOA). Thanks to new technology and open platform working various company applications can be networked on a single technology base. The aim of SOA is to network applications together at the business process level producing end-to-end processes. The different applications communicate with each other - and these even beyond the organisation s boundaries with partners and suppliers. Technically, this is achieved by means of open interfaces and web services. To put it simply, these are services that support interaction with other software solutions through modern protocols. In this way, for example, solutions for document management, customer relationship management and E-commerce interact seamlessly. Existing systems can be combined with (almost) any new system providing the existing solutions are SOAappropriate. Overall an SOA is very cost efficient, provides the benefit of being independent of a single manufacturer and offers protection of your investment in the long-term. In the ideal scenario this is also true when choosing an operating and database system which is suitable for any application, thus reducing the dependence on one supplier. Due to the often complex system landscapes in many SMEs a sustainable ERP solution should also be technically appropriate for an SOA.

13 Cloud Computing Furthermore there are other ways of using business software, such as Cloud Computing. This is the possibility to obtain storage capacity, processing power and bespoke applications as a service over the Internet. A Cloud project allows customised and flexible usage, which can be costed depending on the functional scope, length of use and numbers of users. The concept of a Public Cloud is that the services of an external service provider are accessible over the Internet (or private networks). A feature of this is the shared use of systems in one or more data centres by several companies with various levels of data protection and control. In contrast there are also Private Cloud Computing architectures. These are modelled on the Public Clouds but are, by contrast, internally built, managed and used by individual companies. This is based on a shared services model, with variable use of a shared pool of computing resources. In this way data remains under the control of the company. A combination of both forms is the hybrid cloud. The benefits of Cloud Computing are potential cost reductions as well as an increase in technical and business skills such as agility, faster time to market of new products and services, as well as higher rates of innovation. In the case of the Public Cloud there is no high upfront investment for the purchase of software licences and hardware. In this case all expenses relating to installation and system support are born by third parties. As a rule there is a monthly cost which is consistent and is calculated according to service uptake. The third party would usually guarantee state-of-the-art technology. The basic requirement in the case of outsourcing of data is a wide bandwidth, since all data transferred over the internet needs to be encrypted. In addition, security is a very significant aspect to take into consideration: Does a company really want to entrust sensitive data to a third party? Many firms fear the risk of a hacking attack or data theft. Also, there is the higher cost of the customisation, since this would normally go through a third party. Another disadvantage can be the dependence on Cloud providers. In a similar way to the Best of Suite approach, collaboration with other providers, known as interoperability, is rarely possible or very limited - with a lack of control over the respective whereabouts of the data. Yes 14% Fact check: Significance of company networks Are you planning to create or extend your communications channels to your suppliers? Germany, Jan. Mar. 2011, n=735, Source: RAAD

14 Choosing a supplier: From sector skills to future-proofing To remain as objective as possible, many companies use a points system, whereby individual selection criteria are weighted depending on their importance. The main points are given to the software itself, its functionalities, technology and cost. However, in the final analysis, the decision is not only made on the hard facts but also on the soft factors. The decision on software is always also about choosing a provider and this has in general been the case for several years, not to say decades. Therefore, the more similar various solutions are in their measureable features, the more weight soft factors carry. Soft factors include, for example: Industry-specific experience What references can the provider give and what does its customer list reveal about its industry-specific experience? Both can demonstrate the provider s knowledge of the industry-specific business processes and understanding of the industry-specific requirements. Investment security How well-established is the provider in the market and what is the likelihood that it will remain so in the future? The provider has to be economically stable if the solution is to continue well into the future. For this reason it is advisable to scrutinise the financial situation of the provider and investigate takeover rumours. The people behind the system Is the provider a good fit for your company and its company culture? Does it understand the needs of the company and respond to them? Does it work on a personal level? Behind the system there is the management and staff of the provider, with whom the company must successfully cooperate. For this reason the chemistry must be right and the working relationship must be on an equal footing. Service What does the service provider s service and maintenance model look like? What is the situation regarding data availability outside normal business hours? Are there additional costs for a Hotline? What are the additional costs for maintenance, servicing and customising for on-demand solutions? Does the manufacturer offer version updates free of charge or are there hidden followup costs here? The answers to these questions will provide information on the cost-benefit ratio of the service and its flexibility. A detailed analysis and comparison are advisable because sometimes service packages hide services that the company never needed but is nonetheless paying for. Future-proofing: How is the provider responding to current trends in ERP? Does it have the technological basis, for example, to handle Cloud Computing or the mobility to offer the use of mobile devices such as smart phones, tablets or notebooks? Only if the provider integrates technological progress into its solutions, will it enable the users themselves to make use of technology benefits. And only in this way is the longer term usage potential ensured for the user. There is also a significant cost advantage here. With technologically modern systems, if there is a change in release, there will be minimal expenditure on porting, for example. Data, templates, adaptations etc can simply be imported without delay into the new release or subsequent applications can be integrated, for example for mobile devices.

15 Implementation: Process and concept Introducing an ERP solution is not merely a technical challenge. Equally tricky is to bring about change in the company. For a limited time IT projects require increased commitment on the part of all participating employees. The provider of the ERP solution should follow a detailed introduction model which will help with the smooth implementation of the project and provide a schedule in advance. This would usually involve three phases: planning, implementation and use. Planning The planning phase initially involves the quotation with subsequent procurement, establishment of a project manager, creation of a rough concept and a milestone plan. In parallel with this the provider will order the hardware and software. Subsequently the concept phase begins. In this the project is analysed, potential issues are raised, a project plan is created and the project organisation and strategy defined. In the application concept, the functionality checklist is drawn up and deviations from the generic design as well as functional descriptions of missing features noted. the programming must be created. The programming will be carried out on the basis of the detailed design. Following the successful conversion and program expansion installation there is a further acceptance test. As a final step in the preparation for the installation implementation, the implementation strategy will be fine-tuned. Customising is the last area of the implementation. After that there is an acceptance of the customised system by means of an acceptance report. If the customising has been carried out in accordance with the company stipulations, the provider can commence test operation using test data and can begin training the users. Thereafter comes the conversion of real-time data and with this the commencement of real-time operation. Use Support and further training of the users in real-time operation is only necessary in the initial period, so that the scope of the software can be fully exploited. The system and business processes can be further optimised in this phase until it runs as required. Implementation The implementation phase is divided into the introduction preparation and the installation. The former begins with the hardware and software installation. A system test will follow, which should be seen as an acceptance test. If data conversion is needed, the data is transferred. If additional software enhancements are required, a detailed design for Tip: Keep a constant eye on the project status! Inform all project stakeholders on a regular basis of the current status of planning, implementation and commissioning. You are then able to get early visibility of and intervene on issues or conflicts with important business events. Make sure you have a buffer! For your real-time start, choose a period that offers a buffer such as around a long weekend or a holiday, so that day-today business is not interrupted by initial problems.

16 Choosing the right ERP supplier for you Specification and pre-selection Having drawn up your specification (objectives, strategy, functionality and model), you should start with market research to reduce the number of potential candidates to a maximum of a dozen. Important factors here include security of your investment and an international or industry-specific focus. Looking at available reference installations is also recommended. Take advantage of freely-available information and attend fairs or roadshows where you will have the opportunity to meet the provider personally. Round two invitation to discuss the application In the second round the remaining candidates are given the detailed specification, which contains key business processes and project requirements. This is the basis for concrete proposals for both a solution and a first offer. This should produce, for example, adaptation requirements as well as the level of maintenance and service charges anticipated. The offers are then compared. The three to six most promising candidates are taken through to the final round. Final presentation a parade of providers Unlike in the second round, in the final stage it is not the manufacturers claims that are evaluated, but the actual performance of the candidates. To gain insight in an acceptable timespan, most companies divide up the tasks between the participants. This should involve complex business processes which have to be mapped in the software. Therefore, for the purposes of identifying essential criteria, you should select key or even business-critical processes. Ask for the results in the form of a presentation. This obliges the provider to focus on the best interests of the company. Sometimes this might be followed up by supplementary workshops with the best two or three candidates. The decision a partner as an equal Make sure you also check the all-important soft factors such as industry-specific experience, service, the implementation design or the investment security of the provider. Remember you are working not just with the software but also with the provider. Assess the solutions, the performance and the competence of the various applications and providers. Make your final decision in consultation with the representatives of the business areas affected. This will result in better acceptance. Make careful preparations before the implementation by holding joint workshops. The more detailed the planning, the lower the risk of nasty surprises. Tip: Go for a multi-stage selection process! When making ERP investments, it is safer to aim for a comparison of potential solutions through a multi-stage selection process. Depending on the size of the project allow at least three to six months.

17 Conclusion Even though choosing an ERP solution can be challenging, it is worth the time spent. Long-term, the right ERP solution will pay for itself in business success, employee satisfaction and company growth. With good preparation and planning of the selection process, the decision may be easier than you think. Whilst there may be some initial resistance from employees, it will bring benefits: faster optimised processes, lower costs and greater transparency will enable the company to quickly and flexibly adapt to market requirements. Introducing Sage ERP X3 Sage ERP X3 is a scalable ERP solution developed for midsized to enterprise companies, to grow a profitable business, both internationally and locally. With powerful ERP functionality for manufacturing, services, distribution and production industries, and a collaborative approach across all business units and departments, Sage ERP X3 is ideal for business growth. For a fully-scalable ERP solution that s flexible, simple to learn and easy-to-implement, with no hidden costs - talk to us about Sage ERP X3.

18 With over 6 million customers in 24 countries, Sage is one of the market leaders for business software and services for small, medium-sized and enterprise companies. For over 30 years we have helping our customers achieve success within their business. Because every business is different, we offer products and services - covering a wide range of needs - which are secure, effective and easy-to-use. To find out more about Sage ERP X3 for mid-sized to enterprise businesses, contact us using the details below. Sage Enterprise Market - UK Sage House Wharfedale Road Winnersh Berkshire RG41 5RD Call: uk.eme@sage.com 18 Sage WINCARAT