• Current software can’t match existing business processes – this may have existed from day 1 of installing your new software if you did a poor job of selecting software the first time, and the gap may have continued to widen over time.
• The business is changing and software can’t enable this change – as a business changes and grows, new processes can get introduced which help enable that business to be competitive in new markets with new customers.
• Lots of off-line processing (i.e., spreadsheets, manual processes, re-keying of data multiple times) – if the existing system doesn’t allow someone to get their job done, they will tend to find ways around the system to do so. Unfortunately, these inefficiencies can eat substantial amounts of time and can create data inaccuracies as the “same” information is entered multiple times in disparate systems.
• Have lots of “data” but can’t get “information” out of the system – analyzing information is critical to continuous improvement and attracting and maintaining good customer relationships. One can get handcuffed by having a data rich, information poor environment where they put data into their system but can’t get any information back out.
• Can’t easily implement new functionality or technology (i.e., RF/barcode, EDI, warehouse management system, CRM software, etc.) – there may be improved efficiencies to be gained and new customers attracted by making it easy for them to do business with you. Many times, technology is a key enabler to making it easy for your customers to interact and transact business with you.  If you can’t readily adopt these new technologies, you may lose customers who are better prepared to transact business with your customers.
• Existing software and/or underlying infrastructure is no longer supported by the associated vendors – as there have been massive amounts of acquisitions in the ERP market over the years, there are lots of ERP solutions which were thought of as “flagship” solutions that are no longer receiving an adequate level of investment to keep existing customers satisfied and to attract new ones. Your vendor may have “dropped support” for your software without formally announcing it to you.
• Can’t keep up with business demands by writing custom software vs. using packaged software solutions – for those who continue to write their own custom software, there are so many “commodity” processes that could be enabled via packaged software while still gaining the benefits of customized software in those “competitive advantage” processes – those processes that enable a company to gain competitive advantage in its marketplace. Unfortunately, most companies who have a “build” vs. “buy” approach to software do so across all business processes, and either pay a lot for “commodity” processes or can’t get resources focused on the “competitive advantage” processes due to keeping day-to-day operations running.  Don’t allow yourself to be held hostage by your internal application development team.

While the above is not intended to be an all inclusive list, these symptoms are very common in businesses.  As symptoms continue to pop up and their results become increasingly more disconcerting, manufacturing and distribution businesses will opt to evaluate and implement new ERP software solutions to remove these barriers to future business growth.

Click here to download the complete white paper from the TGI Resources Library.

1. What is the cost of software licenses? Are software licenses sold on a named user or concurrent user basis?
2. What is your average implementation services-to-software cost ratio?
3. Is the software sold on a module-by-module basis, or is it sold as an all-inclusive ERP software product?

A few important questions that are often missed or overlooked during the ERP selection process, however, are:

4. When do you start to charge new customers for annual maintenance?
5. What is your annual maintenance fee, and how is this maintenance fee calculated?
6. What was your annual maintenance fee five years ago?
7. Are software upgrades and future software releases included in your annual maintenance fee?

Questions 4-7 are crucial to the selection process because they can serve as a basis for the selection team to determine not only the most cost-effective short-term ERP solution but the most cost-effective long-term ERP software solution as well. The selection team must have a reasonable understanding of the future costs associated with purchasing the ERP product for the years following ERP implementation.

At TGI, we offer one year of free ERP maintenance from the date of software installation. Given that an ERP implementation may take between three and nine months to complete, we believe our customers should not have to pay maintenance on a software product when they are not using the software in a live transaction environment.

Perhaps more importantly, TGI provides a No Maintenance Fee Increase Guarantee.  We guarantee, in contract writing, that we will never increase the annual maintenance fees charged to each of our customers. This guarantee is designed to provide our customers with a consistent, expected yearly software maintenance expenditure that is free from unanticipated increased fees associated with their software maintenance agreement. We are very proud of the fact that we have never increased our customers’ annual maintenance fees since TGI was founded in 1990.

Why is this guarantee important?

Referring to questions 5 and 6 above, should there be a difference in the maintenance fees an ERP vendor charges its customer today versus five years ago, and the vendor does not provide price protection on their software maintenance agreement, a manufacturing or distribution organization may be subject to escalated software maintenance fees over time. The end result of these unexpected maintenance fee increases could mean that the organization will be forced to allocate funds to their annual software budget that would have otherwise been used for investment in other potential business endeavors.

At TGI, we believe increasing our customers’ annual maintenance fees over time is not the right way to establish long-term partnerships with our customers. As such, we have not and will not increase the maintenance fees we charge our customers over any period of time. Guaranteed.

For a complete listing of questions to ask potential ERP vendors, click here to download TGI’s “50 Questions for Every ERP Software Suppler” white paper.

Beyond business results, companies also want the following from new ERP software:

• Efficient software evaluation leading to a successful result – companies want to make excellent decisions in the most efficient manner possible (unfortunately, when businesses aren’t aware of how this process should work, it rapidly becomes very inefficient).
• Efficient, successful implementation – companies want their new software to deliver the functionality they expect and for the implementation process to be delivered on-time, on-budget, and on-scope.
• Good long-term customer/vendor relationship (“win-win”) – companies want to be able to work with their ERP vendor, have continuity of the software vendor’s business, continuity of relationships with personnel at that business, and be able to understand how best to utilize their software and to resolve issues as they arise.
• Ability to grow with the solution – companies want a solution that will last them for an extended period of time, in many cases this is 10-15 years or more.  To be able to do this, the software must be flexible, robust, and have sufficient functionality to be able to be leveraged as the customer’s business continues to grow and evolve.

So, what do ERP vendors want?  Probably not surprising, they likewise want business results.

Additionally, ERP vendors also want the same things the customers want:

• Efficient software evaluation leading to a successful result – while ERP vendors would love to bat 1.000 by winning every deal they touch, they know that’s not practical.  They want to compete in deals in an efficient manner where they can compete on a level playing field, can win, and it is worthwhile to win.
• Efficient, successful implementation – vendors want their customers to receive the business benefits they desire from their software and want the implementations to be delivered on-time, on-budget, and on-scope.
• Good long-term customer/vendor relationship (“win-win”) – vendors want to work with customers who are easy and fair to work with, have continuity of the customer’s business, continuity of relationships of personnel, and are able to understand and internalize how best to use the software they’ve acquired.
• Ability to grow with the solution – vendors want customers to continue to leverage more and more of their software’s capabilities over time.

While said somewhat under the covers above, I’ll also explicitly state the following which ERP vendors also want:

• Efficient sales cycles (winnable deals, no “tire kickers”) – again, vendors want to focus their time on evaluations where decisions will be made and customers will move forward.  There is no time to be spent with perennial prospects that go through the same evaluation once a year and never decide to move forward to do anything. Additionally, vendors don’t want to be in a position where a potential new customer has orally committed they are going to move forward with the vendor only to take an inordinate amount of time to make the final commitment and sign contracts.
• Happy, referencable customers – there is nothing better from a vendor’s perspective than having happy customers who are willing and able to act as references on their behalf.

You’ll note that to this point in time I’ve mentioned these things apply to most customers and most ERP software vendors.  That is because there are still people, including those who set the cultural tones of their businesses, who believe the only way for them to “win” is if the other party with whom they’re working is to “lose.”  This “win-lose” mentality unfortunately still exists frequently in the customer/ERP vendor intersection.

Speaking from an ERP software vendor’s perspective, when it is determined that a potential customer is focused on establishing a “win-lose” relationship, we walk away from those deals as rapidly as possible.  Likewise, if potential customers determine that an ERP vendor is attempting to establish a “win-lose” relationship, those customers need to eliminate that vendor from further consideration as rapidly as possible.

The most prevalent situation in which ERP vendors attempt to establish a “win-lose” relationship is where the functional and cultural fit between the vendor and potential customer is low, and the vendor is so hungry for new sales (i.e., business results are far more important than any of the other desires) that they continue to press on to close the sale.  In doing so, the ERP vendor knows the implementation is going to hit the rocks, but their objective is to get the customer so deeply invested in the project (both time and money) that they cannot turn back.

Those who are unfamiliar with how to structure and perform an ERP Software Evaluation are most highly susceptible to be bitten by a vendor attempting a “win-lose” transaction.  In cases in which the company is unfamiliar and inexperienced in orchestrating a software evaluation on its own, those companies are highly encouraged to find and engage experienced, independent assistance to help with the evaluation.

Here again I want to stress that the most critical word in this statement is “independent.”  There are tons of individuals and businesses that tout themselves as independent.  However, they may be software resellers in a consultant’s clothing or have biases to specific products because they have established implementation practices built around those solutions.

If, for whatever reason, hiring an independent consultant is not feasible, companies are encouraged to adopt a structured, analytical process they can follow on their own.  To help companies establish and manage a structured, analytical evaluation process, TGI offers free software selection tools via our Web site for the do-it-yourself software evaluation.

In closing, through this point in time, I’ve had the opportunity to work with well over 2,000 end companies and roughly 200+ independent consultants in ERP software evaluations since Q4/2003. During that time, I’ve seen some firms and individuals who were very good at performing their roles in their respective evaluation processes, while others were at best ill-prepared. In the end, when participants in the process are unable to successfully play their positions – whether intentional or unintentional – nobody wins.

In an effort to draw upon these experiences to help the various stakeholders of the process learn from these activities, I wanted to summarize those situations into a single statement. In doing so, I was drawn to a famous quote by noted Swiss Psychiatrist and founder of analytical psychology, Carl G. Jung, who said, “The world will ask you who you are, and if you do not know, the world will tell you.”

Here is what I call “Litzenberg’s ERP Software Corollary to Carl Jung’s Statement”…

“The world will ask you what you want in new ERP software, and if you do not know, you’ll likely be sold something you don’t really want, can’t really use, will spend a lot of time, effort, and money trying to get it to do something it was never intended to do, and ultimately, won’t achieve the desired results.”

To help manufacturers and distributors in this process, TGI’s Software Selection Tool Kit offers, among other resources, software demonstration script templates and grading sheets to be used for onsite ERP software demonstrations. The selection team can use these templates to develop a software demonstration script that reflects the key software requirements of the organization. The selection team would then distribute these scripts to a select group (usually 2 or 3) of vendors with sample data (products, parts, ingredients, vendors, customers, etc.). The software vendors, in turn, would use the supplied sample data to follow the demonstration script prepared by the selection team. Using the software demonstration grading sheets contained in TGI’s Software Selection Tool Kit, the selection team can score how each vendor performed for each task in the demonstration script. Following the final onsite software demonstration, the selection team can compile scores for each ERP software vendor and see, quantitatively, how each software solution compared to the other demonstrated software solutions. The end result of this process will be a software vendor and solution that outscored and outperformed the other software solutions that were demonstrated.

By requiring software vendors to follow a demonstration script that reflects the organization’s key software requirements, the selection team will be able to see first hand how each vendor can meet those requirements. This process also prevents the software vendor from shying away from a specific software requirement that it knows it won’t be able to meet and ensures that each software vendor was evaluated in a consistent manner.

To download TGI’s onsite software demonstration templates and grading sheets, please click here.

A typical manufacturing or distribution enterprise will need the following types of functionality:

• Financial management and reporting;
• Inventory management, purchasing, and order management;
• E-commerce;
• Customer relationship management;
• Manufacturing planning and execution;
• Warehouse management;
• Forecasting and planning; and
• Decision support and business intelligence.

While one could buy subsets of the above list from separate vendors, here are some of the disadvantages to buying this functionality based on a best-of-breed approach:

• Separate systems with separate infrastructure – separate database instances potentially requiring separate servers.
• Different look and feel for various applications – users would have to learn different sets of commands and menu structures for different applications.
• Sharing of data across separate systems – passing of data would generally be done via a batch process.
• Timeliness of data across the enterprise – even if the data were shared perfectly across the separate systems, there would be time delays between the time data is initially present in one system and when it becomes visible in the other system.
• Single version of the truth for the entire business – when data is not fully in-sync, there can be differences of opinion as to whose data is correct (i.e., what were the monthly sales figures for customers in a given category or geographical region?).
• Everyone in the organization works from the same set of information – provides visibility to data from across the organization to make well-informed decisions that impact customers and the organization as a whole.
• “Least common denominator” for functionality – often an overlooked point in discussion of this topic. There can be some enhanced functionality in one of the functional areas that is the reason the business decided to buy that specific best-of-breed solution in the first place; however, the functionality and data needed from other functional application areas to support and enable that functionality may not be present or easy to access in those other modules, making the new functionality impossible to use.

The following describes the spectrum of integration methods for enterprise-class application software:

• Fully-integrated system – designed and built from the ground up as an integrated whole all by the same software development organization and team.
• Separate systems that are owned by the same software vendor – software vendors may have acquired separate systems and developed integration points between these solutions.  In general there would be separate development teams for the various solutions within the given software development organization. The development teams’ primary focus would be on functionality and ease of use enhancements within their specific product lines, not the integration points between various solutions.  There could be a third, totally separate development team for an integration solution from the software vendor.
• Systems from different organizations that work together – similar to systems that are owned by the same software vendor above, except in this case the separate development organizations focusing on the separate solutions are not owned by the same parent organization.  As you might imagine, this further complicates matters.  One solution provider may elect to change their complete database schema from one software release to another thus disabling any existing integration points. This approach also poses problems for the upgrade process, software vendor roles and responsibilities, and paying maintenance fees to multiple software vendors year after year.
• One-off integrations by systems integrators – in this case, a systems integrator who is implementing one or more of the software solutions for a given customer may have developed an integration point between two solutions.  In this case, the systems integrator is the only one concerned with the integration – not the development organizations who own the separate software solutions.  This is the most precarious situation of all of the non-fully integrated solutions scenarios.

Core advantages of fully-integrated systems:

• Data is timely and accurate across the entire enterprise with single points of data entry.
• Training of personnel in one functional area can translate into other functional areas because the usability aspects of the system as well as core functions (creating new items, querying for data, etc.) will be the same across all areas of the application suite.
• Single version of the truth – by having one centralized system, data will be the same for the entire enterprise.
• Integration between functional areas will be the strongest and will be in the best position to enable a company to implement version upgrades as they become available without risking invalidating an integration point between two separate systems.
• Should be able to take advantage of all functionality in the system without concern about running up against a “least common denominator” situation where functionality in one area of the system may be unusable because corresponding functionality and data may not exist in other functional areas of the business system.

It has been my experience over the years that most organizations who have adopted a best-of-breed approach have not done so based on a strategic decision; rather, they have had a core set of functionality they have decided is the starting point for ERP selection and implementation purposes of a new system.  Rather than focusing on a superset of functionality they will likely ultimately need over time, they may have made a decision to go with an ERP software package that fit the core subset of capabilities very nicely at a price point that was substantially lower than fully-integrated solutions with broader capabilities.

Over time, however, the business outgrows the functionality originally selected and implemented and is now forced to make a decision of whether it wants to keep its existing software and add a bolt-on solution to what it already has or start over and go with a broader, fully-integrated ERP solution.

Organizations are strongly encouraged to step back and ask themselves where they are going strategically and what complete set of functionality they will ultimately need over time so they can buy a fully-integrated software suite that provides this complete set of functionality even if they don’t take advantage of all of its capabilities day one.

It is important to analyze the ERP vendor as a company, not just the software the vendor is selling, as choosing an ERP software solution and vendor is a long-term commitment for the organization; in fact, the typical usage for an ERP software package (including future upgrades) can be anywhere between 10 and 15 years. Software selection teams should analyze the vendor’s approach to ERP implementation (Are implementation services delivered by the software vendor directly, or are they outsourced?), customer support (Are support calls answered by the software vendor directly, or are support calls outsourced to a third-party support provider?), ongoing maintenance, software upgrades, etc.  Please note that if you are acquiring an ERP software solution through a vendor’s value-added reseller (VAR) rather than directly from the ERP software vendor themselves, you should be asking these same questions of the VAR.

On a broader level, ERP selection teams should assess the software vendor’s long-term viability as an organization. A good question to ask potential software vendors is if their proposed software solution was developed by the vendor or if it was developed by a different company that the vendor acquired. In addition, selection teams should ask the vendor to provide the company’s revenue-per-employee ratio. In the ERP industry, once a software vendor’s revenue-per-employee ratio drops below a certain level, the vendor is likely to be acquired, resulting in potentially higher maintenance fees for existing customers. For more information on revenue-per-employee ratios and what they mean in terms of software supplier longevity, please click here. Furthermore, selection teams should ask software vendors if they provide a software acceptance period to validate that the selected solution meets the organization’s requirements that were set forth during the ERP selection process.

While these are just a few of the questions to ask potential software vendors, they are critical to selecting an ERP vendor who can deliver superior software functionality and serve as a technology partner for the organization in the many years following software selection and implementation. For additional information, please visit The TGI Difference.