The Ultimate Guide to ERP Selection

Don't rely on beginner’s luck with your ERP selection. It is hard to accidentally get it right. It is all too easy to accidentally get it wrong. Use this guide to help you prepare for your ERP selection journey.

What is the ERP Selection Process?

ERP Selection Questions

If this is your first time selecting an ERP solution, it helps to have a breakdown of what tasks are involved. The process can be complex, so we condensed all major components of the ERP Selection Process into simple milestones to help you plan your project. (We also provided some guideposts to the hazards that can spoil an ERP selection, so you know what not to do.)

  • Gather User Requirements
    Collect feedback from the people who will use the software, paying particular attention to any manual processes that can slow down your users. Make sure to engage the subject matter experts who will eventually help you to implement the system — without input on what their issues and challenges are, you can face resistance or protest. Missing critical considerations that should have been known in the very beginning can ultimately result in ERP implementation failure, so take care to be thorough and comprehensive on your requirements gathering.
  • Request for Information vs. Request for Proposal
    A Request for Information (RFI) provides background information on why you are selecting software, and it only asks for high-level pricing information. This is in contrast to a Request for Proposal (RFP), which asks the vendor to provide detailed cost information. Important note: with either an RFI or an RFP, any cost information the vendor provides at this stage is only an estimate. The software demonstration process, discovery, and due diligence are all necessary to provide an accurate software and professional services quote.
  • Requirements Document
    Write your requirements in a logical format that breaks down the primary workflow of your company. For instance, a wholesale distribution company sells an order, passes it to Fulfillment, and Accounting sends out an invoice. Start the document with the requirements for your sales process, then outline the unique requirements for your inventory management and fulfillment processes, including whether a purchase needs to be made to procure items for the order. Then lay out the sequence of unique steps Accounting must take with the incoming order and billings. While your users may have their own workarounds and unique ways to handle their business processes, you do not have to spell this out in your requirements document. Just tell the software vendor what you would like the software to do: i.e., tracking revenue recognition schedules, or automatically sending out invoices for upcoming due payments. You are looking for new software to bypass faulty workarounds, so don’t include the workarounds as a requirement.
  • Avoid Boilerplate Requirements Documents
    We advise against using a boilerplate requirements document or template from an online service. These often include thousands of lines of requirements, and they are a big turn-off to vendors because they are so difficult to digest. Vendors won’t pay attention to your deal if you provide them with a lengthy, convoluted document. Companies that rely on boilerplate documents usually do not know what their requirements actually are, and thus they fail to understand what functionality they need from their new software. 
  • Non-Disclosure Agreement (NDA)
    To have honest discussions with the vendor, you will need to share sensitive information with them. Get an NDA in place before sharing your company’s private information, or an RFI. Most vendor NDAs are acceptable — and while some of them will sign your NDA, most vendors will want you to sign theirs. 

Download our Complete Guide to Negotiating an ERP Deal

Vendor Vetting

The next step is to determine what your shortlist of applications should include. This is vital to ensuring you choose the best ERP software. There are many variables to consider when picking your software shortlist, with different ERP solutions that are best suited to different needs. We categorize the field of vendors in four tiers:

Tier 1: Software systems that can run the entire business, including CRM, Accounting, Human Resources, Payroll, Manufacturing, Supply Chain Management, etc.

Oracle Cloud, SAP 4/HANA, Infor M3, Workday, Microsoft Dynamics 365 Finance, PeopleSoft

Tier 2: ERP that can run a large component of a business, but not usually robust enough to include components like Human Resources and Payroll

Microsoft Dynamics 365 Business Central, NetSuite, Epicor E10, Sage X3, Infor CloudSuite Industrial, Acumatica, Financial Force, SAP Business By Design, Unit 4, JD Edwards

Tier 3: ERP that is less robust than Tier 2, and while it may run several parts of the business, like CRM, Accounting and Inventory, it may not offer other key business functionality like Manufacturing.

Sage Intacct, SAP Business One, Sage 200

Tier 4: Entry-level software that runs one area of the business and is low-cost to acquire and implement.  Appropriate for automating processes for a new activity that does not rely on integrations to other major business systems.

Quickbooks, Sage 50 (Peachtree), MYOB, many best of breed industry-specific applications

Knowing the right tier of software will help you confine your list of vendors to the right field. If, for example, you are moving out of Quickbooks with a $50 million/year wholesale distribution and light manufacturing company, you would not want to consider Oracle or SAP in Tier 1. But if you are a $400 million/year professional services firm in need of extensive human resources functionality and accounting, you would want to look at Workday in Tier 1 along with some Tier 2 applications.

You will need to locate a representative for each brand of software. After you reach an inside rep, you will then be routed to someone in your industry or geographic zone. Some software companies will be aggressive at getting back to you, while with others it can take weeks to reach a real person who can meet with you to discuss your opportunity.

Request a Consultation

I liked the ability to go to a group that had no skin in the game on what we were selecting. ERP Advisors Group had every interest in looking at our readiness for a particular tool.

Kevin Mann

CFO, Denver Rescue Mission

Use your requirements document to drive a high-level discussion about functionality, but do not send it to vendors until you have narrowed the field to about 3-4 vendors who you want to invite to give you a demonstration.

We don’t recommend doing demonstrations with more than four vendors unless there is an extenuating circumstance. It is best to find a differentiator to include or exclude vendors with, such as “integrates well with your CRM.” Holding demonstrations with more than four vendors can get confusing for the SMEs, and this is usually an indicator that more work needs to be done on earlier stages of the ERP selection process.

  • Don’t do a blind RFP
    We do not advise using a blind RFP process. It is one thing to shop for the best price for the materials you use on the manufacturing floor, with an objective procurement process that normalizes purchasing factors like quantity, discount, payment terms, and price. It is altogether another thing entirely to try and find the best software for running your company, or the most qualified consultant to implement it.
  • Demonstrations
    Mini Demonstrations:
    The first round of mini demos with your short list of vendors is a high-level demonstration that gives you a taste of the user experience and the flow of the application. We call it the “beauty pageant,” because this is where you meet the vendors, see the applications, and decide which vendors you want to spend more time with. The vendors do not need to come on site. We recommend doing it remotely, which can be advantageous if the demo goes badly — you can end a conference call more gracefully than an in-person meeting. Don’t ask the vendor to demonstrate every requirement on the first demo. Conserve your time and your SMEs’ time by limiting the first demonstration to two hours per vendor. Create a scorecard and pass this out to all of the participants, then use the results to facilitate a discussion with your team as to which vendors should move to Final Demonstrations.

    Final Demonstrations: For Final Demonstrations, you will narrow the field to only two finalists and ask each of these vendors to demonstrate the entire requirements document. This is usually a full day demonstration with each of the two finalists. They will want to do this demonstration on site, and we recommend this. The vendor will also need some access to your SMEs ahead of time to help them better understand your requirements for setting up the demonstration, and it is best to provide this access. After all, you want to help the vendor do as well as they can so you can find the very best solution for your company. Getting as much engagement as you can from the vendor during the sales process helps to reveal things that might otherwise show up as an unpleasant surprise during the implementation.
  • Implementation Partner
    Make sure to include the implementation partner during the selection process. Not paying enough attention to the implementation team’s capability during the selection is one of the main ERP selection mistakes teams make as they finalize their decision. You are relying on this team to configure the software and get you to a successful go-live, so determine the implementation partner early in the selection. The more they learn about you during the selection, the more accurate they can write the statement of work they present for their services. Some software companies, like Microsoft or Oracle, will only work with implementation partners, so you will meet them at the beginning of the deal. Other companies like NetSuite can go either way — you can hire the software publisher or a partner to do the implementation. Entrepreneurial implementation partners (or “channel partners”) can offer you advantages in terms of service and skill over the software publisher. However, the software publisher may be a better option if pricing is more of an issue. If you have a business that can use the software out of the box, going with the software publisher is likely to be more cost-effective.
  • Project Management
    As you are wrapping up the selection — and before you sign any contracts — you will have gotten a sense for the enormity of the tasks you are about to sign up for. Most mid-market companies do not have a person who can be dedicated to running the implementation, and even with an outside Project Manager, your key sponsor will need to devote at least half of their time to the implementation. This is because the implementation partner’s project manager does not focus on the tasks the client needs to do — they focus on running their developers.

Download our Complete Guide to Negotiating an ERP Deal

Without a client-side Project Manager, the key sponsor may need to be full-time on the implementation. While some companies may hire a person specifically to fill this role, most mid-market companies do not have that luxury. Hiring a PM who has done a couple of implementations before can be workable, but for more complex implementations it is better to have a team who can fill a variety of roles. The ideal team will have experience with different vendors and business models, and they should be able to adapt as you need help at various phases of the implementation. A firm provides greater security than a contracted PM who may take vacations or get sick, leaving you exposed at an unpredictable time.

There is a chasm between the tasks the client expects the implementation partner will perform, and what they will actually deliver. We recommend using a firm like ours for client-side technical project management on a project as risky and expensive as an ERP implementation, so you know what to expect and get the results you deserve.

While a client-side technical PM will track issues and keep the project plan moving, they will also manage the budget, ensure the vendor is delivering what was promised, schedule your team for training and testing, represent the company’s interests, make sure your team is showing up for training, and manage the risky parts of getting decisions made and tasks completed for data migration, integrations and customizations.

The biggest “gotcha” in an ERP implementation is the data migration. Most clients are not prepared for the heavy lifting involved in providing their data in a clean format to the implementation partner to load into the test environment. The data transformation will not be done by the partner, and it can be discouraging to find out that you are expected to extract and transform the data yourself. ERP Advisors Group offers data migration technical leads and developers if a client has exhausted their internal resources for data migration.

It needs to be mentioned that the cost of a project manager and/or data migration team should be factored into the total cost before you go to the executive sponsor for sign-off on the software purchase. While the unexpected fees can exceed your budget, the value should be considered as part of the total cost of ownership before you make your final purchase.

Software Estimate Form

Each software company has their own list of SKUs (short for “stock-keeping unit”) on the estimate form, and it is important to make sure you understand what each item is on your estimate form so there isn’t disappointment later. For instance, if you need multi-company consolidations, that is a different SKU than if you do not have multiple entities. Perhaps you do not need the CRM component: make sure you don’t pay for CRM if you absolutely do not need it. Some of our clients have extremely heavy transaction volume; check to see if you need a dedicated server. Others would prefer to forego premium support and rely on their implementation partner, so check what the Premium Support SKU actually includes or excludes.

Make sure you understand the length of the term you are contracting for. If the estimate form says 12 months, that means they can raise the price when it is time to renew at the end of the first year. Some companies might not even be live with their ERP within the first year, and it can be a bitter pill to swallow when you have to renew software that you haven’t even used.

Final Contracts Negotiation

Whenever possible, buy the software that you will need now and in the immediate future. If there are modules you will not need right away, but will need them soon, you can use this as leverage to get a better discount on the entire deal by purchasing them now. The less software you buy, the less of a discount you can get on the overall package. Then when you need more user licenses or new modules later on, you will have the lower discount rate you negotiated at the outset. It depends on your tolerance for cost: do you want a better discount over the long term, or do you want to spend less money at first with less of a discount on future purchases? To get our most valuable information on how to negotiate the best deal on your ERP package, click here to download our comprehensive guide.

Final contracts negotiation is the final hurdle, and it can be a long haul. Even as the end is in sight, and you are anxious to start your implementation, a Subscription Service Agreement (SSA) can get hung up with your legal counsel. Take into consideration the length of time your procurement team will want to spend with the contracts, the red tape you may need to navigate, and the timing of presenting contracts at a board meeting for approval. We have seen immutable software contract parameters nearly kill an entire deal — and have also helped navigate untenable terms and conditions to find an acceptable compromise.

  • We don’t provide legal review, but we do provide advice on software terms, and we can expedite this part of the ERP selection process for you. Vendors may exert some pressure for closing by month/quarter/year-end, but this is not a time to rush, or to skip over the fine print. While we don’t guarantee it, we normally save our clients the consulting fees for the selection in the final contract negotiations, not to mention precious time.

Request a Consultation

The CFO’s ERP Solutions Checklist

CFO holding clipboard

If you are a CFO who is tasked with replacing, upgrading or choosing ERP solutions for your company or organization, you may be wondering what are the KEY things that must be included in a new solution.

We surveyed the selections we have conducted over the last several years and have compiled some of the most common requirements that CFOs have for their new software. Consider including these specific criteria for your own initiative. If you are unsure if these criteria are right for you, then compile a list of what is wrong with your current system, and from there you can derive the criteria you are looking for.

This is not an exhaustive list. But the format and detail should give you pause for thought across other areas of your business, such as manufacturing, customer support, or project management. And it will help you check for business blind spots.

Once you have created the ERP Solutions Checklist, it is time to pick the right software solution for your ERP selection. There are many “dos” and “don’ts” when it comes to selecting ERP solutions. Create your own checklist before you talk to the vendors, and make sure you are driving the discussion — rather than the other way around.

Overall

  • Efficient and automated processes
  • Centralized ERP platform with integrated data from best-of-breed applications
  • Stable and automated integration platform
  • Simple and efficient accounting structure
  • All locations data consolidated into a single database
  • Company-wide metrics and analysis reporting
  • Automated and easy-to-use workflow functionality
  • Allow for easy electronic document management and storage
  • Rich application functionality out of the box
  • Standardized user access profile management

Customer Relationship Management

  • CRM functionality to support pipeline management, sales, and opportunities across service lines, plus identifying and tracking pipeline opportunities
  • Enhanced sales functionality, including opportunity and sales tracking
  • Automated integration from opportunity through fulfillment
  • Manage accounts through one central IT solution

Sales

  • Sales has access to accurate and timely inventory data including expected arrival dates, quantities and locations
  • The sales function is system-based and paper tracking of transactions is minimal
  • Captured customer history is live and access is available via mobile devices
  • Automated quoting and pricing that will interface with the Sales Order application
  • Automated sales order commit dates and tracking functionality
  • Strong sales process functionality from the field
  • eCommerce functionality that will automatically integrate with the ERP/Sales Order application
  • Customer reorder functionality via a customer portal
  • Sales processes integrated with order management and customer operations
  • Well defined sales objects/items
  • Clear lead to order entry process

Accounting

  • Full system functionality from new core financials application that support multiple companies and multiple currencies
  • Automated intercompany transaction functionality
  • A uniform financial platform with automated data transfer
  • Integrated systems and streamlined routing of information
  • Job costing and tracking
  • Invoicing, Accounts Payable, Bank Reconciliation and Fixed Asset processes that are automated, allow for attachments, and will scale with operations growth
  • Provide workflow, approvals, and strong reporting to support controls and better decision making
  • Electronic files are attached at the transaction level
  • Financial reporting is completed within the system and there is one source of truth for all financial data
  • Automated data feed with expense reporting tool
  • Company-wide general ledger drill down capability to invoice level
  • Provide rich general ledger functionality

Accounts Payable

  • Automated AP processes
  • Centralized payment functionality
  • ACH and electronic payment functionality
  • Adequate workflow surrounding vendor setup

Accounts Receivable/Collections

  • Send invoices to the customer automatically
  • Automated collections environment
  • Automated payment applications (lockbox bank feed)
  • Emailed payment links
  • Integration with credit card processor

Financials, Budgeting and Forecasting

  • Integration with service provider platforms including bank, employee retirement plan, payroll, etc.
  • Leverage strong financial reporting and analytic tools in-application (vs. Excel)
  • Quickly and easily integrate new service lines/acquisition on to financial platform
  • Automated transfer of cash data from bank
  • Automate all reconciliations
  • Support lockbox functionality
  • Easy to view and use dashboards and reports
  • Automate budget and forecast creation
  • Financial reporting and dashboard data created and maintained in one central financial system

Professional Services/Project Management

  • Resource management application to support resource, project, client, and service line management
  • Manageable data entry linking between employees and financial platform
  • Project budget flow through to PM for variance tracking
  • Automated time and expense tracking integrated with financial platform
  • Employee compensation portal
  • Management dashboard to include resource, project, client, and service line analysis
  • Time, expense, and invoicing functionality contained in one platform solution

Inventory

  • Purchasing and inventory decisions are supported by historical data
  • Inventory levels and availability data is live and available to sales and customer support
  • Inventory scanning/tracking functionality
  • Automated receiving functionality that is integrated with the purchasing application
  • Automatically track and manage inventory transfers between branch warehouses
  • Shipping information automatically communicated to the customer and associated onto the customer invoice
  • Real-time inventory visibility across all offices/locations

Purchasing

  • Automated max/min reporting that takes variable inventory fluctuations into consideration by location
  • Centralized procurement functionality
  • Easy-to-use, centralized demand planning and supply chain functionality
  • PO entry and routing through the system
  • Tracking parts and vendors
  • Integration between systems to pull information across accurately
  • MRP to drive demand-based purchasing
  • RFQ tracking and management

    Request a Consultation

In-Depth Review of ERP Software Selection Criteria

Criteria: a principle or standard by which something may be judged or decided.

We use six software selection criteria to validate the finalist at the end of an ERP selection. An objective software selection process should provide enough data to evaluate the most important ERP software selection criteria by the time you are ready to choose your finalist. Note that you cannot begin the selection with these criteria — you won’t have enough information. We recommend compiling your evaluation to assist your final “bake-off” to determine your finalist.

Our ERP software selection consultants use these criteria, regardless of industry, size, geography, type of software being selected, user counts, or software footprint. We start by creating a heat map to compare the criteria and sub-criteria for each vendor. Navigating the less obvious criteria illustrates why it could be valuable to your process to hire an ERP selection consultant.

Application Usability & Functionality

Assess the key functional areas of the software. If you are merely selecting a financials application, score each of the finalists for core accounting functionality. Assess if the software is easy to understand, as well as the overall look and feel (user experience). This is probably the most important criterion for an ERP software selection because without good usability and functionality, the rest become irrelevant to the end user who will be stuck implementing and owning the system.

Technology Platform

Compare your finalists with regards to the flexibility of integration tools and APIs, the development platform and the data center infrastructure. Look for differentiators with the requirements for your particular selection. For instance, if it is mandatory for the new ERP to integrate with your existing CRM or product lifecycle management, how does the API and toolset rate for each vendor?

If you need more than “out-of-the-box” functionality, will you have access to developer tools for custom workflows or scripts as you grow bigger and more complex as an organization? Or is the platform closed off to access, necessitating that you always contact the software publisher directly?

Finally, does your company have criteria for data center locations? This is especially important for global companies. Consider if maintenance windows interfere with the company’s normal business hours in vastly different time zones.

Cost

Some ERP selection teams may focus too heavily on price, too early on. This can be a mistake — you can’t determine the price until you know what modules, integrations, customizations, or third-party solutions you will need.

High-level pricing in the beginning should help include or exclude applications that are too small or too big. Some apps have a minimum implementation cost of $1 million. If that is out of your budget, eliminate them in the beginning. But if you eliminate based on cost too early, you may lose out on a great option.

Download our Complete Guide to Negotiating an ERP Deal

We have seen some vendors estimate software cost accurately while others underestimate the cost, helping them to stay in the race longer. We know how to spot oddball high-level cost estimates and will prevent our client from eliminating a viable partner too soon.

By the time you are picking your finalist, cost becomes a big differentiator. But use it as one of several criteria, not the ONLY criterion. With final contracts in hand, compare recurring software costs, implementation cost and 3-year costs. You will need to balance the decision to go with a more robust, expensive solution that will grow with your company against a purchase that is more affordable today.

It is drastically more costly to implement the cheaper solution now if you end up needing the bigger application in just a couple of more years. And it is also more expensive to pay for a second implementation with a second disruption to the company doing the implementation.

Software Vendor Fit

We look at factors like the software vendor’s customer base, revenue, and size, as well as the software’s long-term functionality fit. There are no benchmarks for any of these sub-criteria. But when you compare your finalists to each other, the best fit vendor becomes more obvious. If you were comparing a small industry-specific best of breed software company whose revenue is under $10 million/year with Tier 2 application boasting thousands of customers and hundreds of millions/year in revenue, it is probably a safer bet to go with the bigger, more viable company.

While it can be tempting to select a smaller firm who has great industry-specific feature functionality, what if the smaller company stops investing in their technology, gets acquired, or goes out of business? It can leave you with no support, or a product that gets sun-set.

Implementation Resources

Some of the sub-criteria we consider for implementation resources include level of engagement, how well they understand the client’s requirements, and what kind of executive support the client will get.

A partner or entrepreneurial company usually show well because you have senior people engaged in the sales process who will help drive the implementation. But some clients feel more secure having the software publisher’s bench of resources at their disposal.

Getting a feel for how well the implementation resources understand your unique requirements, especially any customizations or integrations, should be a key differentiator as you are coming down the home stretch of your selection.

Noting how engaged the resources have been or how interested or easy it has been to reach them counts. A more eager team bodes well for the transition from sales to delivery. A disconnected, detached, or disinterested team probably won’t translate into your desired implementation experience once you sign on the dotted line.

Sales teams are eager for you to be happy with your final outcome because they want you for a reference. A good connection with your salesperson can pay off during a rough implementation because they will help go to bat for you with management.

Gut Feel

The final criterion is your own gut feel! While it is completely subjective, this small part of the magic of ERP consulting should factor into your final evaluation. It would be a mistake to ONLY use gut feel, but don’t ignore it as one of many legitimate ERP software selection criteria.

Request a Consultation

Vetting Software Solutions in an ERP Selection

There are thousands of options for software, and just as many vendors to choose from. While we do provide an ERP selection checklist, it’s important to know that it’s nearly impossible for one person to pull off a successful selection by themselves — especially if they’ve never done it before.

The Total Certainty Selection Process

We have developed what we call our Total Certainty Selection Process to ensure that our clients have complete conviction that they have chosen the right software and the right implementation partner.

We start by asking our clients what problems they are trying to solve with software, and then we determine if those problems can actually be solved with a new software application. In the event that a new ERP could actually make things worse, we will never recommend an unnecessary ERP system upgrade.

We look at a client’s strategy, their people, their business processes and their technology to identify what pain points and limitations to growth they are trying to solve with software. We consider the benefits against the costs of various apps in the market in order to provide our final recommendations.

Importance of Unbiased Guidance

A lot of times software vendors are only going to show you what they want you to see. And because there are so many apps out there, it can be difficult to know if a particular application will actually meet your needs — or if the software company is revising your needs to meet their capabilities.

Don’t go out and start contacting software vendors if you don’t know your requirements. At least establish a baseline set of essential requisites, because you can easily get sidetracked by the flash and pizazz of an expert salesperson. You may even be looking in the wrong vertical for software. Furthermore, if you talk to 20 or 30 software vendors, you will inevitably end up with an influx of salespeople calling you to try to get you to look at their software.

It is best to pre-vet vendors to get a short list together of three to five options. This is a specialty of what we do at ERP Advisors Group — we vet the vendors just as much as we vet the software.

Find the Right Software, Find the Right Vendor

Getting the relationship right with the implementation partner is an important part of the process. You shouldn’t move forward with selecting a software package until you know with certainty that you have the right vendor.

Often times you can have the right software, and it can meet all of your needs, but the implementation partner or the vendor selling it is not a good fit. When you ask them questions about how they are going to resolve something, they should be able to come up with an answer.

Conversely, it is unfortunate when you find the right implementation partner, but the software package they want you to implement is the wrong package. So getting the relationship right with the vendor and the partner is an important part of the mix. You shouldn’t move forward with selecting an ERP until both sides of the equation are resolved.

Make the vendor show you the app itself

When you’re sitting through a software demonstration, don’t let the vendor spend excessive time on a PowerPoint presentation. You need to see the software in action. Just like you wouldn’t buy a car without taking it for a test drive, you need to actually observe whether the ERP system can do what you need it to.

At ERP Advisors Group, we help clients during the software demos by making sure the vendor actually demonstrates the functionality of the ERP itself. Not just dashboards either, but processes like showing how the software performs transactions, for example.

Vetting software solutions is a full-time job

It takes a lot of work to pull off a successful ERP selection. But real help is available, and the barriers to finding the software you need are nothing compared to what they used to be. You can find the solutions you are looking for, and if you need further assistance, we are always available to help.

Let’s Get Started

Contact us today to start the conversation.