Top 5 questions to ask before buying an ERP system

A manufacturer and an industry expert offer advice on ERP software selection.

Once a company decides the time has come for a change in its ERP world -- an ERP upgrade, migration to an entirely new package, or first-time implementation -- there are more choices to be made. When it finally comes down to buying an ERP system, should the company stick with the current ERP vendor? Convert to an on-demand application? Or, move to a high-end, tier 1 application for more scalable ERP?

According to Frank Scavo, principal analyst at Constellation Research, there are five key questions companies should ask themselves before ERP software selection.    

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    1. Are we starting from scratch? If a company is moving from a mishmash of Microsoft Excel spreadsheets and other tools that are pieced together -- thesituation many small to midsize manufacturers face -- they have the luxury of a true “greenfield” opportunity. “In this case, there is not anything pushing you to one vendor or another. Your range of viable alternatives is much wider,” Scavo said. The organization could even go with on-demand, Software as a Service ERP, something most manufacturers can’t do because of entrenched on-premises applications.

    2. What about our current vendor? Much of the time, an organization’s current ERP vendor will give it a good reason, such as license discounts and credits, to upgrade and stay onboard. For this reason, picking the incumbent often makes good business sense, according to Scavo. However, there are times when a move is inevitable. Bev Dennis, office manager and de facto IT manager at industrial parts manufacturer Allegheny York Co., based in York, Pa., was charged with picking an ERP system when her company’s IBM AS/400-based system ran out of gas. “That system was 30 years old,” Dennis said. After evaluating a number of systems geared to small manufacturers, Dennis chose a package that handles purchase orders, production, inventory adjustment, raw materials handling and everything in between. Dennis said the key was using the packages in a test environment before making her choice.

    3. Is it time to migrate? If the current vendor doesn’t offer capabilities -- such as business analytics -- that the company needs, it may be time to go elsewhere. Given the hype surrounding cloud-based ERP, companies will want to evaluate these options alongside the on-premises versions, keeping an eye on costs over the long haul. Cloud-based ERP can yield short-term savings as companies avoid buying hardware and traditional software licenses, said Scavo, but it can prove more costly over the long run.

     4. If the decision is  to undertake an ERP migration, the next question is, “Should we move to a tier 1 package?” “Manufacturers will start with a tier 2 or tier 3 system and at some point they will grow out of it, typically adding facilities and plants,” Scavo said. “Rather than installing a separate version of that system in each plant, they are looking to install a single system.” At this point, a tier 1 offering is often the only option with sufficient scale to fit the company’s needs. And experts say tier 1 vendors generally have more robust support for international supply chains, another common need of rising manufacturing companies.

     5. Finally, the most important question for ERP software selection: “Does the vendor have experience in our niche?” Companies that are picking a new system at some point will narrow the field down to two vendors. At that point, they have done all the software selection best practices (talking to references, using the product in a test environment, negotiating price, matching the product to tomorrow’s business needs). Now, for most companies, it comes time to pick the best of two. What should make the ultimate difference, according to Scavo, is whether a vendor has experience in the company’s exact industry.

    “If you’re a large, multi-state baker, you would look to see if they have another large baker as a customer,” Scavo said. “You’re not interested in a beverage customer or a retailer. Vendors don’t necessarily serve all the industries and sub-industries equally well.” The company selects a vendor with relevant domain expertise so that it can likely leverage processes, best practices and other shortcuts the vendor has developed for other customers in that group, he said.

In any case, manufacturers should expect to spend a significant amount of time selecting an ERP system. “It’s a huge investment, and you just want to make sure you’re getting the most for your money,” Dennis said.

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