Choosing an ERP System: Key Factors and Criteria

“You reap what you sow” – this proverb perfectly fits the situation where companies face the necessity of choosing an ERP system. It does not matter whether it is the first implementation of this type or replacing an old system with a new one – the level of difficulty is similar. The complexity of ERP-class solutions and their impact on virtually every aspect of an organization’s operations make making the right choice crucial from every point of view. It must be remembered that the goal of an ERP system is to integrate all business processes within a company.    

The ideal ERP system – what is it?

Ideals work great in algebra[i], but unfortunately, life is not that simple. That doesn’t mean you can’t dream. An ideal ERP system is one that:

1. Has full functionality currently necessary to support the most important processes in the company, but without unnecessary add-ons that would be used to a negligible degree[ii].
2. Has a clear, ergonomic, and simple user interface, and mastering it requires minimal training.
3. Does not require huge investments in existing IT infrastructure – servers, licenses, new peripheral devices.
4. Can work just as effectively locally, “on-premise“, as it can in the cloud.
5. Provides its functionality on any end device – desktop computers, laptops, tablets, and phones, and does so in a secure manner, protecting company data from unauthorized access.
6. Allows for the launch of a production version after a few months, not years.
7. Does not paralyze the company during implementation and does not require delegating an excessively large group of the best specialists to the task.
8. Has low operating, modification, service, and maintenance costs to keep it compliant with the formal-legal environment.
9. Is failure-free, efficient, and scalable, and its functionality can be easily developed and adapted to the company’s changing business processes.
10. Provides documentation, interfaces, and tools allowing it to be integrated with other specialized systems supporting production processes, e.g., CAD/CAM software, CNC, software robots, industrial automation, sensors, actuators, or even government e-services (e.g., e-Invoices, CEIDG).
11. Does not cause heart palpitations for board members when the final price for implementation and launch is announced.
12. Increases the company’s competitive advantage in a visible and easily measurable way, generates significant savings, optimizes processes, and improves the operation of the entire organization.

   

Key factors to consider when choosing an ERP system for your company

For practical reasons, it seems that the most important stage in the long and difficult process of choosing an ERP system is a comprehensive assessment of how the most important business processes from the company’s perspective are handled. In these key areas, it will be clear as day whether the compared solutions can handle the company’s specifics, how efficient and scalable they are, and whether they will make process handling simpler. Examining the details in this regard helps greatly in making the right decision. After years of ERP system development, their functionality is very similar. Therefore, references from a specific industry, from companies with a similar profile and scale of operation, prove to be decisive today. This provides a kind of guarantee that the chosen solution will again reveal its advantages in similar organizational conditions. The third, though no less important factor, is the experience and capabilities of the company implementing the ERP software. No one needs to be convinced that the same system, e.g., SAP, belonging to the top tier of the best ERP-class solutions, can be implemented successfully or become a source of a spectacular failure[iii] [iv]. Generally, it must be proven in black and white that the implementation of such a project will bring new energy and dynamics to the business, and that it will be an investment with a measurable and high return on investment. The list of key selection factors must certainly also include the total cost of ownership (TCO – Total Cost of Ownership). It is not just the license purchase price and implementation cost that count, but also the supplier’s price flexibility regarding service, modifications, and maintaining compliance with formal-legal requirements. Only by comparing all costs over, for example, ten years[v], because that is the expected life cycle of an ERP-class system, will you be able to evaluate a specific solution.

The ERP software manufacturer matters

There are about 50 different ERP-class systems[vi] available in Poland. Choosing a specific ERP-class system means committing to its manufacturer and supplier for many years, which increases the weight of such a decision. Especially since there is no shortage of dilemmas here. Is it worth investing in a cheaper solution, but from a manufacturer that has been on the market for a relatively short time? Should you limit yourself only to Polish companies because they know the specifics of national legal solutions better, or perhaps choose a system used all over the world? Will the manufacturer be able to provide support to implementation teams? How long do you have to wait for the implementation of additional functionality and modifications? There are countless questions, and finding a golden mean is not that easy. It seems that in practice, the criterion of experience in a specific industry and references prevails. Theoretically, ERP is one class of solutions, but the manufacturers of these systems have their own specializations. Differences can be seen, for example, in terms of the size of companies served, implementation costs, or functional areas – companies from the Fortune 1000 list are most often served by manufacturers such as SAP, Oracle, Microsoft Dynamics, or Infor[vii]. A very large group is formed by suppliers of comprehensive solutions for manufacturing and distribution companies, which can include Epicor with the Kinetic system, Plex, Sage, or NetSuite. Finally, there is a third group of smaller manufacturers with systems of more varied functionality, operating in rather local markets, with fewer implementations and for smaller clients. So, is it worth reaching for top-tier manufacturers? The answer is simple – sometimes yes! However, such a decision must be made with an awareness of the risk and the certainty that the available functionality can be harmoniously managed as the company grows.

Possibility of testing the ERP system

ERP testing, including automated testing, is a quality assurance (QA – Quality Assurance) process aimed at ensuring the correct implementation and operation of the ERP system before full launch. The results of these tests are crucial when making the final decision. Therefore, it is very important to ensure that such an opportunity exists at all and that the testing conditions are as close as possible to the system’s operation in a production environment. If the ERP program runs in a private, public, or hybrid cloud, you must always verify the service configuration and check the correctness of report generation and display, as well as the operation of custom dashboards. Any source code modification made for the needs of a process or team can negatively affect performance or available functionality for other users. Generally, as a rule, you should conduct:

1. Functionality tests examining whether the system works correctly and meets expectations regarding business process support.
2. Performance tests checking the efficiency of communication between different systems and the speed of transaction processing with high data flow. This allows you to check the ERP system’s resistance to critical loads.
3. Integration tests verifying whether the ERP system can correctly integrate different processes, use API interfaces, or correctly cooperate with other specialized software, peripheral devices, or parameter sensors. Integration tests should be conducted using typical scenarios from the daily work of potential ERP system users.

ERP tests minimize the overall risk of implementation failure, protect against unnecessary downtime of the production version, shorten the time of necessary training, and protect against employee frustration, which means measurable financial savings.

ERP system price – what should be taken into account?

Ideally, the price of an ERP system would be calculated as a specific percentage of the amounts saved thanks to it. The world would be simpler. In practice, however, the final price of a solution consists of many factors, some of which depend on the state of the buyer’s IT infrastructure, some on the pace of learning to operate the system, the state of archival business data, and some simply on the chosen ERP system. When estimating the total price for an ERP-class solution, you should primarily take into account:

1. All types of license fees, not only for the ERP system but also for necessary system software, servers, storage, databases, and application servers.
2. The number of system users and how it is linked to licenses.
3. The price of individual modules so as to minimize the costs of functions that are unused or used to a minimal degree.
4. Costs of hosting the system in various licensing models.
5. Costs of necessary IT infrastructure modernization, including server room expansion.
6. Time-consumption and costs of transferring archival data to the new system.
7. The price of a man-hour for members of the implementation team, programmers, consultants, analysts, etc.
8. The method of pricing modifications, additional functions, extensions, and integration work.
9. Costs of testing, preparing test scenarios, and necessary infrastructure.
10. Training costs.
11. Service costs, speed of response to failures.
12. Costs of updates, development, and ensuring compliance with current legal regulations.

As you can see, there is no shortage of price components, so it is no wonder that the final costs of implementing an ERP system can reach 8.2 thousand USD[viii] per user. Fortunately, the profits and savings generated after implementation prove that it is worth it! [i] https://pl.wikipedia.org/wiki/Idea%C5%82_(teoria_pier%C5%9Bcieni) [ii] https://www.epicor.com/en/industry-productivity-solutions/manufacturing/platforms/kinetic/ [iii] https://www.erpfocus.com/erp-implementation-case-studies.html [iv] https://www.cio.com/article/278677/enterprise-resource-planning-10-famous-erp-disasters-dustups-and-disappointments.html [v] https://www.managementstudyguide.com/erp-life-cycle.htm [vi] https://www.erp-view.pl/erp.html?start=160 [vii] https://www.techtarget.com/searcherp/definition/two-tier-ERP [viii] https://www.erpfocus.com/erp-cost-and-budget-guide.html