What should you look for in a vendor if your organization is choosing an ERP system? How can you be confident that the vendor you're considering will meet your needs? Find out what you should ask of potential vendors and your own organization.
By Adam Golden and Dawn Scaiano
When organizations decide to implement an ERP system, there’s no shortage of preparation work. Most who decide to take the plunge take months evaluating their business processes, determining whether they’ll need to customize software, and, most importantly, deciding what they want ERP software to accomplish. For most, the next step is choosing a vendor.
But with a wide variety of ERP solutions available, it can be difficult to determine which one best meets your needs. A surprisingly large number of companies purchase new ERP systems without researching their investment. Many who buy ERP software experience serious problems during implementation that could have been avoided had they performed a more thorough review of potential vendors while keeping in mind their unique requirements.
In this article, we’ll show you how to evaluate the vendor’s software as well as the company’s financial stability, specialties, research and development plans, budget, and project vision.
Do your homework
Establish an internal project team comprised of IT leaders and process/functional owners from different areas to review potential vendors.
Most software companies offer a wide variety of solutions but typically specialize in four to five vertical markets. To find out which companies have the best track records in your industry and functional areas, do market research. Read trade and IT publications regularly, keeping an eye out for ERP implementation case studies and ratings of ERP vendors.
Second in a series
Adam Golden is director of e-engineering and Dawn Scaiano is director of software evaluations for Acuent Inc., a provider of e-services for Fortune 1000 companies. In a previous article, “Choosing the right ERP software,” the authors looked at how organizations can determine how ERP software can best meet their needs.
In addition, study IT industry analyst reports. They will tell you which software products are best-of-breed and which vendors are committed to your industry. Both publications and analyst reports will keep you up to date on general trends and developments in the industry.
Industry-specific vendors tend to recognize and react to trends in their field faster than other vendors and usually have industry-specific groups, including a dedicated sales force and cadre of implementation consultants. Find out how long these organizations have been around, how many clients they have, and how many industry-specific products they offer.
If you hire consultants, ask them which software makers they partner with—service partners are often privy to information about new and improved products. As you become more familiar with the various ERP vendors, make a preliminary list of those that are committed to your industry and/or functional areas.
A demonstration of a vendor’s product can help you understand the product’s look and feel, learn about the company, and validate the first impressions formed in your research.
Develop pointed questions that address any key concerns or unique needs.For example, do you need a payroll module? Do you use encumbrance accounting? Not every vendor offers these capabilities.
By hosting a number of vendor demos, you’ll begin to develop a better understanding of the products’ capabilities and functionality and the ones that require a closer look.
After you’ve determined which vendors are industry leaders, evaluate each vendor’s financial stability, including its available cash, its ability to continue product investments, its outstanding obligations, payment history (by looking at Dun & Bradstreet reports), and company profile and credit ratings. For public companies, financial data is accessible from financial Web sites and public filings like 10Ks and 10Qs.
Review the company’s balance sheet, profitability, market share, market capitalization, and analyst opinions. For private companies, limited information may be available. However, you can request financial information from them as part of your RFP process.
You should also appraise each company’s commitment to its products. Inquire about the vision of the company and its products. Find out what percentage of revenue is spent on research and development. Look at the company’s record of introducing new products. Is it historically ahead of, or behind, the technology innovation curve?
Be sure to evaluate the company’s customer-support capabilities. You will be paying an annual maintenance fee, so find out whether the vendor offers 24/7 customer support, international support, and a Web-based help desk.
Check into its average response rate. How long does it take customer service representatives to respond to a question? This information is available via analyst reports or by asking consultants about their clients’ experiences.
Finally, one of the best, and most overlooked, ways to ensure vendor reliability is to make one (or more) visits to one of the vendor’s clients. Ask your sales rep to arrange a visit to a client in your industry who has implemented the modules you are interested in purchasing. This can help you better understand what your ownership experience would be like.
Ask the customer how the product has met its expectations on functionality, product support, and ease of implementation. To provide insight for future initiatives, your site visit should include a discussion of the upgrade process and how modifications to the system were transferred during the upgrade. Often, site visits are conducted after scripted demonstrations with favored vendors, although they can be done at any time.
After conducting vendor analyses, remove any companies that lack the vision, financial stability, or commitment to stay within, or ahead of, the curve.
To ensure a vendor can handle your needs, request a scripted demo that is customized to your specifications. Ask each vendor to show you, step-by-step, how its products can accommodate your most difficult and time-consuming processes.
While any ERP system can handle straightforward processes—entering new-hire information in human resources or processing a vendor check in accounts payable—a scripted demo can focus on your unique requirements and identify products that can accommodate your organization’s most difficult issues.
For example, if certain employees in your organization work unusual hours, ask the vendors to show you how their time entry, benefits administration, and payroll modules handle these unconventional schedules. Request that they provide an example of how an entire payroll cycle would work so that you can spot potential problems at all stages of the process.
If a vendor is unable to handle your special processes, eliminate that vendor from consideration. Judge the remaining companies by comparing how easily they solve the problem.
Some vendors’ solutions will also require additional steps to perform a function. Others may entail software customizations. While a certain degree of customization is unavoidable, the best solutions are those that keep it to a minimum. Customizations are costly, time-consuming, and difficult to upgrade, and they increase the likelihood of complications during implementation.
By the time you’ve done market research, performed vendor analyses, and viewed scripted demos, your list should be narrowed down to one to three vendors. Before you make a final decision, be sure you:
- Compare costs.While we don’t recommend making cost the most important factor in your purchasing decision, it is undoubtedly an important one. Factor in the total cost of ownership of various packages. The total cost is not just the price of the software; it includes annual maintenance fees, infrastructure costs, third-party products or tools, external resources, and additional employees to maintain the application.
- Assess the software’s look and feel. Take note of the products that you and others in your organization find easy and comfortable to use.
- Plan for future growth.If your organization plans to grow rapidly in the next five to 10 years, look for a scalable product that can grow with you—probably from a larger vendor.
By performing thorough market research, evaluating individual companies and asking them to demonstrate their solutions, you can be sure that the ERP vendor you choose is qualified to handle your unique challenges.
How do you choose?
What factors would you add when choosing ERP software? Join the discussion below.