We’ve written this complete ERP selection guide for you so you’ll have a comprehensive reference on how to a) develop a strategically-aligned digital transformation plan, and b) select ERP software, which will be a focal point for the transformation.
The pandemic, supply chain disruptions, and tight labor markets are forcing your company to adapt. Unfortunately, legacy processes and ERP systems are impeding your business from quickly responding to volatile shifts in demand and supply. Your company has decided to start an ERP selection project to replace its legacy software systems. This is a welcome change. Your company no longer wants to deal with unacceptable risk levels caused by the lack of automation, excessive silos, weak security, poor analytics, and cumbersome user experiences. It’s been hurting business.
Thus, shifting to a new ERP system is a necessary transition, but it’s not exactly smooth sailing. There are a lot of adjustments to make and things to consider, which can become chaotic and overwhelming.
In this detailed ERP selection guide, you’ll find a collection of best-practices collected from our firm’s 40-year history of successfully delivering transformational enterprise technology programs across technological revolutions.
These best-practices will show you how to properly architect your future state, select the right-fitting ERP and technology solutions, and prepare your organization for a transformative implementation.
Our firm – Pemeco Consulting – started in the late ‘70s with mainframes and punch cards and continued to deliver as technologies evolved through MRP1, ERP, and now Industry 4.0. Although the tools and technologies have drastically changed, the key drivers of success have not. Our long history has allowed us to uncover insights into the critical success factors as well as the challenges and risks.
The methodologies, case studies, and templates we refer to are derived from hundreds of Pemeco projects, including our hands-on experience with more than 140 different technology solutions.
We break down:
Most companies have seen their sales swing one way or another. Meanwhile, their global supply chains are being tested and they are being forced to run their operations at below capacity levels because of physical distancing requirements and supply chain disruptions.
As the crisis resolves and as governments lift lockdowns, companies will need to quickly respond to shifting customer demands, new supply sourcing requirements, and labor restrictions. ERP and technology solutions will play a pivotal role in equipping companies with the appropriate agility and speed.
Until a few months ago, many companies viewed digital capabilities that enable flexible and resilient operations as an aspirational future state. To illustrate, only 15 percent of manufacturers had a strategic plan to implement Industry 4.0 processes and systems.
Now that the pandemic is pushing companies to quickly adapt to a new normal, these numbers will probably increase dramatically. What were previously nice-to-have long-term digital projects will soon become urgently necessary. Previously, IT and line-of-business had to vigorously defend business case ROI calculations and long-term payback periods. In the new normal, we expect executives and boards of directors to fast-track these types of programs.
For many, a new ERP system lies at the core of their transformation. They need to replace legacy systems that no longer support business processing, technical integration, and analytical needs.
Unfortunately, most companies that have pursued enterprise-wide digital transformations have failed to deliver the promised business benefits because they did not have clear guidelines on how to select an ERP system that will help them achieve their specific goals.
According to global consultancy McKinsey, 70 percent of digital transformation projects fail to deliver the desired benefits and research firm Gartner estimates that up to 75% of ERP implementations fail.
With the expected urgency for change, business leaders will want to know that their digital programs can be delivered successfully. So what are the keys to success?
The keys to a successful ERP-driven transformation span short-term execution and long-term strategic goal delivery. A fragmented or narrow focus is a major risk to realizing the benefits that will be used to justify the costs and risks. Companies that take a piecemeal approach to replacing legacy technologies and processes are more likely to miss the mark.
Piecemeal can mean a lot of different things. It can mean ignoring certain functional or technical integration requirements. It can mean failing to understand how technology can both drive and enable business strategy. In far too many cases, it means inadequate project and change management. And, finally, it can mean searching for a new ERP system without fully understanding how ERP fits into a bigger strategy-driving digital transformation picture.
The right approach is one that takes a holistic view of digital transformation. History has shown that spending the upfront time preparing an ERP-driven digital transformation plan tightly pegged to business strategies is critical to benefits realization. It gives companies the benchmarks they need to evaluate ERP systems against short-term and long-term needs. Also, the act of focusing on common targets helps to align key stakeholders, clarify scope, and resolve conflict.
Transformation-related value is driven by system capabilities that allow companies to enter new lines of business or make drastic changes to existing operations. Here’s an example to illustrate the difference.
In 2017, a multinational furniture manufacturer approached us with declining business fortunes. It was struggling to keep up with customer demands for highly customized products on short lead-times. Our client took seven weeks to fill orders while its competitors took four.
Optimizing our client’s current business processes with modern technologies was not going to work. It had already tried that approach in the late-2000s when it implemented a then new ERP system. For that project, the company cloned the data structures and engineer-to-order business processes from its predecessor ERP system. Although the company had a new system that improved upon the old, it still struggled to keep up with its competitors.
As the company increased the size of its product catalogue, its operations struggled to keep pace. The company was forced to hire expensive design engineers and software developers to maintain sales levels. The excessive and variable indirect cost base was unsustainable.
It was clear that the labor-intensive engineer-to-order model of yesteryear was no longer a competitive business model. We needed to make fundamental changes that would enable our client to deliver customized products at scale. Our value-stream analysis showed that order entry and design engineering processes consumed three weeks of the order fulfillment cycle time. Remember that the company’s competitors were fulfilling orders in four weeks!
We recommended that our client ditch its legacy engineer-to-order model in favor of a configure-to-order model.
We showed them how to select ERP software that will support this new model and architected a solution that tightly integrated its customer-facing three-dimensional space planning software with configure-price-quote and ERP software. In effect, we made 75% of orders touchless from the time the customer customized its product orders to the point that those orders are scheduled for production. Together with changes to warehousing and production processes, our client shaved three and one-half weeks off its cycle times, launching it into the top quartile.
This company’s contrasting approaches to ERP — the one in the late 2000s and the most recent one – illustrate the importance of viewing an ERP project in the context of digital transformation. Had our client again rushed into an ERP selection project, it might have acquired software incapable of delivering the transformational benefits associated with a new configure-to-order business model. The challenge is that a sound ERP decision is multifaceted – future business model needs are but one important dimension of analysis. A good decision needs to account for short-term improvements, end-user adoption, cost, and ease of systems administration. These areas are typically represented by multiple stakeholder groups.
The following graphic shows the relationship among typical key stakeholder groups. Boards of directors, executive committees, and steering committees establish strategic direction and oversee delivery. The project management and solutions architecture groups control the project and overall design. Meanwhile, the core team implements the solution, and the end-user community adopts the new solutions. Each group is impacted differently and has different interests.
If the plan and architecture fail to account for long-term strategic requirements, the company could find itself handcuffed. If end-users struggle to adopt the system, the value of its data store and processing automation capabilities will become limited.
It becomes critical to engage relevant stakeholders throughout the digital transformation program. Initially, during upfront design and planning, input is needed to map long term strategic needs and front-line business processing needs. During a subsequent ERP selection project:
Once the ERP is implemented:
The following table provides a more detailed breakdown of the various stakeholder groups and their roles.
As described earlier, analysis should start with reviewing business strategies, objectives, and key performance indicators (KPIs). Charting actual and targeted performance helps to focus the program’s scope on business value-driving initiatives. The following example is a modified version of the one we used for the furniture company described above.
Once business strategies and models are defined, analysis should move down to a detailed architectural design. The end goal of this next exercise is to map the current state, the targeted future state, and any intermediate resting points along the way.
Four deeply interconnected components — the four pillars of future state architecture — should be considered: organizational structures, data, business processes, and technologies.
As one common example, vertically integrated multinationals that grow through acquisition face common challenges. Target companies are converted onto the acquirer’s legacy systems or allowed to retain their own systems. Limited process integration across companies means companies have mirrored functions:
The double-handling of data and transactions results in expensive inefficiencies. When the companies fully merge, they will need to create new global service functions that cross companies and, in many cases, borders.
The needs are oftentimes more extreme when companies pursue entirely new lines of business relating to Industry 4.0 and service-based revenue models.
Apart from meeting the technical requirements of role-based ERP systems, companies need to define and fill applicable roles before implementation starts. Preferably, the roles should be filled early so that key personnel can help define future state requirements and evaluate candidate technology solutions.
It is important to map both current-state and future-state processes. With respect to analyzing future benefit opportunities, the current state provides a critical anchor point. The business analysis should include a study of the manual tasks, the amount of processing time (cycle and takt), as well as the actors and systems needed to execute the process. The following annotated process map highlights issues with a current-state process. It also includes a quantification of process inefficiency together with an impact analysis on strategic drivers, which, in this case, relates to customer experience.
We also use process mapping to define idiosyncratic needs, which represent a company’s “secret sauce”. These requirements need to be preserved at all costs. During ERP selection, they should be used as a gatekeeper to screen prospective vendors. If these needs are non-standard, vendors must prove that they can adapt their systems accordingly (in today’s day and age, without code modification).
The current-state maps should be supported by future-state maps. These conceptualize and quantify planned improvements through efficiency gains and other forms of waste reduction. When the project progresses to ERP vendor selection, it becomes important to assess how the proposed technology solutions satisfy these future-state requirements. And, when gaps appear — and there will be gaps — it will be important to identify and quantify the impact of those gaps, because they may erode future-state business value.
Consider one example of a multinational automotive OEM that manufactures powertrains at a Canadian division for final assembly at a United States division. Both divisions need to use common data relating to that powertrain. Engineering specifications, for example, are key to the finally assembled vehicle in the United States and to how that powertrain is manufactured in Canada. And, to meet the just-in-time delivery needs, planning and scheduling need to be tightly coordinated across a supply chain network that includes the US division, transportation from Canada to the US, manufacturing in Canada, and the Canadian component suppliers.
Consider another example — this one common to multinationals that sell to customers that cross divisions. Many want to centrally control credit to manage corporate financial risk. To do so, they need to have customer data structures that span the corporate hierarchy. For example, they may need to allocate a corporate credit limit to a customer family, then apportion that limit across its own entities as well as the customers’.
There are many more examples. The point is that system data structures can either enable or impede efficient business processing, particularly when that processing crosses facilities and legal entities. It therefore becomes critical to define where data files should be controlled in relation to the corporate hierarchy. In many cases, the answer will be certain data elements should be at the corporate level and others at another level. In the above example, customer credit should be controlled at the corporate level, while customer shipping preferences and planning parameters at shipment facility level.
Here is a simple 3-step guide to properly identifying data structure requirements:
Too often, companies focus on business application functionality to the exclusion of key technical components. Unfortunately, time and again, companies select ERP and other systems that are too difficult to integrate, too complicated to personalize, too unpredictable from a performance perspective, and incapable of meeting security needs. Further, as companies increasingly shift mission-critical application workloads to the cloud, it becomes critical that the underlying architecture be robust, highly available, and secure.
At this architectural stage of the process, it is important to consider:
You can access a list of key technology categories along with a detailed description and sample of requirements by downloading The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards.
It is important for companies to have an easy place to catalogue, track, and report on the requirements. Business requirements are useful for the following purposes:
As shown in the sample below, if requirements are well catalogued, they can be analytically sliced and diced to show implementation work effort, change management needs, and implementation readiness work effort.
Download The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards for a requirements matrix template and detailed discussion on the key elements.
At a minimum, each of the charted projects should be distilled down into the teams, budgets, schedules, and specific plans.
The costs should be modelled according to an industry-standard 10-year total cost of ownership analysis (TCO).
Though some might be inclined to undersell the costs to get approval, this type of short-sighted approach will only damage credibility and imperil the project.
At this stage, before the systems have been selected, the objective should be to provide a realistic and comprehensive analysis of low-end and high-end cost scenarios. The costs should cover all technology-related acquisition, support, and implementation costs. The cost model should also account for internal costs, which may include project team member salaries, backfilling costs, and project-related facility lease, team-building events, and other such costs.
The benefit models should be tightly tied to the implementation scope and timing. Also, projections should account for a several month post-implementation stabilization period where business performance typically dips. Once a reasonable stabilization period, benefit projections should be slowly phased-in to mirror gradual adoption rates and efficiency gains.
The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards (access here) contains an ERP budget template, including total cost of ownership, benefits calculations, and ROI models.
Today, most companies start with a deep internal vetting process before vendors are invited to participate. We present our clients with a detailed analytical report on the vendor landscape and hold workshops to handpick the vendors who have the highest probability of fit.
We present an initial vendor list curated from our database of 140 technology solutions. The filters are customized based on our client’s specific needs and each vendor’s probability of satisfying those needs. We then chart that list of vendors on a client-specific Right-Fit Quadrant to highlight strengths and weaknesses relative to areas that are important to our client. The objective is to handpick a select group of vendors that have the highest probability of meeting our client’s collection of needs.
The below sample Right Fit Quadrant is focused on cost and functionality. We have other clients that prioritize other dimensions, such as technology architecture and supportability.
The details of the underlying report include a vendor-by-vendor discussion and analysis according to Pemeco’s 8 Dimensions of Vendor Fit. Download The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards for a detailed discussion of the 8 dimensions, so you are well-informed on how to select ERP software that is the best fit for your business.
The key is to build an ERP evaluation approach that covers the company’s needs across the 8 Dimensions of Vendor Fit.
The evaluations should be deeply rooted in its future-state architecture and requirements. Vendors, for example, should be asked to demonstrate their software according to tightly defined use case scenarios with actual data samples. You can download a sample use-case demonstration script for functionality and technology here.
Meanwhile, demonstrations are but one due diligence method. The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards includes a breakdown of 11 common ERP evaluation methods that can be assembled into an ERP selection plan.
From a decision-making perspective, clients almost invariably use a combination of qualitative and quantitative evaluation methods to assess vendors and their technologies against the 8 Dimensions of Vendor Fit.
It is very important to map the weighted scoring criteria back to the requirements defined in the transformation planning exercise. This will help make the recommendations defensible to the stakeholder groups that will be asked to approve the recommendations, notably the steering committee, executive committee, and board of directors. We have included a template ERP selection scorecard and sample analytical reports in The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards.
The evaluation committee will make recommendations to some of those groups at certain strategic stages, notably long-listing, short-listing, and vendor-of-choice selection. It is important for the recommendations and the underlying analysis to be well-supported, organized, and defensible.
In our firm’s experience, the actual scores are important, but do not in and of themselves justify a decision. Rather, they represent a launch-point to drill into the business implications of the candidates’ relative strengths and weaknesses.
When preparing recommendations, it is important to start with an executive summary of the recommendations and analysis. And, the recommendations report should include fingertip access to the underlying details, including vendor-by-vendor analysis of technology architecture maps, solvency analysis, implementation methodology gap analysis, and so on.
Assuming a successful scoping exercise, contract negotiations are the only remaining hurdle to be cleared before implementation kickoff. Depending on the size, risk profile, and complexity of the deal, companies should expect contract negotiations to take between one and three months. For mission-critical technologies such as ERP, it is important that contracts be structured in a way that enables predictable scalability and accelerated ROI while mitigating risks and lowering total cost of ownership.
We believe that companies should apply a disciplined approach to defining their paths to realize value-driving transformations. The best-practices set-out in this article on how to select ERP software are methodical and proven to work. To summarize, a company should:
With these best-practices carefully planned out and executed, companies will find themselves not just adapting to more efficient and effective ERP systems, but carving a path to a holistic digital transformation that is the catalyst for success in the new normal.
The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards has powered hundreds of companies to select the right software at each stage. These tools and templates will power your project with best-practices so you can make the right decisions for your ERP project teams, requirements, budgets and evaluation of vendors, as well as equip you with ERP demonstration script templates, selection scorecard template, analysis of best-practices, and digital transformation and ERP selection checklist.
Accelerate your project by downloading the Ultimate ERP Selection Guide: Templates, Checklists & Scorecards here.
The pandemic, supply chain disruptions, and tight labor markets are forcing your company to adapt. Unfortunately, legacy processes and ERP systems are impeding your business from quickly responding to volatile shifts in demand and supply. Your company has decided to start an ERP selection project to replace its legacy software systems. This is a welcome change. Your company no longer wants to deal with unacceptable risk levels caused by the lack of automation, excessive silos, weak security, poor analytics, and cumbersome user experiences. It’s been hurting business.
Thus, shifting to a new ERP system is a necessary transition, but it’s not exactly smooth sailing. There are a lot of adjustments to make and things to consider, which can become chaotic and overwhelming.
In this detailed ERP selection guide, you’ll find a collection of best-practices collected from our firm’s 40-year history of successfully delivering transformational enterprise technology programs across technological revolutions.
These best-practices will show you how to properly architect your future state, select the right-fitting ERP and technology solutions, and prepare your organization for a transformative implementation.
Our firm – Pemeco Consulting – started in the late ‘70s with mainframes and punch cards and continued to deliver as technologies evolved through MRP1, ERP, and now Industry 4.0. Although the tools and technologies have drastically changed, the key drivers of success have not. Our long history has allowed us to uncover insights into the critical success factors as well as the challenges and risks.
The methodologies, case studies, and templates we refer to are derived from hundreds of Pemeco projects, including our hands-on experience with more than 140 different technology solutions.
We break down:
- Digital transformation & preparing for the new normal
- The 4 pillars of a future state architecture
- Business process mapping best-practices
- 6 keys to ERP requirements listing
- 3 digital transformation and ERP project types
- How to build an ERP budget template, including TCO and ROI
- How to build an ERP selection scorecard using the 8 Dimensions of Vendor Fit
- 3 keys to scoping implementation and negotiating ERP contracts
The Complete ERP Selection Guide: How ERP Supports Digital Transformation for the New Normal
The coronavirus pandemic is having an unprecedented impact on manufacturing and distribution operations. Business leaders are forced to contend with multifaceted challenges. They need to ensure the health and safety of their people while, at the same time, reacting quickly to major shifts in both demand and supply.Most companies have seen their sales swing one way or another. Meanwhile, their global supply chains are being tested and they are being forced to run their operations at below capacity levels because of physical distancing requirements and supply chain disruptions.
As the crisis resolves and as governments lift lockdowns, companies will need to quickly respond to shifting customer demands, new supply sourcing requirements, and labor restrictions. ERP and technology solutions will play a pivotal role in equipping companies with the appropriate agility and speed.
Until a few months ago, many companies viewed digital capabilities that enable flexible and resilient operations as an aspirational future state. To illustrate, only 15 percent of manufacturers had a strategic plan to implement Industry 4.0 processes and systems.
Now that the pandemic is pushing companies to quickly adapt to a new normal, these numbers will probably increase dramatically. What were previously nice-to-have long-term digital projects will soon become urgently necessary. Previously, IT and line-of-business had to vigorously defend business case ROI calculations and long-term payback periods. In the new normal, we expect executives and boards of directors to fast-track these types of programs.
For many, a new ERP system lies at the core of their transformation. They need to replace legacy systems that no longer support business processing, technical integration, and analytical needs.
Unfortunately, most companies that have pursued enterprise-wide digital transformations have failed to deliver the promised business benefits because they did not have clear guidelines on how to select an ERP system that will help them achieve their specific goals.
According to global consultancy McKinsey, 70 percent of digital transformation projects fail to deliver the desired benefits and research firm Gartner estimates that up to 75% of ERP implementations fail.
With the expected urgency for change, business leaders will want to know that their digital programs can be delivered successfully. So what are the keys to success?
The keys to a successful ERP-driven transformation span short-term execution and long-term strategic goal delivery. A fragmented or narrow focus is a major risk to realizing the benefits that will be used to justify the costs and risks. Companies that take a piecemeal approach to replacing legacy technologies and processes are more likely to miss the mark.
Piecemeal can mean a lot of different things. It can mean ignoring certain functional or technical integration requirements. It can mean failing to understand how technology can both drive and enable business strategy. In far too many cases, it means inadequate project and change management. And, finally, it can mean searching for a new ERP system without fully understanding how ERP fits into a bigger strategy-driving digital transformation picture.
The right approach is one that takes a holistic view of digital transformation. History has shown that spending the upfront time preparing an ERP-driven digital transformation plan tightly pegged to business strategies is critical to benefits realization. It gives companies the benchmarks they need to evaluate ERP systems against short-term and long-term needs. Also, the act of focusing on common targets helps to align key stakeholders, clarify scope, and resolve conflict.
Building Your Future State: Integrated Architecture & Business Case
Building A Solid Foundation for Digital Transformation
The initial stages of ERP-driven digital transformation are about laying a solid foundation for change. The benefits – actual business value – of ERP-driven transformation will be realized by improving upon legacy processes and enabling a major transformation. With respect to incremental business improvement, benefits will be generated by replacing outdated processes with integrated and automated processes, clean data, and timely analytics. Though valuable, these enhancements are not transformative.Transformation-related value is driven by system capabilities that allow companies to enter new lines of business or make drastic changes to existing operations. Here’s an example to illustrate the difference.
In 2017, a multinational furniture manufacturer approached us with declining business fortunes. It was struggling to keep up with customer demands for highly customized products on short lead-times. Our client took seven weeks to fill orders while its competitors took four.
Optimizing our client’s current business processes with modern technologies was not going to work. It had already tried that approach in the late-2000s when it implemented a then new ERP system. For that project, the company cloned the data structures and engineer-to-order business processes from its predecessor ERP system. Although the company had a new system that improved upon the old, it still struggled to keep up with its competitors.
As the company increased the size of its product catalogue, its operations struggled to keep pace. The company was forced to hire expensive design engineers and software developers to maintain sales levels. The excessive and variable indirect cost base was unsustainable.
It was clear that the labor-intensive engineer-to-order model of yesteryear was no longer a competitive business model. We needed to make fundamental changes that would enable our client to deliver customized products at scale. Our value-stream analysis showed that order entry and design engineering processes consumed three weeks of the order fulfillment cycle time. Remember that the company’s competitors were fulfilling orders in four weeks!
We recommended that our client ditch its legacy engineer-to-order model in favor of a configure-to-order model.
We showed them how to select ERP software that will support this new model and architected a solution that tightly integrated its customer-facing three-dimensional space planning software with configure-price-quote and ERP software. In effect, we made 75% of orders touchless from the time the customer customized its product orders to the point that those orders are scheduled for production. Together with changes to warehousing and production processes, our client shaved three and one-half weeks off its cycle times, launching it into the top quartile.
This company’s contrasting approaches to ERP — the one in the late 2000s and the most recent one – illustrate the importance of viewing an ERP project in the context of digital transformation. Had our client again rushed into an ERP selection project, it might have acquired software incapable of delivering the transformational benefits associated with a new configure-to-order business model. The challenge is that a sound ERP decision is multifaceted – future business model needs are but one important dimension of analysis. A good decision needs to account for short-term improvements, end-user adoption, cost, and ease of systems administration. These areas are typically represented by multiple stakeholder groups.
Program Governance and ERP Project Teams
Different stakeholder groups collectively represent a company’s varied digital transformation needs. It follows that each group should be asked to play a role in decision-making and execution. The starting point, therefore, is to identify, engage, and educate the relevant stakeholders.The following graphic shows the relationship among typical key stakeholder groups. Boards of directors, executive committees, and steering committees establish strategic direction and oversee delivery. The project management and solutions architecture groups control the project and overall design. Meanwhile, the core team implements the solution, and the end-user community adopts the new solutions. Each group is impacted differently and has different interests.
If the plan and architecture fail to account for long-term strategic requirements, the company could find itself handcuffed. If end-users struggle to adopt the system, the value of its data store and processing automation capabilities will become limited.
It becomes critical to engage relevant stakeholders throughout the digital transformation program. Initially, during upfront design and planning, input is needed to map long term strategic needs and front-line business processing needs. During a subsequent ERP selection project:
- Business leaders need to assess which of the vendors would make strong long-term business partners
- Implicated core team and end-users should participate in scripted product demonstrations and associated feedback sessions. After all, they will be the ones called upon to implement and use the solutions
Once the ERP is implemented:
- Core team members should take on most of the workload under the guidance of consultants
- Steering and executive committees should meet periodically to govern
The following table provides a more detailed breakdown of the various stakeholder groups and their roles.
| Stakeholder Group | Interest | Roles and Responsibilities on Digital Transformation |
| Board of Directors and its Technology Committee | To ensure that management acts in the shareholders’ best interests. |
Leadership function that provides an oversight role to assure that technology supports business strategy execution, including:
|
| Executive Leadership | To develop and execute operational plans that drive corporate strategy. | Leadership function that creates and executes an overall digital transformation plan that drives corporate strategy and value creation:
|
| Steering Committee | To develop and provide project-specific strategic direction and policy guidance. |
Leadership function that is a decision-making body responsible to define and monitor project-specific:
|
| Project Management | To develop and execute project management plans that deliver defined business objectives on-time and on-budget. | An execution function that:
|
| Solutions Architecture | To assure that the technology solution is architected to align to enterprise architecture and to maximize business benefits. | An execution function that:
|
| Core Team | To design and implement specific functional and technical functions. | An execution function that:
|
| Internal End-Users | To use the system as implemented. | An adoption function responsible to transact using new processes, reports, and systems. |
| External End-Users | To use the system as implemented. | An adoption function responsible to transact using new processes, reports, and systems. |
The 4 Pillars of Future State Architecture: Organizational Structure, Data, Business Processes, and Technology
With established governance models and teams, a company can move onto the analysis and architectural design phases, which will guide them on how to select ERP software that will support their goals. Most typically, this involves studying a company’s current state, designing its future state, and developing actionable plans to execute the digital transformation.As described earlier, analysis should start with reviewing business strategies, objectives, and key performance indicators (KPIs). Charting actual and targeted performance helps to focus the program’s scope on business value-driving initiatives. The following example is a modified version of the one we used for the furniture company described above.
KPI: ORDER FULFILLMENT CYCLE TIME
current KPI: 7 weekstarget KPI: 3 weeks
| SALES PROCESS | ENGINEERING | MANUFACTURING AND DISTRIBUTION | |
| Current state and actual performance | 5 days to enter new order due to manual pricing and promise data checks | 4 weeks to design & engineer customer orders | 30% of orders miss customer promise dates because of unanticipated manufacturing scheduling & quality issues |
| Future State | Automate order entry for all configured items for space planning software to ERP | Change 70% of product structures to parametric configuration models | Adoption of standard production data and processes for configured products will improve scheduling and minimize quality issues associated with engineered product |
| Target KPIs | Touchless order entry for 85% of order lines (5-day lead time benefit) $150,000 benefit per year per site | Eliminate engineering lead times for 85% of order lines $370,000 benefit per year per site | 95% fill rates 90% promise date satisfaction$150,000 benefit per year per site |
Pillar #1: Organizational structures
As companies transform, the corporate and organizational structures that worked well in the past will probably need to be changed for the future. Companies evolving their business models will need to create different — in many cases entirely new — functions and roles.As one common example, vertically integrated multinationals that grow through acquisition face common challenges. Target companies are converted onto the acquirer’s legacy systems or allowed to retain their own systems. Limited process integration across companies means companies have mirrored functions:
- Buyer at Company1/Inside sales at Company 2
- AR at Company-1 / AP at Company-2
- Planner at Company-1 / Planner at Company-2
- and so on
The double-handling of data and transactions results in expensive inefficiencies. When the companies fully merge, they will need to create new global service functions that cross companies and, in many cases, borders.
The needs are oftentimes more extreme when companies pursue entirely new lines of business relating to Industry 4.0 and service-based revenue models.
Apart from meeting the technical requirements of role-based ERP systems, companies need to define and fill applicable roles before implementation starts. Preferably, the roles should be filled early so that key personnel can help define future state requirements and evaluate candidate technology solutions.
Pillar #2: Business processes
During the planning stage of digital transformation, business process mapping is crucial to:- Define and quantify the value of gaps and issues associated with the current-state processes.
- Identify non-negotiable needs that represent your company’s competitive differentiators.
- Define future-state changes and best-practices.
It is important to map both current-state and future-state processes. With respect to analyzing future benefit opportunities, the current state provides a critical anchor point. The business analysis should include a study of the manual tasks, the amount of processing time (cycle and takt), as well as the actors and systems needed to execute the process. The following annotated process map highlights issues with a current-state process. It also includes a quantification of process inefficiency together with an impact analysis on strategic drivers, which, in this case, relates to customer experience.
We also use process mapping to define idiosyncratic needs, which represent a company’s “secret sauce”. These requirements need to be preserved at all costs. During ERP selection, they should be used as a gatekeeper to screen prospective vendors. If these needs are non-standard, vendors must prove that they can adapt their systems accordingly (in today’s day and age, without code modification).
The current-state maps should be supported by future-state maps. These conceptualize and quantify planned improvements through efficiency gains and other forms of waste reduction. When the project progresses to ERP vendor selection, it becomes important to assess how the proposed technology solutions satisfy these future-state requirements. And, when gaps appear — and there will be gaps — it will be important to identify and quantify the impact of those gaps, because they may erode future-state business value.
Pillar #3: Data
To support operational business processing and management reporting requirements, data needs to be properly structured, accurate, and timely. The need for accurate and timely data is clear. Data structure concepts are more complicated, particularly for multinational and multisite companies.Consider one example of a multinational automotive OEM that manufactures powertrains at a Canadian division for final assembly at a United States division. Both divisions need to use common data relating to that powertrain. Engineering specifications, for example, are key to the finally assembled vehicle in the United States and to how that powertrain is manufactured in Canada. And, to meet the just-in-time delivery needs, planning and scheduling need to be tightly coordinated across a supply chain network that includes the US division, transportation from Canada to the US, manufacturing in Canada, and the Canadian component suppliers.
Consider another example — this one common to multinationals that sell to customers that cross divisions. Many want to centrally control credit to manage corporate financial risk. To do so, they need to have customer data structures that span the corporate hierarchy. For example, they may need to allocate a corporate credit limit to a customer family, then apportion that limit across its own entities as well as the customers’.
There are many more examples. The point is that system data structures can either enable or impede efficient business processing, particularly when that processing crosses facilities and legal entities. It therefore becomes critical to define where data files should be controlled in relation to the corporate hierarchy. In many cases, the answer will be certain data elements should be at the corporate level and others at another level. In the above example, customer credit should be controlled at the corporate level, while customer shipping preferences and planning parameters at shipment facility level.
Here is a simple 3-step guide to properly identifying data structure requirements:
- Define your future-state corporate structure and hierarchy
- Define your future-state business processes for each entity at each level of the hierarchy and how they cross entities, including data elements
- For each data record type in a business process (e.g. customer/vendor, item, bills-of-material, costing, pricing, etc.), define the specific data requirements at each level of the hierarchy
Pillar #4: Technology
Once organizational structures, business processes, and data structures are designed, the next task is to architect the technologies that will support and enable the future-state.Too often, companies focus on business application functionality to the exclusion of key technical components. Unfortunately, time and again, companies select ERP and other systems that are too difficult to integrate, too complicated to personalize, too unpredictable from a performance perspective, and incapable of meeting security needs. Further, as companies increasingly shift mission-critical application workloads to the cloud, it becomes critical that the underlying architecture be robust, highly available, and secure.
At this architectural stage of the process, it is important to consider:
- Middleware strategies
- Application development and extensibility
- Application upgrade management
- Security needs
- System availability and service levels
- Elasticity and scalability
- Latency and performance
- Data management and residency
- Storage capacity
- Disaster recovery
You can access a list of key technology categories along with a detailed description and sample of requirements by downloading The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards.
Business and Technology Requirements – Pulling it All Together
The various organizational, data, business process, and technology requirements are going to have different priorities, be needed at different times, and have differing levels of impact on your business.It is important for companies to have an easy place to catalogue, track, and report on the requirements. Business requirements are useful for the following purposes:
- To catalogue needs by functional and technical areas
- To prioritize needs relative to business drivers
- To time the need for implementation
- To identify value-driving best-practices that imply a change from the legacy ways
- “Foundational” needs to help the company either a) get ready for implementation, or b) realize short-term value with low-hanging fruit
- To catalogue idiosyncratic needs that are competitively differentiating
As shown in the sample below, if requirements are well catalogued, they can be analytically sliced and diced to show implementation work effort, change management needs, and implementation readiness work effort.
Download The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards for a requirements matrix template and detailed discussion on the key elements.
Building an Integrated Roadmap
With the architecture design and requirements definition complete, the task shifts to planning. The various interdependent projects should be charted on a program roadmap: foundational and readiness projects, ERP and technology selection projects, implementation projects, and continuous improvement projects. A consolidated GANTT view of the projects on a timeline provides a clear view of the initiatives.At a minimum, each of the charted projects should be distilled down into the teams, budgets, schedules, and specific plans.
The following table summarizes typical project types in ERP-centric digital transformations.
| Project Category | Description |
| Foundational | Program management office (PMO): Companies with a big set of interdependent projects establish a PMO to a) leverage a consistent set of project management tools and frameworks, and b) to monitor and control the project portfolio.
Organizational structure and people: Oftentimes, new functions need to be created and new roles to be filled. Also, key employees slated for implementation work may need to be backfilled. Business process cleanup: Business process optimization and processing disciplines may be recommended to establish a foundation for the future state and to minimize the extent of change during implementation. Data re-architecture and cleanup: Where practical, companies should define future-state data structures and should clean inaccurate master data. |
| Technology Selection | ERP and technology selection plans should include a listing of the vendors, the due diligence methods, and the decision-making methods. |
| Implementation | The implementation plans should detail the rollout strategy across sites and phases, as well as the implementation methodologies. |
ERP Budgets, TCO and ROI: Building a Business Case for your Transformation Program
Digital transformation and ERP implementation projects have notoriously high failure rates and sky-high costs. This combination does not make a compelling investment proposition. A business case for change will not pass executive or board of director scrutiny if it is unrealistic or incomplete. It needs to be comprehensive, detailed, and conservative.The costs should be modelled according to an industry-standard 10-year total cost of ownership analysis (TCO).
Though some might be inclined to undersell the costs to get approval, this type of short-sighted approach will only damage credibility and imperil the project.
At this stage, before the systems have been selected, the objective should be to provide a realistic and comprehensive analysis of low-end and high-end cost scenarios. The costs should cover all technology-related acquisition, support, and implementation costs. The cost model should also account for internal costs, which may include project team member salaries, backfilling costs, and project-related facility lease, team-building events, and other such costs.
The benefit models should be tightly tied to the implementation scope and timing. Also, projections should account for a several month post-implementation stabilization period where business performance typically dips. Once a reasonable stabilization period, benefit projections should be slowly phased-in to mirror gradual adoption rates and efficiency gains.
The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards (access here) contains an ERP budget template, including total cost of ownership, benefits calculations, and ROI models.
The Modern Approach to Technology and ERP Vendor Selection
ERP Software and Vendor Listing
Historically, companies would build their lists by blasting out an RFP to any vendor that would respond to a 3,000 line feature-function questionnaire. This approach fell out of favor towards the early 2010 years when many vendors made it a common practice to reply “yes” to everything in the hopes of getting shortlisted.Today, most companies start with a deep internal vetting process before vendors are invited to participate. We present our clients with a detailed analytical report on the vendor landscape and hold workshops to handpick the vendors who have the highest probability of fit.
We present an initial vendor list curated from our database of 140 technology solutions. The filters are customized based on our client’s specific needs and each vendor’s probability of satisfying those needs. We then chart that list of vendors on a client-specific Right-Fit Quadrant to highlight strengths and weaknesses relative to areas that are important to our client. The objective is to handpick a select group of vendors that have the highest probability of meeting our client’s collection of needs.
The below sample Right Fit Quadrant is focused on cost and functionality. We have other clients that prioritize other dimensions, such as technology architecture and supportability.
The details of the underlying report include a vendor-by-vendor discussion and analysis according to Pemeco’s 8 Dimensions of Vendor Fit. Download The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards for a detailed discussion of the 8 dimensions, so you are well-informed on how to select ERP software that is the best fit for your business.
Build an ERP Selection Approach That’s Right for Your Business
There is no universally correct way to evaluate vendors. The right approach is context specific. A company with heavy multi-company processing needs will spend more effort evaluating data structures and intercompany business processing. Meanwhile, a company with heavy integration requirements will spend its effort evaluating APIs and technology architecture.The key is to build an ERP evaluation approach that covers the company’s needs across the 8 Dimensions of Vendor Fit.
The evaluations should be deeply rooted in its future-state architecture and requirements. Vendors, for example, should be asked to demonstrate their software according to tightly defined use case scenarios with actual data samples. You can download a sample use-case demonstration script for functionality and technology here.
Meanwhile, demonstrations are but one due diligence method. The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards includes a breakdown of 11 common ERP evaluation methods that can be assembled into an ERP selection plan.
From a decision-making perspective, clients almost invariably use a combination of qualitative and quantitative evaluation methods to assess vendors and their technologies against the 8 Dimensions of Vendor Fit.
ERP Selection Scorecard – Rating the Candidates
Before starting its ERP selection project, the evaluations committee should develop a balanced scorecard with weighted decision-making criteria categorized by the 8 Dimensions of Vendor Fit —vendor profile, functionality, technology, user experience, software development roadmap, total cost of ownership, implementation, and supportability.It is very important to map the weighted scoring criteria back to the requirements defined in the transformation planning exercise. This will help make the recommendations defensible to the stakeholder groups that will be asked to approve the recommendations, notably the steering committee, executive committee, and board of directors. We have included a template ERP selection scorecard and sample analytical reports in The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards.
The evaluation committee will make recommendations to some of those groups at certain strategic stages, notably long-listing, short-listing, and vendor-of-choice selection. It is important for the recommendations and the underlying analysis to be well-supported, organized, and defensible.
In our firm’s experience, the actual scores are important, but do not in and of themselves justify a decision. Rather, they represent a launch-point to drill into the business implications of the candidates’ relative strengths and weaknesses.
When preparing recommendations, it is important to start with an executive summary of the recommendations and analysis. And, the recommendations report should include fingertip access to the underlying details, including vendor-by-vendor analysis of technology architecture maps, solvency analysis, implementation methodology gap analysis, and so on.
Next Steps in the Project: Implementation Scoping and Contract Negotiations
Once a company has selected one or more vendors-of-choice, it should strongly consider going through an implementation scoping exercise before negotiating contracts. A ‘scope first, negotiate later’ approach brings three important benefits:- It allows the vendors to precisely scope the software needs for contractual pricing purposes
- It provides a mechanism to scope the implementation work effort, which flows into the service agreements
- It gives companies an opportunity to assess the service team’s fit and capabilities before making any contractual commitments
Assuming a successful scoping exercise, contract negotiations are the only remaining hurdle to be cleared before implementation kickoff. Depending on the size, risk profile, and complexity of the deal, companies should expect contract negotiations to take between one and three months. For mission-critical technologies such as ERP, it is important that contracts be structured in a way that enables predictable scalability and accelerated ROI while mitigating risks and lowering total cost of ownership.
The 5 Keys to ERP Success
The COVID-19 crisis has shed a bright light onto a need for agility and flexibility. As companies accelerate their ERP-drive digital transformation initiatives, it is critical that they set themselves up for both project success and long-term business success.We believe that companies should apply a disciplined approach to defining their paths to realize value-driving transformations. The best-practices set-out in this article on how to select ERP software are methodical and proven to work. To summarize, a company should:
- First build a governance model that supports effective decision-making and high-performance teams
- Develop a sound future-state architecture that spans organizational structures, data structures, business processes, and technologies
- Build detailed plans and cost-benefit models
- Execute foundational projects to get the company ready for a transformative ERP implementation
- Perform well-rounded due diligence to select the right ERP software and technology partners
With these best-practices carefully planned out and executed, companies will find themselves not just adapting to more efficient and effective ERP systems, but carving a path to a holistic digital transformation that is the catalyst for success in the new normal.
Download The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards
Whether your company is in the early stages of planning its digital transformation or is evaluating ERP vendors, you need to make sure you’re making the right decisions at each stage.
The Ultimate ERP Selection Guide: Templates, Checklists & Scorecards has powered hundreds of companies to select the right software at each stage. These tools and templates will power your project with best-practices so you can make the right decisions for your ERP project teams, requirements, budgets and evaluation of vendors, as well as equip you with ERP demonstration script templates, selection scorecard template, analysis of best-practices, and digital transformation and ERP selection checklist.
Accelerate your project by downloading the Ultimate ERP Selection Guide: Templates, Checklists & Scorecards here.
