The Basics of ERP Selection

Transcription

1 The Basics of ERP Selection

2 Introduction This document is intended for people with limited or no ERP experience and for small to medium sized businesses. If you are starting out on your first ERP journey and want to understand what ERP is, how it can benefit your company and how to choose the right product this document is for you. This document provides a good overview of ERP concepts and a step by step process to aid your selection of a new ERP system. This is not a comprehensive guide but it leads you through the major steps involved For ERP experts or larger more complex businesses, this document will seem too simplistic. Please bear in mind that it is written for those encountering ERP for the first time. For those of you new to ERP reading this document this is simply a start to your ERP journey. There is a lot understand about ERP and there are a lot of ERP systems. Choosing and implementing an ERP system can be a tough road to travel, but this document will help get you started on the right foot Technologists are well known for using TLA s (three letter acronyms) which appear throughout this document. At the end of this document is an alphabetical reference of acronyms used. Please refers to this list and in no time at all you will become familiar with them. Any feedback or questions will be welcomed. The Basics of ERP selection 2

3 What is Enterprise Resource Planning (ERP)? ERP (Enterprise Resource Planning) is a comprehensive suite of software modules that helps you plan and track your business transactions. It is an integrated suite of modules that caters for Accounting, Administration, Sales, Purchasing, Inventory, Costing and Manufacturing. Many companies today still use multiple solutions, often called point solutions, to run their businesses. Often these point solutions are not integrated and require duplicate data entry which leads to operator inefficiency and possible discrepancies between solutions. Furthermore each solution has its own database making it difficult to combine the data for reporting purposes. Examples of these point solutions would be a basic accounting system, Microsoft s Excel or Access and other focused but limited software solutions that don t integrate to each other. The advantage of well executed ERP systems, no matter what size, is their seamless integration. Master data and transactions are entered once and are used throughout the system minimizing duplicate data entry and improving data accuracy. What you want to achieve is the ability to enter data only once and to have one set of accurate data from which to report. Another advantage of integration is a reduction in the risk that a particular aspect of the business will overlook activity occurring in another aspect of the business. When the sales function, for example, is integrated with accounting, system controls can be set to automatically prevent further sales to customers in that are in arrears. ERP systems are suitable for all types of companies and not just manufacturing companies. Different ERP systems cater for different business types; this document focuses on, in general terms, Manufacturers and Distributors. ERP systems for hospitality, service providers and other vertical industries have similar structures but with industry specific modules and functionality built in to the software. The Basics of ERP selection 3

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5 An example of the modules, at a very high level, that are included in ERP systems follow: Accounting and Administration Inventory Control Manufacturing Base ERP modules for Small businesses General Ledger Inventory Product Definition Financial Reporting Sales Orders and Invoicing Manufacturing Estimating Fixed Assets Purchase Orders Work In Progress Bank and Cash Control Landed Cost Tracking Master Production Schedule Accounts Receivable Accounts Payable Payroll Data Analysis Purchase Order Planning Advanced ERP modules for larger and more complex businesses Infinite Capacity Requirements Planning Document Management EDI Product Configurator Financial Planning and Budgeting Warehouse Management System Engineering Change Management Enterprise Asset Management Transportation Management Material Requirements Planning Human Resources Shipping Management Finite Capacity Requirements Planning Customer and Supplier Forecasting and Demand Relationship Management Management Quality Management Project Management Supply Chain Planning Shop Floor Control Business Intelligence Tools Manufacturing Execution System The Basics of ERP selection 5

6 There are also a number of capabilities that you need in your ERP Capability Workflow Event Management Exception Management Document Management Print to Archive, PDF, , Fax Web enabled Mobile enabled Description Imagine how your business processes work, the sequence of events and the flow of any documentation. This workflow is now being implemented in ERP systems where for example a purchase order requisition is requested by a person, the electronic copy is routed to their manager who approves it and finally it s routed to the purchasing department who place the order. Work flow functionality reduces costs, increases throughput, adds traceability and removes paper from the business process. Event management in ERP triggers messages to key employees when a certain event occurs. An example of an event is when sales exceed a certain threshold a message is sent to the sales manager to inform them of the event Today s systems have so much information that you are swamped with data and going through all the reports and analysis can be very time consuming. Exception management functionality triggers reports, messages or text messages when an exception occurs which needs to be followed up. An example of an exception is when a customer s terms or credit limit are exceeded a message is dispatched to the collections department, the sales person in charge and perhaps the sales manager. By relying on exception management you need only worry about the exceptions and not the norm which is far more efficient. There are many documents today and managing them is a time consuming and complicated task. Document management in an ERP system allows you to link documents to objects in your ERP system for quick reference and lookup. An example of this kind of document may be a price contract with a customer that is stored on your server but linked to the customer and is accessible whenever that customer is accessed in the ERP system. Linked purchase orders, delivery notes and invoices are some of the many documents that can be linked to that customer. Moving towards a paperless office by allowing all documents to be printed to an archive, PDF for storage and search and directly to or fax. Today many inquiries and transactions are done using the web. Web enabled ERP products have the ability to integrate web solutions back to the ERP data and allow for transactions and inquiries to be processed or accessed from either the ERP system or the web. With today s mobile wireless devices from smart phones to vertically dedicated mobile devices your mobile workforce can be productive on the road. For example systems today cater for mobile ordering and inquiries as well as for other more sophisticated applications such as VMI, service charges and others. The Basics of ERP selection 6

7 Architectural Structure of ERP Systems Generally speaking ERP systems have a 3 tier layer or structure consisting of the presentation (what the user sees and interacts with), the business processes (data entry, calculations, business rules and reports) and the data layer. The data / information are passed between these layers during processing. Presentation layer / User Interface The user interface is the display of the data and information required in order to inquire or complete the task. The most important aspect of any user interface is that it should be easy to use, modern, efficient and intuitive. Remember that the user typically has to use the system most of the day processing sales orders and other transactions, so it s beneficial for the system to be nice to look at, easy to follow and easy to use. It should also be easy to navigate and display all the necessary data to get the job done without a lot of screen hopping, unnecessary keystrokes and unnecessary mouse clicks. Business Processes / Programs Almost all ERP systems have been developed from user feedback and real life customer input. These ERP systems have proven standard business processes built in. It s important that you find the best fit ERP for your needs and use its business processes. Many ERP implementations fail because the company will not adapt to the software s business process but instead try and figure out a work around or customize the product. Don t short change your company; take the time to map out your business processes and functionality requirements vs. the ERP s business processes and functionality. If you make a mistake it s going to be very expensive, one way or the other. Data The data layer is also important, does the software record all the data you need and have the tools to be able to access this data quickly in order to make good decisions? Generally the data held by an ERP system is designed to record transactions and it is not designed for data analysis and data mining. Smaller companies tend not to need a data warehouse as their reporting requirements are simple, but larger companies with many stock items, customers, suppliers and other tables will probably require a data warehouse to allow Business Intelligence tools to produce more complex queries. If an ERP system using a separate database system to stores its data, e.g. SQL, Oracle etc, then be sure to understand this products licensing and costs as these systems add yet another layer of costs. The Basics of ERP selection 7

8 Suggested Process for selecting an ERP system The following is simply a guideline which you could follow when starting the journey to select a new ERP system. While this may seem like an enormous amount of work it pays to put a lot of effort into the planning and preparation for a new ERP system. Making a mistake is exceptionally costly and has been known to bankrupt companies. A. Requirements gathering and budget 1. Do some research ahead of time to make a list of possible software vendors that may meet your requirements 2. Set a budget that you can afford to spend on a new ERP system, remember that they cost of the software is only about 20% of the costs, another 20% could come from the hardware requirements and 60% from training and implementation (these are very general numbers). 3. Make a list of your needs and requirements, making sure that all your stakeholders are involved in the process so that stakeholders buy into the process as you gather all of the necessary information. This is the foundation to your success, take your time and do a thorough job. 4. Send your requirements list to the ERP vendors on your list, but don t give the vendors the option of saying yes or no to each requirement, ask them to how they would satisfy or support each or your requirements. 5. Ask the vendors to respond to your requirements list with confirmation that they are a good fit with an approximate budget for the software, hardware and implementation costs. B. Create a short list of possible vendors 1. Make up a demo script with important business processes and data that you want demonstrated. Be sure to cover off all processes that you think may be unique to your business. Every ERP package has its own standard processes and you want to ensure that you get the best fit. 2. Send the demo script out to a limited number of ERP vendors that you have pre-qualified, honest vendors will qualify themselves out if they don t meet your feature set. There should be between 5 and 7 vendors on your list. Too few will restrict your options and too many will create and enormous amount of work and confusion. 3. Ensure the vendors follow your demonstration script. It s alright for them to show you their selling features, but don t let vendors ignore your script and give you their canned demonstration this is a big warning sign. Your stakeholders should be present at the scripted demonstrations. Treat these demonstrations as training sessions. The vendors are all going to give you great information that you can take away that will help you further understand what your needs really are and what the future possibilities are. 4. Don t let vendors skip over the most important business processes for your company, make sure you see and understand how their software will solve your problem. The Basics of ERP selection 8

9 C. Create short list of 3 vendors 1. Cut down the vendors into a final group of 3 based on the feedback of all the stakeholders. Make sure that you select the vendors that are a best fit and that you are comfortable with. More often than not your gut instincts of a vendor are correct. 2. Review your needs and requirements one more time, with the input of all your stakeholders, and update it based on the lessons learned from the vendor demonstrations. 3. Update your demonstration script based on your feedback. 4. Have the final 3 vendors work through the revised script again making sure that they are a good fit. Remember that no vendor is going to have an exact match for you; you will need to make compromises. The secret is to choose the vendor that fits your needs the best and then use their business processes and don t try and work around them this can lead to a difficult if not disastrous implementation. D. Reference checking 1. Be sure to get names of companies and their industry segment that use the vendor s software and check the references. This is best done by asking the vendor to show you a list of their customers and you randomly choose the references based on their similarity to your business. If you allow them to give you the references you will only get their happy customers to talk to. Remember that not all customers will be happy as there are many circumstances outside of the vendor s control that can create an unhappy customer but you do need to hear both sides of the story. 2. Make sure that you choose a viable vendor who has a stable customer base, continues to improve their product and is profitable. 3. If the vendor s product has a support network either in-person conferences or online forums observe, participate, and inquire about implementation, support, and customization experiences. If they don t have a support network this will certain present challenges if you move forward with that vendor. E. Choosing the right vendor and product 1. Does the vendor s software fit my business processes reasonably closely? If not will their process be acceptable or possibly an improvement? 2. Does the vendor s quote meet my budget requirements? Remember to take into account all the cost components mentioned earlier? 3. Are you comfortable with the vendor? Do you feel that they will do a good job for you? 4. Does the vendor have good local support or do they have a good on-line support structure? 5. Did the references give positive reviews? Review the answers to the above questions and you will see the leading vendors begin to stand out. The Basics of ERP selection 9

10 If you don t have the in house expertise and if you have the budget it s a good idea to enlist the help of a qualified consultant to help you with this process. The alternative can be very costly. Be careful to choose a consultant that has experience in your industry, is not biased towards any particular vendor and is not involved in the implementation of the chosen product as this could lead to bias as well. The Basics of ERP selection 10

11 Acronym Meaning Glossary of acronyms Applicability in ERP ABC ABC Pareto analysis Pareto analysis else known as the 80/20 rule can be applied in many situations in order to separate the important from the less important. Very general quotes are; 80% of sales are derived from 20% of your customers 80% of your inventory demand is created by 20% of your SKU s Although the numbers can vary a little it s amazing how close they can be to the 80/20 rule. Many ERP systems have tools that allow you to analyze your data in this way, the most common being the ABC analysis calculation for inventory. For example the Pareto analysis is run to categorized inventory into; A items making up the top 80% of your sales B items making up the next 15% of your sales C items making up the last 5% of your sales APICS The Association for Operations Management A non-profit organization for Advancing Productivity, Innovation, and Competitive Success. View the APICS web site by following this link: To read up on all of the standard terms and definitions that are laid out in their very useful dictionary of terms, a free download is available here: BOL Bill Of Lading Standard documents used for shipping purposes. BOM Bill Of Material Also known as product definition, the BOM is the structure of your manufactured products generally showing a parent / child relationship. CMS Contact Management System Contact management systems are the precursor to CRM systems. The CMS system is used to keep all of your contacts names, addresses, phone numbers, and any other important details. The information kept varies by system but also of importance is the ability to keep detailed notes about that contact so that you are able to refresh your memory next time you make contact with them. CRM takes this principle further. CRM Customer Relationship Management Read the note on CMS first. CRM takes CMS to another level by automatically linking all transactions with that customer contact. Transactions include but are not limited to; sales, credit notes, quality problems, correspondence, phone conversations, meetings etc. CRM is essentially a knowledge management tool. If you are disciplined and keep all of the information up to date it has enormous payback, but if you don t you may have just wasted your money. The Basics of ERP selection 11

12 Acronym Meaning Glossary of acronyms Applicability in ERP CRP Capacity Requirements Planning Capacity requirements planning software calculates the capacity requirements of your demand. The requirements are your resources which could be labor, machine time, warehouse space and any other resources required in your manufacturing or distribution process. There are two flavors of CRP: Infinite Capacity Planning: Simply calculates your requirements on a gross basis and tells you what capacity you need to meet that demand. Finite Capacity Planning: The system calculates your requirements and compares them to your stated capacity (with or without overtime) and tries to fit the requirements into your capacity based on a set of pre-determined rules. DDMRP Demand Drive Material Requirements Planning DDRP is a new age method of planning and optimizing your inventory at the same time as substantially improving customer service. This planning system can be applied to both manufacturing and distribution companies. Getting these two improvements simultaneously is very rare, but DDMRP has results to prove it. This system is gaining traction with many well-known companies such as Boeing and Unilever. For more information watch the following videos; DRP Distribution Requirements Planning DRP is very similar to MRP except that it s a distribution tool and not a manufacturing tool. DRP is a system (almost always a part of an ERP product) that calculates the necessary material required to meet your demand which is driven by customer demand. For DRP to be effective it is driven by accurate history and some sort of forecast system. Supplier lead times are used to trigger suggested purchase orders so that the products are in stock in time to meet customer demand. DRP helps companies meet the Five R s mantra; The Right material, in the Right place, at the Right time, at the Right price with the Right Quality DW Data Warehouse ERP systems typically store data in a manner that is good for following the transactional audit trail and basic inquiries. However many companies need to analyze their data to a greater extent and these transactional data bases are not ideal. The Basics of ERP selection 12

13 Glossary of acronyms Acronym Meaning Applicability in ERP Data Warehouses on the other hand store the data in such a manner that facilitate heavy data analysis and data mining typically needed by larger companies. EDI Electronic Data Exchange EDI is where two business partners exchange documents in an electronic format. For example a customer would create a purchase order and their EDI system would send the supplier an electronic order, the suppliers system would in turn pick up the EDI order and process it into their ERP system. The advantages of EDI are enormous through saved data entry time and improved accuracy. However EDI is not for the faint hearted as it can be costly and very complicated to implement. Generally speaking smaller companies may not have the resources to implement EDI. ERP Enterprise Resource Planning ERP software is your company s backbone for recording and planning all transactions. APICS (See definition of above) has the following definition: Framework for organizing, defining, and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage. ETL Extract Transform Load ETL is a tool (a subset of Data Integration tools) typically sold separate to ERP systems that extracts the data from the ERP system and into the Data Warehouse. Extract extract the data from the transactional data Transform transform the data to conform to format, structure, relationships, and terminology in the destination system. Load load the data into the data warehouse so that it is useable for data analysis and data mining. GUI Graphical User Interface This is the interface that users experience when using a Windows or Apple Computer. Typically (but not all systems) use the GUI interface to make the system more intuitive and easier to use. MRP Material Requirements Planning MRP has been with us for many decades, it is important to all manufacturers. MRP is a system (almost always a part of an ERP product) that calculates the necessary material required to meet your demand which can be driven from either your sales or from the components of the products you need to make. For MRP to be effective it is driven by both supplier lead time (for purchased material) and manufacturing lead times (the time it takes you to make it). The lead times are used to trigger suggested purchase orders (for purchased products) and for work orders (for made in products) so that the products are received and made in time for the promised date. The Basics of ERP selection 13

14 Glossary of acronyms Acronym Meaning Applicability in ERP MRP is powerful and can be complex and there is a lot more to it than described in this paragraph. RDBMS Relational Database Management Systems A RDBMS is where data and the relationships among the data are stored in the form of tables. RF Radio Frequency (devices) RF gives mobile devices the ability to complete transactions within the ERP system independently of the wired network. Examples would be hand held scanners used to receive or ship products, or mobile computer devices used to direct the warehouse labor force. RFID Radio Frequency Identification RFID tags can be attached to inventory and fixed assets and are used to track the movement of the assets automatically. For instance if a shipment of product is received from a supplier it can be tagged as received in the ERP system as soon as it passes the RFID readers at the main receiving doors. The RFID chip contains information that relates to the asset and its movement is recorded each time it is received, shipped or sold. A full history of the movements is kept for inquiry purposes. RMA Return Merchandise Advice RMA s are a control tool built into ERP packages that account for products being sent back to suppliers or being returned from customers. Without this tool there is a chance that you lose control of the returns and you don t get an analysis of why they were returned. This analysis is important, in the fight to reduce costs and become more efficient, because of the costs of double handling products in these cases. SFA Sales Force Automation SFA is a technology solution that arms your sales force with a mobile device that can do a few or many things. An example would be a hand held device that is connected back to your source data for customer inquiries, inventory inquiries, taking orders, creating RMA s etc. SFA adds a level of away from the office productivity to your sales and service staff. SQL Structured Query Language SQL is a database computer language designed for managing data in relational database management systems (RDBMS) and has become the most widely used language for relational databases. SRM Supplier Relationship Management Read the note on CRM and translate customer to supplier in order to understand SRM. WIP Work In Progress WIP is normally a module within an ERP system which is used to record the inventory and labor transactions when manufacturing products in a repetitive or make to order environment. The Basics of ERP selection 14

15 Acronym Meaning Glossary of acronyms Applicability in ERP WMS Warehouse Management System This system is often a specialized add-on module and now many ERP suppliers are incorporating much of the WMS functionality into their software. WMS features can be as simple as automated receiving and shipping processes all the way to very sophisticated warehouse bin location planning, inventory put away, bar code and RFID productivity enhancements, unit building and tagging, special allocation control over and above that or ERP, and the list goes on. In most cases all of this functionality is provided using RF mobile equipment. The Basics of ERP selection 15