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Once You Sign on the Dotted Line for a New ERP System, You Own It – for Better or Worse; Not if Your Software Vendor Provides You With a Software Acceptance Process

Tuesday, July 28th, 2009 by admin

I received a recent email from a firm that provides ERP software evaluation tools and has analysts and consultants who work with clients to evaluate software solutions.  Their headline message jumped out at me immediately, which read, “Once you sign on the dotted line for a new ERP system, you own it – for better or worse.”   While this statement is true in almost every case, it is not true when companies work with a software vendor that provides them with a software acceptance process.

So, what is a software acceptance process, and how does it work?  A software acceptance process is a money-back guarantee to a company acquiring ERP software following contract signing and initial software installation.  We know that during a software evaluation process, personnel from the company evaluating software do their best to describe the processes and capabilities they require in a new software solution.  The vendor’s responsibility is to understand the prospect’s requirements and to show and describe to them how their software matches up with those requirements.  Unfortunately, this process is flawed.

Prospect personnel cannot understand and describe clearly what they are looking for from new software.  Likewise, software vendor personnel cannot comprehend perfectly what is being requested by the prospect personnel.  There will always be gaps in understanding and communication; however, a software company that offers a software acceptance process embraces this fact and helps to make it a non-issue.  Software vendors who offer the software acceptance process don’t want customers to be fooled or misled into buying software that isn’t what they thought it was during the evaluation process.

This reminds me of an old joke about a guy who is given the opportunity to choose where he wants to spend eternity.  He visits heaven and finds it to be sedate – with harps and angels singing.  He then visits hell and finds gourmet food, great music, and lots of golf courses to play.  The guy debates his options and then chooses hell.  He’s immediately whisked away to fire-engulfed surroundings to which the guy asks where the food, music, and golf courses went.  The response he receives is, “When you visited, you were a prospect. Now, you’re a customer.”

Don’t allow this to become you when you’re buying new ERP software.  I saw a recent Web posting by a software demo person who stated that his job was to get the prospect to believe the software would do whatever they want it to do.  Even if someone were inclined to approach things in this manner, there would be no value in doing so if that demo person’s employer offered its customers a software acceptance process.

I could cite numerous examples in which people have said they wished they had insisted on a software acceptance process with their vendors.  Here’s one such example.  Back in 2006 we participated in a software evaluation against a well-known ERP software vendor.  The prospect had a consultant guide them through the process, did scripted demos, scored the demos, and saw things as too close to decide.  Finally, the prospect selected the other solution.  When they did so, we strongly recommended to the prospect and consultant that they insist on a software acceptance process to which their response was, “We don’t need that; we’ve seen the other software’s capabilities demonstrated.”

In following up with that consultant in January 2009, he stated his client regretted many times not going with us.  They have been disappointed with the product they chose.  There was functionality that was promised to them by the vendor that wasn’t there when they bought and still isn’t there.

There are numerous stories and reports showing that the percentage of failed ERP software implementations is too high.  One root cause of this problem is that companies select the wrong software.  If vendors offering a software acceptance process became the norm in the ERP software industry, the issue of selecting the wrong software could be minimized.

As part of “The TGI Difference,” TGI offers a risk free, money-back software acceptance period to all of its customers following contract signing and initial software installation. This period allows customers to validate their selection of TGI and Enterprise 21.  We encourage all prospects to insist on a software acceptance process when buying new ERP software.


TGI’s Stance On Software Development and Support Outsourcing

Tuesday, July 21st, 2009 by Alex Smith

A rising trend in the ERP software industry is the outsourcing of development and support services to third-party companies overseas. In the last two years, virtually every prospect I have spoken to during the selection process has inquired as to who is responsible for support services and, more importantly, where such support staff is located. There seems to be a common concern among business owners, senior management, and IT directors across the United States that should they ever require software support and/or assistance that they will be directed to somebody who is not a full-time employee of the software company and that this person will not be able to communicate an adequate diagnosis and solution with customer staff effectively.

ERP vendors’ justification for third-party development and support outsourcing is fairly simple – third-party outsourcing to other companies (and countries) can provide significant cost savings for software vendors. The cost to educate, train, and staff full-time software developers in the U.S. is significantly greater than for staff in many regions internationally. Average wages for software developers and support staff are substantially lower outside the United States, and by outsourcing to other companies, software vendors are able to eliminate costs such as employee benefits and retirement contributions.

While such development and support outsourcing is quickly becoming the rule rather than the exception in the ERP software industry, TGI believes that a key to providing effective, exceptional customer service lies in the quality and knowledge of the support staff the software vendor employs. TGI has remained committed to providing direct developer support for each of its clients; when calls are placed to TGI’s customer support line, calls are answered directly by TGI software developers with an average tenure of over ten years. We believe this philosophy provides our customers with an opportunity to interact with their software developer (TGI) in a truly unique way, which in turn leads to better business relations and lasting partnerships. This philosophy also places an added pressure (and opportunity) exclusively on TGI to routinely deliver effective solutions and responses to customer requirements. It is our job to respond to and meet these customer demands on a daily basis.

When selecting an ERP software solution and provider, software functionality is certainly of the utmost importance in the selection process; however, software selection teams should also conduct a thorough analysis of the software company and the support staff that will be charged with the task of meeting customer requirements on an on-going basis.


Improving Operational Efficiency and Pricing Accuracy through Commodity Market-based Pricing

Friday, July 17th, 2009 by admin

Within numerous food industries, including the cheese market, it is a common scenario for two businesses to agree to transact business together in a buy-sell relationship with the pricing set relative to a commodity market.  For example, a given company may import cheese from another entity and then cut and pack that cheese for their retail customer base.  The cut and pack business may elect to buy a given Swiss cheese at $0.10 per pound above the Block and Barrel weekly market average based on the date of manufacture while agreeing to sell their cut and packed finished product for $0.15 per pound above this same market based on the date of shipment.

There are varying methods by which the cut and packaging company may choose to manage its business relative to these pricing methods.  One method would be that personnel could manage the vendor and customer pricing records directly for the specific vendor and customer described above.

Alternatively, by using commodity market-based pricing functionality, one could establish the specific Block and Barrel weekly market average as the basis for pricing in this example.  Then, within vendor and customer pricing records respectively, one could establish that the given Swiss cheese supplier has agreed to sell the cheese to the cut and pack organization at an overage of $0.10 per pound based on the date of manufacture of the cheese.  Likewise, within customer pricing for the specific example above, a customer pricing record would be established for a given retail customer such that they would be billed an overage of $0.15 per pound relative to the given commodity market average based on date of shipment.

In either case, the system would establish a purchase order with the supplier and a customer order with the given retail customer respectively for the proper pricing based on these agreements; however, the method by which pricing updates would be made would vary by these two methods.  In the case where the exact pricing is set up for the vendor and customer respectively, each time the commodity market pricing would change, the specific vendor and customer pricing would need to be updated directly.  On the other hand, if the pricing records were managed relative to the given commodity market pricing, only the reference market-based pricing would need to be updated – either manually or electronically – and the associated vendor and customer pricing records which reference the given commodity market price would be updated automatically.

While this process may not appear to save any time when we’re talking about an example with only one vendor supplying one product and one customer buying one product, you can imagine how much more complex this can be when there are dozens of vendors supplying a wide variety of products which can be cut and packed to yield hundreds of finished goods for a multitude of customers.  In this case, by setting up the reference commodity markets and associated vendor and customer pricing records once and allowing the system to automatically calculate the appropriate contract pricing as the various commodity market prices move up and down, there can be tremendous gains in time efficiency by managing the pricing in this manner.  In addition, since the pricing is set up once with the movement of reference commodity markets kept in only one place in the system, the potential for errors in pricing of purchases and sales is likely to be substantially reduced.

By using strong ERP systems like TGI’s Enterprise 21, food-based businesses and organizations in other industries that leverage commodity market-based pricing as a norm can save time and money while reducing the possibility of errors through market-based pricing functionality on the procurement and customer sales sides of their businesses.


Use Your ERP Software Implementation to Clean Up Your Garbage Data

Tuesday, July 7th, 2009 by Alex Smith

A common concern many small business owners have when selecting a small business ERP software package is how they are going to be able to extract their existing data from their legacy software systems (QuickBooks, Excel, etc.) and transfer the data into their new ERP software solution. While migrating historical data into the new software package is important, the real question small business owners should ask is what historical data should be migrated over to the new ERP solution?

Within most small businesses, manufacturing and distribution operations use multiple software packages simultaneously, which leads to numerous instances in which data is duplicated, and, in many cases, inconsistent. Products are often times entered with one product description in one software package and a different product description in a second software package; the organization may also have a customer’s shipping address entered in one software package and the same customer’s billing address entered in a different software package. The software implementation process is an excellent opportunity for the organization to clean up its duplicated and inconsistent data and develop a single, cohesive data set for products, customers, ingredients and raw materials, suppliers, financial accounts, etc.

While the process of going through potentially hundreds or thousands of data records may be painful, it will prove to be highly beneficial to the small business during the initial system go-live and beyond. A sophisticated ERP software solution is only as good as its associated data. I recently spoke with one small business owner, and I believe his take on data migration was probably one of the most simplistic, yet most accurate statements I have heard when he said, “Garbage data in is just going to mean garbage data out.” This statement is just as true today as it has always been when using automated systems.

Establishing an accurate and consistent data set during software implementation is one of the first steps for the small business in realizing significant ROI for its software purchase and developing improved, efficient business operations.


Criteria for Selecting High Service Factor Items

Friday, July 3rd, 2009 by Alex Smith

Inventory management is a key element in any sophisticated distribution software or manufacturing software solution. In Enterprise 21, inventory levels can be maintained on a product-by-product basis using a variety of inventory control methodologies. These include a simple reorder point with minimum and maximum values, safety stock level (measured in days supply on hand), and service factor, with each methodology accounting for seasonal fluctuations in demand for a given product. Service factor, which is a number between 1 and 100, allows the organization to select a desired line item fill rate for a given product. An item with a service factor of 50, for example, means that for every 100 orders for that item, 50 orders will be able to be serviced directly out of available inventory. An item with a service factor of 95, however, means that for every 100 orders for that item, 95 orders will be able to be serviced directly out of available inventory. So, with this basic understanding of service factor, what criteria should the organization use in determining the products that should be set to have high service factors?

There are two key criteria for selecting products to have high service factors. First, items with a high order volume or high order frequency should be set to a high service factor. Items with a high order volume and high order frequency account for a significant portion of the organization’s business and revenue. Having the ability to fulfill orders for these items routinely out of available inventory will not only increase gross revenues, it will also lead to increased levels of customer service and satisfaction.

The second criteria for selecting items to have high service factors is high profit margin. Setting items that have a high profit margin to have a high service factor will result in increased bottom-line profits for the organization. Even if an item has a relatively low order volume or frequency, being able to fulfill orders for items with a high profit margin directly out of available inventory will decrease the likelihood of the customer shopping for the product elsewhere and increase the likelihood of repeat business from that customer.

For items with high order volume and frequency or high profit margin, using a service factor inventory management methodology can provide a powerful tool that can be leveraged to increase bottom line profits, improve customer service and satisfaction, and improve the likelihood of repeat business from a given customer.


The ERP Selection Process: Developing Your Initial List of Potential ERP Vendors

Wednesday, July 1st, 2009 by Alex Smith

Developing your initial list of potential ERP vendors is a critical step in the ERP selection process. Your initial list of potential ERP suppliers will serve as the basis for which suppliers you will send Request for Information (RFI) documents. Suppliers’ responses to the RFI will in turn help you to eliminate some ERP vendors and move forward with others to conduct initial remote software demonstrations. The vendors’ performance during these initial demonstrations will then help you to select which suppliers you will send a Request for Proposal (RFP), invite to conduct on-site scripted software demonstrations, and ultimately make a final supplier selection. In other words, your initial list of software suppliers should (hopefully) contain the supplier you will finally select as your software supplier. To help generate an initial long list of potential ERP companies (roughly 25 companies is usually a good start), there are a number of resources available to the software selection team.

Google – Google is a great place to search for potential ERP software vendors. For broad searches, use keywords such as “ERP software,” “ERP system,” and “ERP systems.” These search phrases will provide you with a large number of companies to consider. For manufacturers, “process manufacturing software,” or “discrete manufacturing software” are great phrases to search on when looking for potential software suppliers. You can also search on phrases that are more specific to your industry. Companies in the food and beverage industry, for example, can search for phrases such as “food ERP software,” or “beverage ERP software.” Pharmaceutical distributors can search on phrases such as “pharmaceutical distribution software.” You get the idea. Google is an incredibly powerful tool and provides highly-relevant information in its search results.

Industry Publications and Associations – Various industry publications and trade associations are also a great place to find potential software vendors. Members of the National Association of Manufacturers, for example, can check out the software section of the online NAM Buyer’s Guide. Cheese and dairy processers can look at Dairy Foods Magazine’s supplier guide or the Dairy Foods website, while organizations who specialize in plumbing wholesale distribution can frequently find potential software suppliers in The Wholesaler or at www.thewholesaler.com. No matter what your industry may be, your industry’s leading associations and publications are a great place to start looking for potential ERP vendors.

Independent Consultants
– Independent consultants are a great resource for not only developing a list of potential ERP vendors but providing assistance and guidance in other steps of the software selection process as well. If you decide to use a consultant throughout the selection process, be sure to select a consultant who truly is “independent” and does not have a partnership or financial agreement with any software provider. Selecting an independent and unbiased consultant will help you select the best ERP vendor for your business.

For more software selection resources from TGI, please see the “ERP Software Selection Process” within the “Resources” section on our website.  This area provides tools to assist in the software evaluation process, as well as an option for obtaining a list of ERP vendors based on your company’s industry, revenue, and manufacturing process where applicable.