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Monday, December 14, 2015

Building the Business Case for an ERP System


The selection of an enterprise resource planning (ERP) system can be a daunting task for many business leaders. Professionals who have led the decision-making process say that companies need to consider a range of subjective factors, as well as hard costs, as they build the business case for an ERP solution.

When to implement an ERP system
There’s no standard rule-of-thumb, such as reaching a certain head count, that dictates when a company needs to implement an ERP system. The tipping point instead depends on the specific organization, said Patrick Neeb, Dynamics AX project manager at telecommunications firm ShoreTel, speaking on a panel at the recent Armanino EVOLUTION Client Conference. To make the decision, finance leaders need to determine the areas where their existing technology isn’t doing the job―for example, the point at which sales volume overwhelms their ability to fulfill orders. “Look at what’s limiting you in your current system,” said Neeb.  

Employees can also provide insights about what they require―and aren’t getting―from their technology. For instance, salespeople will need to have visibility into sales data in order to stay competitive. “Listen to your people…are they really running into problems performing their daily tasks,” said panelist John Ziegler, vice president of finance at Peerless Coffee & Tea. “When is the point that you want to switch from a bookkeeping system to a true management system, where you can pull data and use it to manage the enterprise?”

Compliance needs can be another big factor in a company’s timing. Firms that are on the path to an IPO, an acquisition or some other funding event may want to implement their ERP system sooner, rather than later, in order to get their technology house in order and make themselves more attractive to investors.    

Calculate cost and ROI
To calculate the cost of a system, Neeb recommends starting with the overall implementation costs, plus software maintenance and expenses, and projecting them out three to five years―the normal interval between implementation and the next upgrade.  It’s also important to build the cost of the upgrade into the calculation. “For certain systems…the upgrade will actually cost you more than the implementation,” Neeb said. 

Although software initially may seem like the priciest component, it often turns out to be one of the cheaper parts of an ERP solution, according to Ziegler. User training, outsourced resources and the cost of the employee time that will be lost during the transition to a new system are some of the other expenses firms need to consider.  

The ROI a new system will provide can be a more difficult thing to analyze.  “There are a lot of subjective factors that go into it,” said Neeb.  “Everyone talks about usability, that the system is going to be good for the business…but how do you quantify that?”

One important factor to consider is the potential cost of not getting a new ERP system. Without new technology, a company’s manufacturing operations and growth may suffer, for example. “What’s going to impact your business if you don’t change?” said Neeb.

Pick the right partners
At some point, the question isn’t whether an organization needs a new ERP system, but rather, which one to choose. Neeb said that to make a selection, companies must first take the time to document their business processes, mapping out their manual workarounds and other pain points. They can then ask vendors how they would address those specific issues.

This is also the time for business leaders to consider how they could revamp their processes to create their “ideal” world.   Although best practices are a good guide, each organization needs to analyze its own unique needs. “Making sure you understand those needs to be where you want to be when you implement a new system is critical,” Neeb said. 

For ShoreTel’s ERP selection, Neeb started with a long list of 8 to 10 vendors, which he compiled using resources such as Gartner’s Magic Quadrant report. He compared this list with the firm’s high-level requirements and narrowed it to five vendors, then went through a comprehensive evaluation with those five, including use cases and demos.

To choose their vendor, Peerless also factored in potential long-term needs, said Ziegler. The company looked for a robust ERP solution that could provide the bolt-on applications they might want to add in the next few years, as the business evolved.

In addition to selecting the ERP system, organizations must also devote time to finding the right implementation partner, Neeb said. ShoreTel closely evaluated implementation vendors’ people, as well as their technology, and ultimately chose Armanino because of the team’s superior expertise―which proved to be the right decision.

“It turned out to work very well,” said Neeb. “Their subject matter experts knew what they were doing…and they meshed tightly with our business users.”

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