Juliette: Good afternoon, thank you everyone for joining us for today's webinar: Introduction to ERP systems.
Our presentation today will cover the following learning objectives:
- What is an ERP system?
- How ERP solves business problems.
- Why companies use ERP systems?
- What makes an ERP system?
- What ERP systems can and cannot do?
- What are the types of ERP systems in the market?
We'll also cover how to buy an ERP system, review who sells ERP systems will discuss common pricing models for ERP systems, list the types of costs for ERP systems, describe the professional service costs you will incur in implementing a new system, and provide best practices for negotiating ERP system contracts and service’s statements of work.
Today's presentation is valid for one CPE credit. In order to receive credit for today, each attendee is required to attend the full 50-minute presentation as well as engage and answer all the polling questions asked throughout the presentation.
If you were needing CPE credit for today's presentation, please leave your name in the chat of this Zoom or please send me an email at email@example.com. We will keep a record and you will be issued a CPE certificate. At the end of today's presentation, there will be a short question and answer period. If you have a question for our presenter, please add it to the chat section of this Zoom.
Shawn Windle is our presenter for today. Shawn is the Founder and Managing Principal of ERP Advisors Group based in Denver, Colorado. Shawn has worked in the enterprise software industry for over 20 years. He started his career at Accenture and Arthur Andersen Business Consulting and moved into the software industry with Oracle as a Technology Product Manager. There are only a few people in the world with the practical software experience that Shawn has gained with helping hundreds of clients across many industries with selecting and implementing a wide variety of enterprise solutions. His podcast, The ERP Advisor, has dozens of episodes with thousands of downloads and is featured on prominent podcast platforms such as Apple and Spotify.
Shawn, if you are ready, I will pass it over to you for today's presentation.
Shawn Windle: Wow, that's great. Thank you, Juliette.
So, I'm Shawn Windle with the ERP Advisors Group and I think some of you all know us, that we are one of the country's top independent enterprise software advisory firms.
Ooh, that's a mouthful.
Basically, that's all we do. We advise organizations non-profits, profit companies, public companies, all kinds of organizations on enterprise software, really sticking around, kind of, packaged applications and what's the right application? What's not? Should I change? Should I not? How do I implement?
All those problems. So that's all we do. We're not generalists. We are independent. We're unbiased, we're objective. We are very subjective though and ensure that our clients have the right software, but we don't take fees from anybody, except our clients, of course, so that we can make sure that we are truly focused on what our clients need and that's it.
As well, we have a lot of folks like myself that came from sort of the Big 4, Big 3, Big 8—Whatever the number was at the time and so have seen some methodologies that were really great for larger organizations, but we've really tailored them to midsize organizations.
So, that's our firm and it's important, because well Inc 5000 a couple of years in a row, we've had a lot of great growth and hoping to grow some more so.
So, all stuff to, sort of, substantiate the discussion for today, which is about then the introduction to enterprise resource planning software.
So, we're going to kind of go from the bottom up on this presentation. We've seen recently in the market that there are a lot of folks, a lot of people really all around the world, that are looking at transitioning from a legacy solution, or QuickBooks, or even a larger application—an older, larger application and there's a lot of confusion around it, and so we said, “You know what? We're going to go back to basics. We're going to do square one and we're going to talk about what ERP systems are” and hopefully, sort of, solve some of the myths that are out there. Bust—where we're ERP Myth Busters, I don't know, maybe we could do a paper on that, Marketing.
But at the end of the day, we really hope that this presentation is helpful with just getting the basics in, because, hey, look you're about to make a big decision on ERP. You want to make sure you get it right. So, hopefully, this presentation helps you.
With that, let's jump in.
So, always a good place to start is definitions. So, when we talk about enterprise resource planning, interestingly enough, actually, Gartner Group, which is an industry analyst group, as most of you all know, really coined the term, I believe back in the 1990s is when it came through. Maybe on our deck here we have a specified source. We'll get that source specified and get this deck back out for folks so that we know exactly precisely when that came out.
But the key thing is this: Enterprise Resource Planning is the ability to deliver an integrated suite of business applications. ERP tools share a common process in data modeling, covering broad and deep operational end-to-end processes such as those in finance, HR distribution, manufacturing service and the supply chain.
Woo, that's a lot.
But, if we stay here for just a minute, the key thing is that ERP is really the concept was really built around software and if you think about what software is, it's, you know, we could call it AI or robotic process automation, whatever. It's really just logic that somebody said, “If this happens, then, do that.” It's a lot of if-thens and there's a whole lot of combinations of if-then's that are written in code. What you can see is how a solution of software could be for multiple different areas of a business, like finance, HR distribution, so that's what the suite means—that sort of accumulation of all those different areas of business applications. Business apps--that's a phrase we like to use a lot. We're going to use Enterprise ERP systems a lot today here too, it basically means that the applications, the software that runs these portions of the different areas of an organization.
I don't know if my definition was more clear than this one, but that's good. Let's go on to what we also say here too. So, if you think about it, you know, we're in the trenches day in and day out with lots and lots of clients around their ERP systems. So, we sort of have a little more practical definition: Connected business applications used to automate business processes and manage resource data across the entire enterprise. E being enterprise, R being resource data, P—planning being able to look at this data and being able to figure it out.
So, interestingly, several years ago I did a video. I think it's out there on YouTube. I don't know if it's available or not, but I was wearing a big sweater, it was quite cold out, and I was showing this on a whiteboard. “OK, here's these processes and stuff” I said this phrase that I think really sticks still, which is called a conceptual framework.
We think about ERP as, “How in the world does an enterprise automate their processes?” That's really what we're trying to solve with ERP. It's not necessarily a system, it's not a specific solution, or, like in this picture, it's not even just those KPIs and score card that that person is pointing at. “Look at this score card.” It's not necessarily that.
It's actually the framework for how individuals can go into a business or into an enterprise, and they can, kind of, look across the whole organization and say, “OK, here's what we have for processes. Procure-to-pay, order-to-cash, record-to-report, lead-to-quote, whatever those processes are and how we really automate them. How do we track the data that flows from one person to the next, to the next, to the next? Each person or each department, sort of, adds their little piece to it, a little bit more, a little bit more, a little bit more, and then at the end of the day, boom, we have this end product from these processes.
So, if you think about something like lead-to-quote, it starts off with somebody calling into an organization and saying, “Hey, I'm interested in your services.” Well, how do we take that lead? How do we convert that into an actual quote? There are steps that happen there.
The ERP and the purpose behind the ERP is to automate as much as we can to that process.
Think about documents. Here's a lead document. Now the salesperson gets that document, and starts calling that person, and they write all their notes on it and everything else, and they set up some tasks, and they set up some appointments, and they write, write, write, write, write all this stuff—well except, like what happened to me this morning, my water bottle was leaky and it leaked all over my briefcase. Usually doesn't happen, but that piece of paper is then destroyed. “Oh my gosh!” Where'd all that data go? Well, it literally just went into the trash. Let’s not do that.
The ERP helps to have a central place where we can track information we wouldn't put on a document. Put it in the system so that we know where it is and then subsequent departments have access to that information.
For instance, customer support might want to know what was promised to the customer during the sales process. So, that information would all be in a centralized system or in ERP. This is a very simple example, but when you think about these phrases of automating business processes, they really think about it from that perspective—document management. How do we automate the documents, put them into systems where everybody can track it, and then we can process and we can do conditions on top of it.
That's it. So, here is the first question for those that need CPE.
As Juliet said, please answer this. We do record who answers the question, so we've got our part of the CPE covered. You need to do your part which includes answering this first question.
ERP covers end-to-end processes in what departments?
Human resources, finance, distribution, supply chain, all of the above.
So, we'll wait a minute here for folks to answer.
We're seeing some good answers coming in.
There are always a few tricky people that pick the wrong answers. We try to do our questions so that they're pretty straightforward, which is great.
We'll go just a few more seconds here.
Make sure to get your answers in.
This is good.
The question we could say, “ERP can cover end-to-end processes in what departments?”
We'll talk about that, actually, in a little bit, but this is good.
OK, we're looking good. All right.
Let's see if we can—we'll end that polling question.
Make sure again, if you need the CPE, send the email to Juliette at ERP Advisors group. Just like it sounds Juliette at ERP advisorsgroup.com. All right. So of course, the answer to that question. It was all the above. Typically, ERP can cover all those areas. Again, you've got to look at the conceptual framework to figure out which departments are in there, but it can include all of them.
Let's go onto our next slide here.
So, what problems do ERP solve and how?
So, if you think again about when an organization is trying to really understand their stuff. I'm going to be very general. This is a non-technical presentation. If it's too simple, I'm sorry we'll do something more advanced later, but an organization says, “Hey, I want to understand my leads, my sales, my employees, my inventory, my projects, my manufacturing lines, what the statistical process control systems are saying on our SCADA systems that are running the heating elements that are making the chemicals that we do. Whatever it is, there's this concept of lack of data visibility, where an organization really can't see that kind of stuff and that happens to every business and every nonprofit as you get bigger and bigger and bigger—get distributed where it got wider reaches around, not just the city, or the state, or the country, or the territory, but also the world.
So, lack of data visibility is a major problem the organizations have as they grow. As we show here, organizational processes under one system make it easier to track. That is a problem that ERP definitely solves. We can see our data. It's in one place. We can get it.
Reduce productivity, so again, we see this in every organization that we're in, that's part of why we're in every organization is because they have a lot of manual tasks.
So, I'm thinking of one organization or one business that we were in that was a distribution business and had lots and lots and lots of customers and the invoicing process was very manual, even though there were pretty straightforward processes that could have been automated, but they were just manual so they kept having to hire more and more and more people to do invoicing. So the productivity was good by person, but we had to add more and more people, which became very, very expensive.
So, you know, again that ERP solves that problem of being able to serve customers through accessibility, or, you know, allowing even to have portals into the system where the customer could actually get their invoices for themselves. We maybe have a smaller group that's creating invoices. We're automatically distributing those. The organization can come and actually see the information for themselves.
So, love those kinds of problems ERP can do that.
Errors and inconsistency across departments and then being able to automate tracking key information to reduce errors. Unfortunately, any time somebody touches a process, a task, a document, they might do really, really well, and I think all of our organizations are sort of based on really, really good people, but what happens if something happens with those really good people or we have to hire new people and they don't know exactly what they're doing? There can be errors, right?
If we can automate more of those processes in the ERP, we just resolved a lot of errors. Then, hopefully, individuals can focus on much more value-added services than, “Hey, let's create the invoice.” No, no, the system could create the invoice. Now you go and figure out how to get our collections up. How can we get our invoices out faster? So it helps to get that evolution of people tasks.
Then, that concept of lack of communication across departments. This is a really, really big one, again, as organizations grow because we do see that it's harder to just keep everybody in the loop. Even in our small organization, as we're going through recruiting and we're going through sales opportunities, how do we have enough people to meet the needs of the market? As clients are coming on board and which consultants are available?
Oh gosh, that's a big problem, right?
And our ERP that we use improves and eases that communication for sure. So, it really can connect many aspects of what you're trying to do, and again, good problems for an ERP to solve for sure.
And if you don't have these problems, you probably don't need an ERP. Not many salespeople are going to tell you that—we will. Again, these are good problems that if we have these, which again, a lot of growing organizations do, look for an ERP to solve those kinds of problems.
Now, in our experience, this slide is quite interesting. As we say on the bottom right there, “Don't change software unless you have to.”
So, what are the reasons that organizations have to change software? They usually fall into one of these four categories, believe it or not.
There's growth, they have older technology, regulatory compliance. Something has changed and a lot of what we're seeing is there's new leadership. So, I'm going to talk about each one of these in a little bit of detail, I think we've got some time here.
So, the growth thing is really, really interesting. As an organization is building up, usually, depending on the shoulders or the backs of some really key people to help the organization grow, sometimes those backs break and we need more transactions to track. There's just more things happening and it's just harder for an individual to track that. So, we see that as kind of a breaking point where ERP makes sense.
Sometimes our clients offer new products and new services where they didn't used to do it before. Now, they do and they need and want help with how to automate bringing those products and services to market. Are you going to develop a brand-new product on an ERP? Probably not. You might, in a product lifecycle management system, a PLM and then that integrates with, maybe, your manufacturing. You create a whole new design for a product, so you have a new bill of materials group that pushes over to the ERP, and now you have your manufacturing work instructions and work orders and all that stuff in your manufacturing system or ERP. Now you can build that so, but the conceptualization and the product development itself doesn't happen in the ERP. The ERP just helps to manage that growth as you go.
Also, selling to new markets where we need to support new types of organizations that are out there and going into different places throughout the world, sometimes, there's new regulatory compliance that some of these systems can support. I'll just mention this last point here on M&A activity, we do see a lot of times, organizations say, “You know what? We just bought this business we just acquired this organization. Things are changing and we need software that's going to help us to either consolidate our processes or allow us to do different kinds of processes than we've done before.” So that's a little bit on the growth.
Legacy technology: We're seeing this a lot right now where software vendors are stopping, the phrase is sunsetting, some of their solutions in the marketplace, and they're not supporting them anymore. I'm here to tell you, “You know, you don't really want to run your business or your nonprofit on an unsupported software solution,” but I will tell you there are organizations out there, we've worked with several of them, that that's what they do. They actually support some of these legacy applications, so at least you can get some support.
Regulatory patches, security patches, you know, usually if you're running an old ERP or normal enterprise software solution, you're probably running on an older version of Windows. If you if you have something on premise and those damn things are so scary now. It's one of those things where, with legacy technology, it can be a very good driver for change. I hate to say that beause sometimes things are great, like, “Hey, nothing’s broken. Why do I have to change?” Well, nothing’s broken yet.
So that's a tough one to work through. We've done a ton of stuff on that too. You can check out our website for a fun conversation we had on that in February about Valentine's Day.
Regulatory side. So there are a lot of new—I don't know if there's a lot of new—but I'm thinking about the ASC 606, the revenue recognition required. There's some new leasing requirements that are coming out or are out. So, there are changes that happen just with US GAAP, generally accepted accounting principles, but also with international financial reporting standards, or even the GAAPs, if you will, of different countries that are changing. These software solutions can help to kind of keep you up to date with that.
This last point on here, new leadership, a lot of people call us because they do have somebody who's new in the organization. “The sucker” who's saying, “Hey, yeah we have to change and we can do this and I can support,” and everybody else is like OK we'll let the new gal, “Yeah, she can push that just fine, right?” Because I wouldn't touch that with a 10-foot pole.
You know, there's a new CEO who comes in and says like, “We're going to mandate going to the cloud or we have to get off this old software.” Oftentimes new leadership is a big reason for change. Just make sure some of these other points matter as well. Don't just change because you’ve got a new leader, but chances are some of these other three areas are applicable there. So don't change unless you have to—that's the key thing there.
So, that's a good basis for what ERP is, why companies select ERP, and that type of thing.
Why don't we talk a little bit more now about why companies really implement ERP on a little bit more tactical of a level here? As we said here, this is right out of our statements of work, which is very well done by our marketing group by the way, that we really do look for a huge benefit for our clients. It gives the staff of the of your organization, it's not just one person but the staff, the ability or the opportunity to develop the optimal solution for the future state of the business while providing connectivity across all departments.
What that means is: what you know now about your organization is more than what the prior folks who implemented your software knew when they did that, things have changed. Now here you are today, “OK, I think we've got to change our ERP. Why would we do this?” Because now we know more about what our future looks like and, I mean, I could get really esoteric on this but I’m trying not to, but if we're here today and we look into the future and, let's say, we implemented our software 40 years ago—we have two clients like that and they're looking 40 years ago into the future, that is now 20 years from now—60 years, things have changed a lot. It could even be five years ago, where we had a client recently that we helped get into best-of-breed solutions about five years ago, and today they're saying we want to go in all-in-one solution. We've gone global. We want to bring all our data in one place. Don’t just do a data lake or data warehouse. We want all of our transactions in one place. The staff understood that's what the future stage should look like. That's what's optimal, and we also want to connect all these departments and functions you see, we sort of have these different sorts of—you've got a nucleus, right? And then you've got all these different molecules and electrons, and neurons that are floating around. Let's bring them all together. Let's have some control. Let's see how it all fits together and then let's run our organization from one software solution. So that's, again, why some companies implement ERP's.
So, I think we have a question here. So, everybody wake up. One reason companies implement ERPs is that their current software is inhibiting their growth. Is that true or is it false? We’ll give you a second to answer that.
We've had some groups that will come to us and we'll talk about this growth factor. “Hey, we're looking at whether or not we should switch,” and we always ask about growth. We've had clients that are hundreds of millions of dollars that are running on QuickBooks, like their software is not inhibiting their growth.
So of course, for those companies, we would say do not change and I think as we have our answers there, the answer is true.
One of the reasons companies implement is to—because their growth is inhibited. Again, if your growth isn't inhibited, then you have to say new leadership, legacy technology, regulatory compliance. None of those make sense, then don't do it.
Nobody else is going to say that, by the way, so you're welcome.
Well, let's set a little bit more expectation here on what ERP systems can and cannot do. By the way, we're going to get into some specific solutions and even start throwing out some names here literally on the next slide.
So, one more kind of general slide, but this is good.
So, I'm going to do the cannots beause that's more interesting to me. Believe it or not, every single one of these we have had folks that have thought, “oh, this is all true, right?” No, it's not. ERP cannot do everything for you. It can't and now we could say like, “oh, it can't, slice toast.” We all know that, but can it do my analytics and KPI reporting? That's a good question. The salespeople will show you that and they should say, “Hey, here's all this great data that you're going to get out of your ERP. Fantastic, right?” But it's probably not going to be as flexible as a reporting and analytics engine as you want.
I'm just going to say that now, some of them have great reporting and analytics tools built into them. Infor has a great tool. Even Acumatica, NetSuite, Microsoft, there are all these tools that are around there. Some of them are in the app, but there are some, like that slide with all the little things floating around, and there might be some other things that integrate in, but usually ERP does not give you everything you need from a reporting and analytics perspective. I'm just going to tell you that right now, but you cannot get that unless all your transactions are totally and completely systematized. What I mean is, if you're not tracking your leads then how are you going to be able to do a report that shows the life cycle of your client from when they started, when they engaged to you, to what are the last services that they purchased? We don't have the lead information. We can't do this metric: Days sales outstanding. When did we send the invoices? We don't know. Gotta get that into an ERP. ERP solves that transaction level but not everything.
It's definitely not the same as a CRM. A lot, as a customer relationship management, you can think Salesforce, sure, Microsoft Dynamics 365 customer relationship management, CRM to some app, but ERP can do some stuff similar though. So, a lot of times when we're working with organizations and we're trying to help them figure out what they really need, and we meet with the sales team and they say, “You know, we've got a pretty big team, but we just really need to track a little bit of information about a prospect. We need to maybe track that there is an opportunity. We need to have a little bit of visibility into that, a little bit of activity tracking and that's it.”
Well maybe the ERP CRM module can do that, but you know how it usually goes, especially talking to sales as I'm probably talking to more CPAs here. There probably are some salespeople on here too, and that's fine as well, I'm one also and I'm a CPA—inactive—but anyway, when you start talking to sales guys and gals, they're going to say, “Oh, I just need this, and I just need this, this, this, this, this, this, this.” Oh my gosh. OK, that's a CRM, but literally there are times where like, “No, I just need super basic stuff.” Yeah, ERP can probably do that.
ERP will not improve your processes on its own. You don't just buy the ERP and everything is perfect. Again, I think we have to disprove or dispel that concept, sometimes when we go and talk to clients that have had a lot of demos. You are the one that has to put your data in. You're the one that has to design your business process and you're the one has to run this stuff. The ERP can't do it.
So, the ERP cannot be too expensive for a small company, so this is kind of interesting. We do have some organizations that they can—we literally talked to an organization today and they have purchased an ERP which is a good application, very good recurring cost for the software, very good implementation cost, and it wasn't expensive, but they still couldn't implement it because they didn't have the resources available to do it.
So don't just think it's about the dollars. Please don't just think this is about the dollars with ERP. If you can afford to buy it, it doesn't necessarily mean you can go do it. You have to have people that are available who can tell the implementation people what they want and what they need for the implementation people to set it up. So, be careful on that. One size does not fit all. There are many different sizes of ERPs. We're going to talk about that in a minute here, but just know that there are lots of different sizes of ERPs here. You don't want to take the biggest one and put it in a small company. You'll just get fired. Don't do that. Hopefully you listen to this. If you get one thing out of this, just know just because you had an ERP at another company doesn't mean it's necessarily going to work at this company. One size doesn't fit all.
All the cans I think are spot on they can meet different process automation needs, offer data connectivity, cut down on errors, they can streamline and synchronize your business processes. Those are all things I think everybody knows. It's those cannots that can get kind of tricky.
Good. Now, let's start talking about the types of solutions that are in market. So one size doesn't fit all. There are actually four sizes of ERPs. Most folks don't talk about four. They talk about three. We talk about four because we tend to work with very entry, early-stage, whatever size organizations all the way up to really, really big enterprises. So, we see these four.
So, starting at the bottom you have the Tier 4 which are for small companies, small nonprofits and this is the space where you start to see solutions like QuickBooks and some others that are really built around accounting. Really need to get debits and credits correct, financial reporting, and that kind of thing, and maybe some of the base transactions that happen in accounting. There are a couple other solutions that we've provided here too that we're running into quite a bit in the market: Sage 50, FreshBooks. We don't have any endorsement. We don't get a dime from any of these guys. We just put these out here as examples.
So, Tier 3. So, we all kind of know QuickBooks. The next level is the Tier 3, which is like the next step up where it's like accounting and there's another sort of a functional area of the business that we're trying to automate. So, like SAP Business One is an application for distributors, same thing. For Sage 100, there are other applications out there that'll do like accounting and maybe recurring revenue billing. So it's sort of just like “accounting and,” there's an “and.”
Then Tier 2 we start to see bigger organizations here where it's not just accounting, but it's actually deep, departmental specific functionality, and there's usually some customization that needs to happen to meet the client-specific processes, and you've got a good list of vendors here. I think we mixed up a couple there, but there’s Acumatica at the bottom should just say Sage Intact.
I know exactly what happened on this slide and this is a good point. We had JD Edwards there, but you know, in this market—I worked at JD Edwards back in the early 2000s and that application is still available through partners, but Oracle isn't necessarily offering it as a system today. So, this list changes. So, we have to keep it up to date. That's the Tier 2.
Tier 1, now, is for very large organizations. What large is, well, we'll talk about that in a little bit, but the need here is complex operations. You have very complex business processes that maybe you want to really try to automate complex business processes. When I hear automate complex business processes, I just see dollar signs, and not for me, but for the software vendor for the implementation partner and for my client like getting out a big wallet and like, “OK, you know, here are all the dollars.” It's expensive to build this stuff. Isn’t there a rap song where they do that with the money? Yeah, that's the tier ones. It's very high transaction processing to where there are not just a lot of zeros but a lot of sales orders, vendor bills, and customers—millions and millions of these per month, even maybe even per day, with some organizations we've worked with and the examples of the apps here: IFS, some of the Infor products, Microsoft, Oracle, SAP. There's even a little bit of a scale amongst those. IFS goes down to Tier 2. So does Microsoft. We put them up there on purpose because you start to see that there's kind of a blend there.
OK, good. I think we have a question that came in here. Let's take the question. Good, OK, so Microsoft Dynamics. Oh my God, this question so it says, “Does Microsoft Dynamics also cover NAV?” Oh, that's a great question. Every once in a while, when I'm about to answer a question that I've answered a million times because it's so damn complex because nobody understands it. I get this little like, a little theme song in my mind, that's like, “Here we go” You know, it's like there's a whole song they should do that everybody would remember, but I'm not going to do it anymore.
Here we go. Microsoft Dynamics 365 is basically a portfolio of solutions, and in the Microsoft Dynamics 365 portfolio, there is Business Central, there's finance, and then sometimes you see finance and operations, finance and supply chain, you also see CRM, you see marketing, and I think there's even several others too. I know the Microsoft people will correct me and send us that feedback. We appreciate it Microsoft. Tell us more.
NAV, GP, SL, and AX are all four legacy Microsoft packages that existed prior to now—the Microsoft Dynamics 365 world. So, NAV was the base code set that was used to build Microsoft Dynamics 365 Business Central. That's a Tier 2 ERP, which we didn't include all the apps on here, but that's where Microsoft Dynamics 365 Business Central would fit—is a Tier 2—that is sort of the new name for NAV we could say. GP, SL, we have clients Great Plains Solomon that are trying to get off those products. NAV, their legacy solutions moving into business central. So, great question. Let's keep going here.
So next question, what is something that ERP systems cannot do?
So, we talked a lot about these different functions here. So, A: synchronize business processes. B: offer data connectivity. C: everything for your company. D: cut down on errors. Let's see what you all think on this one. Again, hopefully, it's straightforward, but get good answers in. People stayed with us after my little song. That's good.
This is good, OK? Perfect. OK, good of course the answer on that one is C: everything for your company, so keep that in mind.
It sounds silly to say that. The only reason why we make a big point out of this is because when you listen to some of the sales pitches, it sounds like it can do everything for your company. Just know it can't do everything.
All right, so we've talked about ERP. We talked about what it is, high level, we've talked about some companies. Now, let's talk about something really tactical. Who sells this stuff? Who sells ERP systems?
That seems really obvious, but it's just not. Even if you think about buying a car, you know you can go to the car dealer, you can go to a person who's selling their car, or there are people that go and find your car, and there are websites that sell cars, you buy the same car from like 5 different places.
That's kind of how this works with ERP. It's maybe a little more simple than cars now that I think about it. ERP systems are sold by ERP vendors. So, the vendors can either be the company that creates the software or a representative of that company.
So, if we just take Microsoft, since we had that question. Microsoft sells the Dynamics 365 solutions, but if you call Microsoft and say, “I want to buy Dynamics 365,” first off, you'll hear that song playing. It's actually where I got that. It was from their old music. Just kidding, but they would say, “OK, we have to get you to one of our representatives who sells the software.” That representative is actually not Microsoft. They have what's called value-added resellers.
So, we call companies that write the ERP system software vendors. Then the companies that sell the software, but don't write it, are called value-added resellers or solution providers. Like in the NetSuite world they're called solution providers.
So, if you go out and say, “Hey, I'm interested in ERP.” First off, we love it when people do this, but they go online, and they request a report about different ERPs, or they go to a vendor, and they request information, and then they just start getting bombarded by all this stuff and they get confused, and they call us. I mean, that's just what happens. That's why we're trying to dispel some of those confusions here, but think about it this way.
Microsoft writes the Dynamics 365 software. Infor writes the Cloud suite industrial software. IFS writes the IFS software solutions. That's it. There's one company that writes the software and then they have the software. Now, they also may sell it directly to customers, or they may have other organizations, again, that sell the software—value-added resellers, solution providers.
Why is this? Why is this so confusing?
Well, it's sort of like in manufacturing, where it's sometimes the manufacturing—I should say oftentimes—the manufacturer doesn't sell their products. They're really good at manufacturing. Then there are distributors or there are sales representatives that are really good at selling. So, you see these specialized groups of organizations that work together to bring more value to the end customer and that is what we see in the marketplace. Sometimes the value-added resellers, the solutions providers, other organizations do things that the software creator just doesn't do because they're not in the business of knowing the customer, how to position the software, and maybe even do the implementation really well. They just write the software. So just know that there can be some confusion there, but the stable datum is the software vendor writes the software and then somebody else may sell it.
So let me do one more example on this.
So we've had clients that will reach out to—I'm not going to use any names, but they’ll reach out to a vendor and sometimes, again, those vendors do not sell. A software vendor they don't sell the software themselves. So, then they introduce a reseller and then they start doing business with the reseller and the company who's doing this says, “I really don't like this software.” Maybe they really don't like the reseller. OK, go find another reseller. Maybe the software is OK.
So that's where it can get tricky. This is why it's important for you to understand you have to be able to split the difference between the software and who's representing it. Even if you call a company that's selling the software solution, a representative of that company, you don't like that person, ask for another. So don't let that person influence what you think of the software. That's what we're trying to get to on this slide.
So, I think to that extent we do want to also talk a little bit about, from a selling perspective, like how much money are we talking about here and what are the drivers? Also, for enterprise software, we're going to get even more specific about this in a minute, but if you look at this enterprise software, pricing is driven by modules, by industry packs, by number of users, technology options, and even in some cases transaction volume. So, there are a lot of drivers that drive ERP software. There are things that go into the components, the bill of materials, the estimate, or the quote that you have to look at to determine. How much is this thing really going to cost? Those are some of them.
Now again, we talked about the tiers of software. We're giving you some example pricing over here on the right. These prices can be wildly varying honestly, but ranges of costs, this is kind of what we see. There is a bit of a difference between the large enterprises down to the small enterprises, but you know, between that Tier 2 and Tier 3, those prices can sort of blend depending upon requirements and, basically, how much the software needs to cover in terms of geographic region, or how many modules, or users, or there's even one vendor that charges you based off of the volume of transactions. So that gives you some idea of pricing out there that's sitting there.
That's the software. Now that's it, I just go by the software and I'm done, right? No, definitely, not. Don't think that. I think most people know that, but it's really important for us to reiterate this, that the software gets purchased and it's sort of like buying—I never thought of this analogy—Let's say, “Hey, I want to have a full kitchen of food, so I'm going to go buy a refrigerator. Well, we all know that's not—you're not going to have food, right? Does that make sense?
We're not going to have food because we bought a refrigerator. We're just going to have a refrigerator. Where's the food? I have to go buy the food separately. I'm really trying to make this basic. That's kind of what it's like when you buy software. You get the refrigerator, the container that holds the food. Someone’s got to put the food in, right? Someone’s got to put the data in, they've got to arrange the shelves. I need to drop the analogy. I get that, but you could see that the concept here is the software basically, is like this logic container of what could be. There are definitely processes built out, but all of it needs to get configured. The configuration, setting it up, and going and buying the food, we'll call that professional services and those professional services costs are incurred in implementing an ERP system. Now we know why.
Implementation costs are from an implementation partner. Now, the software vendor can also have an implementation group or professional services group, or it could be a certified partner that could do those implementation services. So, NetSuite, we’ll use them as an example, could sell you the software and then NetSuite could sell you the services or NetSuite could sell you the software and another partner, an alliance partner, could do the employee rotation. Of course, then another partner can sell you the software, but then that partner can also do the implementation—gets a little wonky.
The key thing is, if you’re going through this and something doesn't feel right with any of these partners or people, just know you can change. That's not the only cost that goes into these services, it's not just the configuration, but it's also data migration assistance, building out integrations, and project management. By the way, another cost that you have to keep in mind is we have to pay our people to actually fill the fridge, so to speak.
So, they might, you know, they're going to do their day jobs and they're going to do some other things as well. So maybe we bonus them or give them some kind of incentive, or even backfill them. So, those are some of the costs that are incurred there too.
OK, so we went high level. We talked about software. We talked about services. Now we're diving in on some really key things here.
This slide will probably save the participants a lot of money. So, best practices for negotiating contracts. Well, believe it or not, you will have multiple types of contracts that you need to negotiate and these are just five of the examples.
So, what we're looking at here is on the software order form—just know whenever you get a software order form from a software vendor, it will always contain something you don't really need.
That's really funny.
Just look at the form and see what each item is and take the time to go through with the person who's putting the order form with you to just say, “What's this? What's this? What's this? What's this?” Don't get bored. Don't get confused. Just go through each one of them and you're going to say, “Well, wait a minute what's this thing? Oh, it does blah blah blah, well I don't need that.” OK, we'll take it off. I just saved $5000 or $50,000 by just taking that one thing off that I didn't really need. So, it definitely happens.
So, software agreements then. So, now we're talking about the terms and conditions that go with the software. They can be negotiated. It's going to be really hard and the software vendors don't want to create a one-off agreement for everybody, but just know there can be negotiations if you need to get through that stuff.
Professional services statements of work. Make sure that the number of hours makes sense, that they're not putting too many hours in there. If they put in training for two hours, Is that enough time for you to get your people trained for 2 hours from them? It might. Then they're going to train you and then they're going to get on a boat to wherever and then see you later, right? Chances are there's not going to be enough time for training. I'm just telling you that right now.
Hosting in technology just check their service level agreements. Make sure that what they're saying they're going to do for supporting the application makes sense. Then there's usually a support contract and you might not need the top-end support if your partner, your implementation partner, is going to help you there.
So just a couple of things. We're going to go through a couple more slides here to wrap up, but if you need this stuff, just let us know. Send a note to Juliette. We'll send this over to you because there are some good tips here.
OK, a couple of other things here. So, there are levers to pull in your negotiation for a new ERP system. The discount is variable. Now some vendors will go to a certain point. Other vendors would go way down, but just know that when you get a quote, you can negotiate that. It's kind of like a car, right?
You'll always know when you hit the bottom because the person you're talking to is like, “No. I have to go talk to this, this, this, this, this person. I'm not doing it.”
Oh, OK, good we're done, right? If they're like, “Well, let me see what I can do.” You haven't hit the bottom yet. Now again, you don't want to go for like really deep discounts with somebody that's going to help you run your business for the next 20 years. Keep that in mind, especially on this next point.
The hourly rates for professional services are negotiable. You can get discounts there. Treat them fairly because you want them to do a good job. You always, always, always, always have a renewal cap on your, especially for a software as a service, a SAAS contract, where there's a recurring cost. Always put a renewal cap in. So, we got a three-year term. Great, so we're protected for three years? What happens in year 40? We're going to Jack your price up 20%. It happens. It has happened. It will happen. So, then for maybe years 4, 5, and 6, we want a 5% cap for those years per annum or whatever it is. OK, well, now we're covered for at least six years. Year seven? Well, good luck. You're on your own, right?
You know, there's a certain amount of negotiation you can do on those renewal caps and just do it. Payment terms are flexible. You don't have to pay for it all upfront. You just don't. Everybody will say, “I want 30 days terms. We're going to pay for a full year or 30 days in advance.” Don't do that. You can do quarterly payments. You can say, “Hey, I don't want to pay for the software until the software is live.” The software vendors like, “Oh great, here we go,” but maybe they give you a couple more months of discounts on top for that.
Then, do take the time to understand the full software agreements you're about to sign off on your life—like when you open your computer and there's all these agreements, the license agreements and you click OK, OK, OK. Well, there are some key things in these ERP software agreements that you should just take the time to check out. You can have an attorney look at it. We look at them but just know what's there.
A couple more nuggets here and I think we're about to wrap up.
What is overlooked in a contract often, and I mentioned this earlier, training. The implementation partner, their preference is to train the trainer, which is where they have their resource training one of your key resources, and then your key resource goes out and trains everybody else. It's fine it can work. It can work if your person is able to then go out and stop their day job, understand the system fully, put together training materials, gather all your people in a room, make them get off their email, and then do the training.
So, there's a lot of stuff that goes into that that you just need to think through. Data migration, you might as well just prepare to get disappointed on this one. I'm so negative, I have to stop being so negative, but every single statement of work that we see the vendors say, “You are responsible for cleaning your data, extracting your data, putting it into our template, and then we'll load it into the template.” Well, I don't have time. I don't know how to pull my data out. Well then, you're going to have to pay for that. So, it's not a bad thing, you just need to know about this stuff going into it.
Again, it's like the fridge without the food in it. We have to get the old food out of the old fridge and put the old food into the new fridge. Maybe you throw some of it out, but who's going to take that old data and put it into the new system?
Always scope out customization separately. There will be some things that come up in your evaluation, your demonstration process. Make sure that those are really well understood going into your project so that you don't get stuck having to do something that's major later. Almost all of our clients have integrations. It's very real, where their accounting system, their ERP system needs to talk to other applications. It could be vendors, customers, three pals, freight forwarders. It's a million different folks, so those integrations need to be put in the contracts as well.
OK, I think this is our final question. We're going to do a summary and we're going to wrap up so true or false.
Buying ERP software is complex, but with the right knowledge, you can get what you need and at a great price. True or false?
Perfect, we got some answers coming in. I think it is something that we take a lot of time to try to do right is to do exactly what's on the screen is that folks that work with us and see us and we can, you know, do that.
So yeah, that's absolutely true that you can get the right solution at a good price.
I don't want to make this sound like it's impossible. It's not at all. It's actually the exact opposite once you know.
Good, so let's summarize what we talked about and we're going to wrap up.
So, what are the problems that ERP solves? Think about business automation and flow problems. So, documents moving from one department to another. How do we automate that process? How do we automate the flows? That is a problem ERP can do. Then please understand what it can and cannot do before purchasing. Don't just think I'm going to go purchase this ERP and it's going to solve this problem. No you have to find out if it's going to solve the problem before you purchase it.
Definitely get the right tier of software for your company. You don't have to do a tier-one, don't do it. There are instances where we have smaller organizations that do need to do a Tier 1 because they have high volume transactions or high needs so just make sure about that.
The implementation partner is just as important, if not more than the software. So, get that person, get that company engaged as early as possible because you basically get free discovery from them. I just said it, but it's really true. They're really interested in wanting to work with you in the sales process, and they're doing it on their dime. So that's good.
Make sure you really do know all the implementation costs before signing contracts, including data migration, project management, all that stuff. So that when you go to your boss and say, “Hey, here's the amount of money we need today,” and what I don't want to happen six months from that day is that you said, “I didn't know about this. I didn't know about that.” Well, you guys will because you were in this presentation, so that's really well done.
Definitely ask for a discount on the software. Then you know, listen, you're not alone. We're here. I try to be funny. It's like dad humor. My marketing team is looking at me like, “Good job, Dad!”
Anyway, I do really mean it. All of us from Quinton, Carly, Grant, and Justin, our whole team really loves helping people and dispelling these kinds of rumors, and making sure you're going to be a success. We're all in—Curtis—all of our people will do anything to make you successful. So, just know we're here if we can help.
So, thank you for your time.
Juliette: Thank you, Shawn. Thank you for sharing a lot of great information, and thank you again everyone for joining us for our webinar
If you have any questions about today’s presentation please let us know. Call or email us, we are happy to help in any way we can. Also, if you would like a copy of the deck from today’s presentation, please let us know. Again, if you need CPE credit for today’s presentation and you answered each of the polling questions, please send an email to Juliette at firstname.lastname@example.org
Be sure to join us for our next webinar scheduled for April 14th, How to Choose the Top Food and Beverage ERP System, Shawn will discuss the ins and outs of food and beverage ERPs to help you identify the top system to fit your operation’s needs. Please go to our website, erpadvisorsgroup.com, for more details and to register.
ERP Advisors Group (EAG) is one of the country’s top independent enterprise software advisory firms. ERP Advisors Group advises mid to large size businesses on selecting and implementing business applications from Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Human Capital Management (HCM), Business Intelligence and other enterprise applications which equate to millions of dollars in software deals each year across many industries.
Thank you again for joining us today.