After you have identified three Enterprise Resource Planning software products that appear well-suited for your business needs, the time has come to integrate each product and empower the teams you will rely on for your success. Consider these points before products are demonstrated for your company.
Basic tips and tricks to make integration less expensive and more effective
Most ERP software providers have strong reputations for their software: Sadly, many do not qualify, verify, and hold accountable their implementation partners. Companies may want to avoid these ERP software products as the risk of failure is very high. Poor quality implementation teams serve as insulation for the ERP software company. Confirm the implementation team is wholly dependent on the success of the product you choose exclusively. Understand how the implementation is held accountable to the software company. What do they have at risk if the implementation fails.
Include implementation costs in your purchase: Tie them together for milestone payments to assure success.
Be aware of the total software investment: Depending on the complexity of your business, software costs are all over the map. For example, electronics manufacturers and food manufacturers have some of the most rigid reporting and tracking requirements, which drives software costs up due to rules for revision control, lot number control and monitoring of expiration dates.
Watch for excessive “additional charges”: Do not focus solely on the costs of software implementation. Concentrate on the experience of the industry experts working on your implementation. Unreasonably low implementation cost may result in excessive “additional charges.” Negotiate any discounts and price considerations on the software line item of the agreement and not the implementation line items.
Expect software implementation costs to average 100% to 175%: Small to medium-size manufacturers should expect implementation costs in this range. The average will be 125% of the combined software list price plus the hardware investment. Work for implementation costs to be firm fixed. Avoid time and material charges as these are blank checks. Don’t forget about placing limits on travel. Depending on the location of the implementation team, travel costs could be extreme. Watch for hidden costs like being charged to create an invoice or being charged for unplanned travel time. An East Coast customer should not be penalized for the implementation team’s decision to send someone from the West Coast based on availability.
Note that software companies value ARR, or annual recurring revenue: This is the value of the subscription. Negotiate a long-term agreement of five to seven years with a price escalation cap of less than 3% per year. Once you are an ERP customer, it is much more attractive to remain a customer than to replace the ERP system again.
Look for ERP software companies willing to invest time in your manufacturing business: Software companies prefer to use demonstration data that has been prepped and staged to put their product in the most favorable light. Note that the demonstration team is an extension of the sales team. Once the purchase is made, the demonstration team moves on to the next account. To limit the manufacturers’ exposure, consider using a CRP (Conference Room Pilot). The software provider will dislike prepping for a CRP and using your data as this disrupts the “sales script,” but this is important for the provider to demonstrate commitment to you as their customer.
Sharing information with the software provider is extremely important. They must know what you make and how you make it, day in and day out, so they can configure their product to meet your needs. Consider these as definite tasks to do when considering and implementing an ERP:
Make a very detailed list of features that are absolute requirements and identify options that would be “nice-to-haves”: Do not consider anything as part of the deal that can’t be demonstrated completely. Features that are in the works are most likely vaporware whose existence will disappear as soon as the contract is signed.
Take a sample of five to 10 finished goods that you manufacture: Load the data into the demonstration software exactly how you will be using it in detail. The purpose is to exercise the system using your data determining fit and function in your location.
Also load in the prospective ERP:
- Sales quotes, customers, prospects, orders, statements, terms, invoices, customer relationship management, contacts via email, etc.
- Master such as item information, warehouse balances, locations, costs.
- Engineering information such as bill of materials, routings, work centers, capacities, work instructions, specifications, photos, assembly drawings, links to CAD drawings, revision control, etc.
- Suppliers, planning data and codes, EOQ, demand recognition.
- Labor, rates, schedules, payroll, HR, and benefits administration. What about transparent links to outside payroll systems?
- Accounting, AP, AR, GL, financial statements
- Quality items such as first piece, ATP, first article, inspection records, gauge control, corrective actions, supplier performance ratings, and quality manuals.
- Certification audits, ISO documentation.
- Key performance indicators. Does the software monitor KPI’s real-time in a visual dashboard? Ask to see it and evaluate how they fit your business.
- Export data from several sources into Excel spreadsheets. Your data, from their system. How easy is it to extract data elements for project analysis?
While this is all very time-consuming, this work substantially reduces implementation time. Software companies that are unwilling to participate should get lower priority than others. They know things about their software that you don’t. It’s reasonable to offer to compensate the software demonstration team for their time if the software is purchased as this exercise will reduce your total implementation investment.
Other advice to keep in mind along the ERP journey
Avoid customizing the software: This will limit upgrade flexibility and dramatically increase cost. Try to avoid custom reporting where possible. Remember, the goal is not to duplicate the previous system.
Take a serious look at hosting the software in the cloud provided by the ERP developer: This approach increases flexibility and remote access in a controlled environment. This is especially valuable for team members that travel or operate remotely.
Consider the availability of additional team members with experience using the ERP software you select: As a rule, ERP software is not learned through absorption. Make sure there is a strong training program for new users. Sample it.
Interrogate the online help text: Does the help text for formulas and calculations indicate where and how the data is derived. Calculated fields should explain how the information is derived.
Ask to see the key performance indicators for the support team: Study them closely. If there are no KPI’s for the ERP support lines or implementation team, take that as a warning.
ERP software selection is difficult. The implementation team is arguably more important than the software. The industry experts assigned to your team need to fully understand where your business is from an operations perspective and where you plan to take it. Get to know your implementation team before you purchase software. Strong implementation teams welcome customer dialogue and inquiries.
This is the second part of a three-part series from a veteran of ERP implementation, Carl Livesay, on the dos and don’ts of implementing new ERP systems. See Part 1 on Smart Industry and look for Part 3 soon.