Buying Considerations When Choosing an ERP Vendor
Updated · Feb 10, 2021
Success in modern business depends on the efficient allocation and use of a wide range of resources, which include:
- Capital and cash flows
- Relationships with prospects and customers
- Relationships with partners and third-party vendors
- Production lines
- Competitive information
- Supply chains
- Regulatory compliance information
As flows of resource information in organizations have become more complex, they are increasingly handled by Enterprise Resource Planning (ERP) systems. Choosing an ERP system is a significant business decision.
Preparing to make a choice
ERP touches every functional area in a business. That makes choosing an ERP vendor more complex than buying an accounting or CRM package. The right ERP can only be defined by the specific needs and goals of the business.
Sometimes, even highly functional ERPs with full feature sets fail to deliver the promised benefits to a business. It’s not that the vendor misled the customer. The features and functionality are real. It’s just that they are not appropriate to that business.
There are key questions you need to ask — about yourself, your market, and your possible vendors — before you choose an ERP system.
What are your business goals and the processes that support them?
ERP makes it easier to achieve business goals, but it can’t define what they are for you. Are you trying to expand into new markets? Are you trying to stay ahead of changes in the needs of your customers? Are you trying to reduce cycle time for new products?
You must document the business processes that support you in achieving these goals. This can be a significant task, but without it, you can’t formulate your requirements. The functionality provided needs to match what you need, whether that’s getting more productivity out of your existing resources, unifying disparate processes, or meeting new compliance requirements.
Establishing the details of these processes should not become an end in itself, but it should be discussed with every department and kept to an aggressive schedule.
Is the vendor familiar with your industry or vertical?
Businesses have a lot of functions in common, but real progress comes from being better at what helps you compete in your niche. Since you know your goals and the processes that support them, you can now see how an ERP works with the functions essential to your specific business.
A retail business wants an ERP that integrates with point of sale (POS) and inventory processes. A hospitality business wants one to help monitor the vast number of disparate expenses that contribute to guest satisfaction. A manufacturing business wants to monitor supply chains across a range of distributors, subcontractors, and geographies. A healthcare or nonprofit business wants strong support for complex regulatory compliance.
Is this ERP appropriate to your scale?
Paying more does not necessarily get you more…or at least not more of what you need. Each ERP solution implicitly assumes certain kinds of staffing. More capable systems with more features may require several individuals with specific skills to be fully dedicated to delivering the promised functionality.
A smaller or less tech-focused organization may have capable employees who handle several complex tasks, and will not be able to devote themselves entirely to that task. The vendor should show familiarity with the distribution of employee skills typical of your type of business.
How will your employees learn to use this system?
In general, by far the biggest expense in any software acquisition is training and employee development before the system can provide its full value. It’s common to overestimate how quickly using ERP becomes second nature.
If the system has good ease of use, a clear user interface, straightforward reporting functions, and other evidence of thoughtful design, this training will be easier. However, don’t underestimate the time and effort that needs to go into it.
Understand what this vendor offers in terms of training, particularly in the long term. Consider how much employee turnover you have, and what support is offered for onboarding new hires.
What is this vendor’s reputation?
For something as complex as an ERP system, you have to pay more attention to who is providing a review, what their skills are, and what their expectations were when they chose a vendor. Be particularly attentive to reviews from people in your industry. It’s easier to map their experiences onto your needs. If you can, talk to people who have used this vendor in person.
Look at the vendor’s reputation for support. How long term are their customers? What ERPs have their past customers switched to? Are they known for using the latest technology? How often do they do updates? How often do these updates come with serious bugs that lead to business disruptions?
What is the likely total cost of ownership?
This includes not only the direct acquisition costs, but all the costs associated with modifying business processes, any new hardware required to run the new system, and retraining and hiring costs. How does this compare to your projected savings from efficiency, staffing reductions, and access to new market opportunities?
Of course, this type of analysis would be much easier with a good ERP, so rerunning this analysis once you have one might be an instructive exercise.
What is the functionality?
The answers to functionality questions are more useful once they can be seen in context. How up-to-date is the technology? Sometimes vendors have some older modules behind an updated interface, while others have been fully updated. How often do they upgrade? Have they had problems with upgrades in the past?
Making the right choice
You will live with the system you acquire for years, perhaps decades. It will grow as your business grows, and change as your business does. Once you understand your company and its needs, you’ll have the questions you need to answer to make the right choice.