Criteria for Evaluation of ERP Software
- By Nitin Singhal
Evaluation of ERP software is a very challenging and tedious task. Organizations are very cautious because the ERP they chose has a long term impact on the organization and organizational productivity. A wrong choice can easily land an organization in a mess which they will find difficult to come out of. As people say 'ERP is like a marriage'; Once you start to use an ERP and have your Business Data on the ERP for some time, it will not be an easy task to switch over to another ERP. The heavy investments (more in terms of organizational resources than the money) and the complexities associated with the implementation make moving to another ERP an extremely tough decision. So there must be a diligent process for evaluating ERP software. The evaluation process of ERP software should be properly defined and directed. An ERP selection process will typically involve the following:
1. ERP selection team: At the time of ERP selection, most of the companies follow the process set up by Chief Information Officer or IT Manager. In addition to CIO or IT Manager, the ERP selection teams should also comprise of functional heads, top management representatives and actual users. An experienced and matured team can certainly evaluate various vendors for their strengths and weaknesses and make a better selection.
Scope of ERP Software: A good ERP package must have functionalities to meet the present as well as future needs of the organization. Full scope of the ERP software should outline functional expectations of all business division such as Sales, Inventory, Finance, Procurement etc. It is very difficult to get an ERP Software which matches your needs 100%. Typically a 70% fit is considered fit enough. Though during the demos you may feel that a software meets your requirements 100% but that doesn’t happen in real. Firstly because Organizations are not very clear of the Requirements at the beginning phase. Secondly it is very difficult evaluate an ERP functionality in a demo which generally lasts about an hour. For that matter even if you had a demo lasting 4 hours you will not be able to understand an ERP in that detail which you normally need. A typical ERP software will have the following functionalities:
- Accounting / Finance
- Material Management
- Customer Relationship Management
- Graphical Dashboards now called as Management Dashboards
- Some Reporting tool (Either inbuilt or third party ones)
- And other industry specific modules like could be a Transportation Module, Fixed Deposit Management etc.
There are several ERP packages available in the market, each having its own strengths and weaknesses. Every package has its own concept, architecture and set of functionalities. Organization need to identify right vendor by analyzing many factors such as the product’s features, customization complexities, implementation success rate, cost, customer references, post implementation support, local and International presence and number of installations. ERP should also support multiple locations, multiple companies, multi currencies and multiple languages(if required).
TCO Analysis: When evaluating costs, besides the ERP Package price also include cost of future upgrades, implementation costs, customization costs, Supporting software license costs(OS/Database etc) and hardware costs etc. Also consider the costs that you will incur over a 5 year window atleast. This will enable a fair comparison of several ERP packages, as well as define the long term ROI. Organization should also clarify with ERP vendor for any unforeseen and hidden costs that may arise in the due course.
2. Integration with other Applications/Equipment: Apart from ERP, organizations use several software applications. An ERP may also be required to integrate with these applications like Mail server, Attendance systems, Production Equipment, Weigh scales, Bar Coding machines etc. for exchanging data. Organizations should discuss these issues with ERP vendors during the evaluation phase itself. These interfacing also may require interaction of the ERP vendor with the manufacturer of these machines/applications to check if they will be able to provide the information to ERP vendor in some computer readable format.
3. User Friendliness: A user friendly interface of ERP software increases the user acceptance rate. During ERP demo organizations should check how user friendly the system is.. They should check the navigation structure, clicks required to open a function, drill down options in reports, Graphical options etc.
4. Longevity of ERP Implementation partner: ERP Implementation and support are a long drawn processes. Organizations may need frequent support and help during the lifecycle of ERP. This is where the longevity of the implementation partner plays an important role. It is imperative to the check the business background of the ERP implementation Partner. Some questions that organization should seek about the vendor are:
- How many years has the company been actively engaged in the software business?
- Identify their core business; ERP business should be one of their core businesses and not one of their smaller businesses. People often tend to hive off their smaller businesses as the Economies of Scales don’t justify for them to be in ERP business. In such a scenario you could often be left in the lurch. So you should have some Source Code arrangements like Escrow or some exit route for you if a Partner or the ERP vendor himself decides to shut shop.
- When was the ERP product launched in the market and what is the current release version?
- Check the customer list relevant to your business and the customer testimonials.
- Ask for Customer references. Try and visit their Client site though it may not be possible for time constraints as well as the reluctance of Clients to showcase their ERP to a third party. Plus for Clients such site visits are often a nuisance. Insist atleast on a Customer Reference from the ERP vendor.
You must remember that selection of the right implementation partner is perhaps more important than the selection of the Product. Almost all Products will be basically good and will have functionality meeting a reasonable amount of your requirements. It’s the Partner’s way of implementation that can make the vital difference. Some ERP companies also implement themselves as opposed to a Partner approach. Both approaches have their merits and demerits.
When you are in search of ERP Software, the most important point to keep always in mind is that the software you are looking will become a lifeline of your organization. Its a tool that will directly influence the long term productivity and efficiency of your company. So selecting that should certainly deserve a sizable amount of attention from the right set of people in your organization.
About the Author
Nitin Kumar Singhal is Territory Manager at Eastern Software Systems and has been a part of Several ERP evaluation exercises. An Engineer and MBA by education, Nitin brings in his views after a rich experience earned by him on the field.