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 fulfilment 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.

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  • 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. 

  • Vendor Vetting

The next step is to determine what your shortlist of applications should include. 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 and Operations, 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.

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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 demonstrations 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 mistakes teams make as they finalize their selection. 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.

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  • 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. 

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.

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The CFO’s ERP Solutions Checklist

In-Depth Review of ERP Software Selection Criteria

Vetting Software Solutions in an ERP Selection

ERP Selection and Digital Transformation

Improving Internal Control over Financial Reporting with ERP

Planning for Data Migration During Your ERP Selection

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