Where ERP systems were once the sole domain of giant corporates, today these company-wide financial management tools are increasingly being made available to medium-sized organisations and others. And while integrating the financial management of manufacturing, order entry, accounts, purchasing, warehousing, transport and human resources into a single solution is of tremendous benefit to any business, the decision about which solution to implement is one to be made with great care – particularly for the smaller enterprise, with little ‘fat’ in their systems for prolonged implementations and expensive IT consultancy.

So a quick run through the basics first. An ERP (enterprise resource planning) solution is an integrated information system that serves all departments within an enterprise.

ERP systems evolved out of the manufacturing industry, but are now widely used across many other kinds of businesses. The most common type of ERP system today uses modules of packaged software rather than proprietary software written by or for one customer, and typically an ERP system is integrated with a relational database system. ERP modules may be able to interface with an organisation’s own software with varying degrees of effort, and, depending on the software, ERP modules may be alterable via the vendor’s proprietary tools as well as proprietary or standard programming languages. An ERP system can include software for manufacturing, order entry, accounts receivable and payable, general ledger, purchasing, warehousing, transport and human resources. If your organisation does not require an ERP solution for all those aspects of your business, you can opt to buy only those ‘modules’ that apply to you, and then add more on as your enterprise grows in its requirements.

All of the major ERP solutions may be accessed via web browsers and the internet has also allowed ERP systems to extend out along an organisation’s supply chain, to interact with suppliers for demand planning for example, or to improve customer service by allowing customers to track the progress of orders (think tracking a courier parcel as an easy example). Implementing an ERP system can involve considerable business process analysis, employee retraining, and new work procedures, but the benefits can be very significant. Developments such as EDI (Electronic Data Interchange) or message broking software and standards such as XML are allowing large companies with ERP systems to integrate information handling throughout their departments. At the same time flexibility in pricing and hosting options are also allowing smaller organisations to be able to afford ERP solutions. Read on for 10 key decision making questions managers should be asking as they look for an ERP partner.

Q1: Ask yourself – is this an IT project or a total business project?
Make no mistake, implementing an ERP solution is not like buying a couple of new PCs or hooking up a Wi-Fi network. This is a complete ‘business’ project. As a result, it needs top level champions and ownership. The fact is, many ERP projects fail because they’re viewed as IT initiatives and as such fail to capture the senior management buy in that’s required for success. ERP solutions will effect every aspect of your business, right across the enterprise, so it is critical that the scope of the project not be underestimated.

Q2: Has this ERP solution been built for companies like ours?
The needs of the mid-tier business are quite unique, and contrary to popular belief, they are often much more complex than those of larger organisations. Over the years there have been many launches of scaled back versions of Tier-1 ERP systems, targeted at Tier-2 & Tier 3 organisations.

When discussing this topic consider the oil tanker / pleasure boat analogy. From a product suitability point of view, the ‘scaled down’ Tier 1 option is like a company that builds super tankers deciding that they’re going to get into pleasure boats. Then, instead of actually designing a pleasure boat they say ‘let’s see how we can cut down the super tanker to a point where a family can use it as a pleasure boat’. The problem is it won’t fit on a trailer and it takes 10 specialist engineers to keep the engines running. When the day comes that the family decides they want to transport 2000 tonnes of crude oil, they have the perfect vehicle, but aside from that it’s next to useless to them. And so it is for mid-market ERP systems – they need to have been built for the unique demands of those companies, not a scaled back version of a solution developed for a company 100 times larger.

Q3: Is this vendor an ERP ‘specialist’ and do they have a track record of success?
There are a number of big players in the ERP market today with fingers in many pies. But to be frank, in some cases if their whole ERP offering fell over it would hardly make a dent in their overall business. So the question for the ERP buyer is; do they want to be working with an ERP partner whose success depends entirely on every implementation they do delivering for their customers, or one that ERP is not absolutely fundamental to the life of their organisation?

Q4: Is their an implementation track record of success with businesses similar to your own?
This is getting down to the nitty gritty. Yes you have established they are ERP specialists, and you have established they have done implementations in companies of a similar size to yours, but have they implemented ERP in your specific industry segment? Has the vendor implemented the same modules elsewhere that your organisation needs? If yes, how long did those implementations take on average? Is it possible to get references from previous customers as to the implementation time frame, the quality of the project plan and the skills of the implementation team? Essentially in taking this step you are establishing that the vendor “knows” your business.

Q5: Do we get a horizontal or vertical solution?
In very simple terms a horizontal ERP solution is a completely integrated suite that includes a module for every business process a typical company would undertake – procurement, accounts, manufacturing, sales, human resources, distribution, marketing and CRM for example.

By their very nature these suites are designed as generic fits for any business. Vendors of horizontal suites ask ‘what is a typical procurement to payment process?’. Their potential customers then look at the ERP system designed around that typical process and say ‘would this work for us?’ Frequently it does.

It’s in this horizontal integrated space that most well-known ERP vendors operate. Their software is designed to manage 85% to 95% of the processes of any normal business – with a little tweaking to get a 100% fit. A vertical product, on the other hand, is a specialist offering. For example it may be designed for a dental surgery, or a car sales yard, or a hairdressing chain or a pizza franchise. Vertical products are typically designed to meet the specific needs of one particular industry, and this is why no one company dominates the global ERP sector – for years software developers have been picking themselves a niche and designing applications to fit. In Australia this is brought into even sharper focus, given the huge number of small to medium sized businesses.

Q6: What about software upgrades & enhancements – do we have to implement them if we don’t want to?
Like many other sectors of the software industry, vendors in the ERP space typically do annual releases of new products which has the disadvantage of being a major invasive change, it can be costly depending on the upgrade pricing – and it may force customers to expensively redevelop their customisations. Because of the invasiveness and cost, customers often choose to languish on old versions which has the downside that they don’t stay current with technology, miss new benefits and ultimately become unsupported as vendors drop support for old products. The major investment they have made becomes obsolete and of reducing value. Look for solutions that allow you to stay current with business technology at low cost.

Your ERP technology platform could offer some or all of the following attributes.
1. Provide constant small incremental upgrades – releasing new capabilities which the user can choose to turn on when they want.
2. An automated delivery system that knows the status of all sites and the users can choose when and how often they upgrade.
3. A technology system that allows the vendor to track all user customisations and seamlessly upgrade these as well, negating the need for days of expensive re-customisation work.

Q7: How committed is this ERP vendor to its products?
As he ‘major’ ERP vendor market has amalgamated over the years the number of products on offer has remained roughly the same, but the number of vendors has decreased through mergers and acquisitions. This means some ‘umbrella’ organisations are offering several different ERP solutions. Potentially this means there may be uncertainty or lack of focus within these umbrella organisations about the future of their products – with some solutions nearing the end of their life-cycles and lots of futures being promised.

When deciding on an ERP solution it pays to consider the past, present and future of the solution providers being looked at (Greentree, for example, is still supporting the CBA systems it launched into the market in 1984). Although technological upgrades may well benefit companies with an existing system, as much as possible it should be your choice when you want to change to new technology, and your ERP vendor should not force you into changing if you’re not ready for it.

Q8: How flexible is this provider’s ERP system, really?
As discussed, mid-tier companies don’t have much in the way of spare resources. Generally the people that are involved in the selection and implementation of new ERP systems are also doing line management jobs which don’t get taken away from them just because there’s a system to be implemented. Similarly mid-tier organisations also can’t afford layers of consultants and project managers to make sure every i is dotted and t is crossed. The challenge this creates for mid-market software suppliers is to build their ERP products to be adaptable from the very start. Mid-tier companies are generally fast moving and nimble and it is critical that their ERP systems support that by being flexible and adaptable.

So rather than spend a year and a half scoping out a project, a typical implementation (a system up and running with data converted over from legacy systems and staff trained) should be done in about six weeks. Mid-market businesses need to get on with being in business – not spend years installing ERP solutions.

Q9: Ask ‘what are we actually buying here’?
Organisations need to be clear that when they buy an ERP system, they’re not just buying a ‘product’ out of a box. So the entire process, which is ongoing, must be considered. When you buy an ERP system, yes you are buying a product, but you are also buying how that product is implemented, how it is supported and how it is upgraded during its entire life cycle, which can be decades. Every one of those aspects is critical to the ultimate success of the ERP system and you need to be looking for organisations that have proven they can deliver a ‘complete’ solution. At all times you need to be considering that the key business reasons that you are implementing an ERP system is to save time and money by improving the efficiency of your business processes. Can your vendor show you a proven and clear return on your investment.”

Q10: How are we going to pay for this?
While ERP solutions have come down in price in recent years, with the medium to smaller enterprises offering the only significant opportunities for vendor growth in the sector.

Most major vendors now offer flexible financing options that allow buyers to spread payments over 3-5 years, bringing the investment into operational expenditure budgets – often a more palatable option for boards with its closer link to return on investment. Most importantly – don’t over buy. Don’t buy more licenses than you need, and remember, ERP systems by their very nature are modular, so you can add modules on only as you need them.