Outdated, clunky ERP? Start an ERP Evaluation with this simple plan

Outdated, clunky ERP? Start an ERP Evaluation with this simple plan

You already know (or think) that your current system no longer meets the needs of your organization. And you probably have heard about solutions that would seem to fix some obvious challenges your company has now with your present system. What do you do about it? How do you get started?

ERP Evaluations Can Go Poorly

Before you get started, you may be interested in hearing a brief story from my experience. When I held a Sales position, I contacted one small company about a potential ERP purchase. Everyone I spoke to explained that their current ERP system didn’t meet their needs. The CEO and CFO stated that their selection process would take 6-9 months. Also, the CEO told me that their company puts together a 900-page report whenever they change vendors and that he had done this twice in his tenure. This seemed like an unusual amount of due diligence (not to mention a long buying cycle) and I discovered the reason later.

One day, I spoke with the IT Director, who informed me that their current ERP solution was a bad fit from the start. He explained that it wasn’t really designed for their industry but that the executive team believed, with enough customization, it would be their ideal solution. It wasn’t and company personnel realized the mistake early on. No one wants to be the executive champion who makes a poor decision that is almost immediately recognized for what it is. At least this company obtained a working ERP system. I later learned that approximately 50% of all ERP Projects don’t ‘Go Live’ on time (1) and many of those late implementations end in failure.

A Sound ERP Evaluation Plan Protects You

Fortunately, there are steps you can take to ensure that your ERP evaluation goes well. If you follow this formula, you will be able to start your ERP evaluation off on sound footing.

The steps listed below will help you:

  • Safely build consensus for change within your company (if you decide a change is warranted)
  • Identify your business requirements
  • Discover the opportunity cost of remaining with your current systems as opposed to replacing them with an ideal ERP solution that satisfies your business requirements

What this process will not do:

  • Advise you as to the best time to present your project to management and/or executive teammates or supervisors. You are the best person to make that decision.

Steps to ERP Evaluation Success

At first, this may seem a daunting task but, remember, no one knows your company better than you. In the main, you will investigate, document, and communicate. Essentially, you’ll repeat a proven process. As you investigate, you may find the case for change is more or less significant than you originally thought. That’s ok, either way, doing your investigation will provide the insight your company needs to move forward with a potential change or to remain with the status quo (without looking back).

Here’s a straightforward process you can use to start your ERP evaluation right.

  • Research gaps in your present solution compared to an ideal ERP solution. Some questions to ask yourself are:
    • Where does the present solution not complete an important process?
    • What are all the examples of this of which you are aware?
  • Apply hard cost estimates to the solution gaps you identified to begin to estimate the value an ideal system would bring your company. Document everything.
    • Example: You know that your Accounting Manager reconciles spreadsheets from Manufacturing to determine your cost of goods sold. You are also aware that a good ERP handles this task in near real time. Your Accounting Manager earns $75,000 per year and it takes her 14 hours every month to calculate COGS. In a normal week, she works 40 hours.
    • Your potential saving is $75,000/52 (weeks) x (14/40 hours) equaling $504.81 per month.

At this point, you’ve identified all the business process gaps and costs of which you are aware. At the completion of this process, you will have an estimate of what a vendor’s solution is worth to your company. You can then compare estimated value versus vendor cost and determine your potential return on investment (ROI).

  • Persuade others in departments you know are affected to help you.
    • Share your findings thus far. You’ll get more acceptance with transparency and honest communication.
    • Ask at least a few of these impacted individuals to help with your process.
    • With additional assistance, repeat the process in steps 1 and 2 above, ensuring you document your findings.
  • Bring your findings to as many of the remaining company departments as possible.
    • Ask for input and assistance with your project.
    • With the extra help, repeat steps 1 and 2 above.
  • Compile a total for the hard cost estimates from all department’s solution gaps.

The total from Step 5 above is the opportunity cost of not changing to a new ideal ERP solution that fits your unique company. You may want to break it down to explain that costs for a month’s delay or even a day’s delay. If you want to get a laugh when you present this, calculate the cost of delay in minutes too.

Summary of your Accomplishment

You’ve created a detailed business case for changing to a new system (or not), including business requirements and costs. Additionally, you have a comprehensive list of solution gaps and business requirements. Later in this process, you may whittle down your list but for now it’s best to consider everything. If you haven’t already done so, it’s probably the time to present this to any other executives to gain buy-in for changing ERP systems. If warranted, now you can start a formal evaluation of ERP vendors.

Conclusion

In this blog, you’ve learned how to follow a step-by-step process to gain momentum to begin a formal ERP evaluation. After you complete this process, many others in your company may support a decision to start an ERP evaluation also.

Did you find this blog useful? If so, you can read my next blog to learn how to follow best practice guidelines for evaluating technology vendors for optimal solution and commercial fit.

References:

  1. 144 Key ERP Statistics 2021: Analysis of Trends, Data and Market Share written by Jenny Chang