The ERP selection process

There are literally hundreds of ERP systems to choose from, with a wide range of capabilities, strengths, weaknesses, applicability, and price. While the choice of systems may seem daunting, a systematic ERP system comparison process can lead your team to a good decision in a reasonable amount of time.

The time-tested methodology outlined here can help you focus on the solution that best meets your company’s specific needs. This methodology may sound basic—but companies that undertake the ERP supplier selection process without following these logical steps often encounter delays, additional costs, and unnecessary customisation. On the other hand, companies that apply ERP assessment best practices typically have smoother selection processes and subsequent implementations. As a result, they can enjoy the benefits of a modern ERP system sooner and compete more effectively in a digital world.

Five-step methodology for evaluating ERP systems

Once a company has decided to replace their legacy ERP system, you'll need to assemble a project team to drive the process of ERP software comparison, selection, and implementation. The team begins its work by developing an initial plan—which is really more of a general strategy at this stage.

The ERP supplier selection process can be outlined in these five steps:

1. ERP requirements definition
2. The request for proposals (RFP)
3. Initial assessment
4. ERP comparison and detailed evaluation
5. Final decision: ERP selection and contract

1. ERP requirements specification

You will need to inform your prospective ERP providers about your organisation and its requirements so that they can properly configure, package, and price the appropriate solution. Start by identifying key online resources, such as product demonstrations and blogs, that tell your company’s story.

Describe your business and its processes in a general way rather than creating long lists of specific requirements and processes. Inform prospective providers about the size of your business, volume of activity and transactions, complexity of various processes, and any unique features or factors. Focus on the processes and requirements that give your business its competitive edge. Those are the things that will distinguish the prospective systems from each other and where you’ll look closely at how well each system can be configured to support those unique processes and functions.

Outline the things you like about your current system—you will want your new system to handle them at least as well. Include the things your existing system does not do (or does not do well). Point out any bespoke applications, functions, or modifications that need to be addressed by standard functionality or simple tailoring (not modification) in the new system. In other words, focus on the things that are unique to your business and assume that the routine things will take care of themselves. (You will verify this assumption in the demonstrations and final assessments closer to the decision point).

Key tips for defining your ERP requirements

Use ERP requirements checklists with caution. While checklists have long been a standard industry tool, they often fail to highlight meaningful differences between solutions. Many items on these lists are basic features that nearly every system offers, leading most suppliers to simply tick “yes,” even when capabilities vary widely. Instead of relying on generic checklists, tailor them to reflect the unique needs of your business. Tailored checklists can help you compare suppliers more effectively and focus on what truly matters for your organisation.

Get the right people on your project team. The specification of the requirements is hard work. It requires team members who are dedicated to the organisation, know the company well, and have the time to devote to the project. Avoid the temptation of filling the team with enthusiastic but inexperienced people.

Ensure your RFP includes this information:

• The description of your business and its processes
• What your current system does well
• What it does not do as well as you would like
• What else would you like the new system to do (ranked by importance)

2. The ERP RFP

The next step involves issuing invitations for response to a select group of suppliers. The number of invitations you should send out will vary—but remember that you will need to carry out a detailed review for each one you distribute. Experience has shown that the fewer the potential providers and the more detailed the information they are given, the better the responses. It’s best to identify a dozen (or fewer) of the best candidates for your shortlist.

In response, the ERP suppliers should propose a system that delivers the necessary functionality and features to meet the requirements you identified. The proposals will also contain information about their companies, products, experience in the business, resources they will commit to your implementation, and other information intended to win your confidence (and therefore your custom).

So how do you identify the dozen (or fewer) candidates on whom to focus your selection efforts? How do you whittle down the list from hundreds of ERP suppliers to just a few? Begin with industry publications that feature “ERP success stories.” (Please note that these publications probably will not inform you about difficulties or failures, so consider this information in context). Use your industry contacts—associations and business groups, for example—to identify other professionals who may have had recent experience selecting and implementing ERP.

There are also many online directories, selection tools, and system selection services that can help you identify software that has the functionality you require and/or has experience in your industry.

For personalised advice, you can contract with your accountancy firm’s consulting branch or find an independent consulting resource in your local area and/or in your industry. Be sure to check their background and affiliations to ensure that they are truly independent and not associated with one or more ERP providers.

You may choose to include certain ERP system suppliers that are of interest for other reasons. Perhaps one or more of your larger and more important customers uses an ERP system and has encouraged you to use the same system. Or perhaps your company is part of a larger enterprise or industry group that has “standardised” on a given ERP platform. Obtain a proposal from the recommended provider and give all the proposals a fair and impartial evaluation when making your decision.

Key tips for your ERP RFP

Ensure that all stakeholders identify their requirements. Your RFP should include input from all stakeholders—otherwise you risk choosing an ERP system that serves only some of your business functions, requiring other areas to invest in standalone systems. Evaluate systems that work for the entire business and use the implementation schedule to deliver priority modules first.

Pay attention to requirement prioritisation. Often, the RFP is divided into functional areas with sections for each department to complete. Each area—whether HR or operations—typically does an excellent job ranking functionality for their business unit, but their priorities may not align with overall business goals. It’s up to your project evaluation team to adjust priorities from a broader perspective. Which requirements are essential, important, or merely desirable?

Check actual feature availability. Software companies have excellent marketing departments; some sell products that have not been fully developed and tested. Conduct research on features “coming in a future release” versus those currently being used by references. It’s perfectly acceptable to consider features in development—but don’t stake your project on upcoming features if they are essential to a successful project.

Evaluate your processes. Processes built into packaged ERP software are considered “best practices”. Experienced ERP consultants and implementers will tell you that it is almost always better to change the procedure to fit the software (recognising the “best practice” aspect) than to change the software to fit the existing procedure. However, this decision is yours to make. But remember that new processes can drive the improvements and benefits you gain from a new system. Also remember that all modern ERP software is customisable, so you have considerable flexibility to change screen layouts and flow, procedures, data characteristics and treatment, and more—without modifying the code.

Consider your ERP return on investment. Most companies require ERP return on investment (ROI) analysis as a prerequisite for authorising and funding any major project. As the name suggests, this is a summary of costs related to the purchase and implementation of the new system, as well as differences in operating costs compared to those of the existing system. ROI also takes into account benefits in addition to direct cost savings, including improved performance, better customer service, and workplace productivity.

3. Initial ERP evaluation

Evaluation takes place in two phases. In this initial phase, all proposals are assessed to determine how well they suit your environment and requirements as outlined in your RFP. (This phase does not include supplier comparison—that step falls in the second phase of evaluation).

The objective at this stage is to eliminate those that do not meet your criteria and to rank the ones that do seem to fit the bill. The result is a short list of the best proposals. These, and only these, will be subjected to a detailed evaluation leading up to the final selection.

If you have many responses to review, details will tend to blur, making it hard to remember which RFP responses are particularly strong (or weak) and in which areas. A numerical rating scale can help you keep everything organised and document your decision-making process.

Here are some further tips to assist you during this documentation step:

• Set up a form or spreadsheet arranged in such a way that reviewers can rate each proposal in accordance with the main criteria you specified in your RFP. Have each reviewer assign a numerical grade (the scale can be one to ten, one to five, one to three, or whatever level of granularity you feel is appropriate) to each evaluation criterion. You may have as many or as few reviewers as you wish.
• Leave space for notes and any questions about the response for follow-up. You may wish to ask for clarification at this stage or wait until the detailed evaluation of the shortlisted proposals. Assign a weight to each criterion based on how critical the function or process is to your business.
• Multiply the score given by each reviewer by the weight for each criterion and calculate a total score for each supplier. Most often, there will be several who rank near the top of the scale, a cluster of responses a bit further down in the rankings, and a few who do not make the cut. You should now have your shortlist of finalists—ideally three to five candidates—for final assessment.
• The chances are good that you will be able to identify the best candidates, but if it is not that clear-cut, go back to the individual evaluations and discuss with the team.

Key tips for your preliminary ERP assessments

Treat every potential supplier equally. Do not accept any live demonstrations, special in-person meetings, or onsite visits, unless you are willing to offer the same access to all the suppliers—it’s important to maintain a level playing field. One common technique is to host a “bidders’ conference” at your facility to show all the potential providers around and answer their questions (in front of everyone).

Remember that a proposal is a sales document. The responses will contain the information you requested and more. Assume that every claim is truthful; you can verify most, if not all, claims during the evaluation process. But understand that the proposal writers will respond to your questions in a way that presents their products in the most favourable light.

Look for outliers. Pay special attention to any criteria where ratings show a wide variation. If one reviewer rates a proposal very highly for one criterion and another reviewer rates it very low, it’s worth a discussion. Question both reviewers in a constructive, non-threatening manner to find out what each was thinking. It is likely that one or both noticed something that the other reviewers missed or did not consider important. As a result of these discussions, you may wish to adjust the ratings for a specific criterion—and that could alter the overall rankings.

4. ERP comparison and detailed evaluation

Once you have identified three to five finalists, it is time to get to work verifying their claims and validating references.

How to begin your ERP evaluations

Contact each of the potential providers and give them the good news: they have made the shortlist! (It’s fine to tell them how many other finalists there are and even let them know which companies they are competing against, if you are comfortable doing so).

• In some cases, you might also ask them to refine their proposals.
• Speak to (or visit) current users of the system, preferably in your industry (or in a similar market) and close to your company size.
• Obtain references if the suppliers have not already provided them. (Vendors may be reluctant to provide references due to competitive concerns. But you should insist. Reassure them that you will sign and abide by non-disclosure agreements.

How to manage ERP system demonstrations

This is also the time to invite the shortlisted candidates to perform detailed demonstrations of their systems—but you must control these demonstrations.

• Provide each candidate with a script or list of functions you wish to see well in advance of the scheduled demonstration. All potential suppliers should receive the same list.
• Allow them to showcase any special features they wish to highlight only after they have demonstrated to you the features and processes outlined in the RFP.
• Ensure that your script or list includes the unique requirements identified in step one. ERP systems handle normal processes in much the same way; it is the exceptions to normal processes that present the challenge. (For example, the ability to enter orders for items not in stock; the requirement to sell groups or items in packages, kits, or sets; or support for a unique invoice matching process).
• During the demonstration, you will want to see how the software can be set up and tailored to support your unique processes and procedures. That said, remain open-minded to the extent that you might discover some best practices in those standard functions that would improve operations and results in your company.
• Ideally, the demonstrator will be able to show system function using your own data. This is not always possible, but when it is, it will provide you with a much better demonstration of how the system would operate in your environment.

Key tips for your detailed ERP assessment

Don’t be dazzled by the demonstrations. The professionals who demonstrate software are typically very experienced and have excellent personalities. Their aim is to win you over and sell their software. Do not get distracted by the person or the sales pitch, no matter how entertaining. Focus on how the business processes meet your needs.

Make the most of site reference visits. Carefully select whom you plan to visit. Make a brief call to your host to ensure they have implemented the software and have realised the promised benefits. Agree on what they will be showing you and the people whom you will be meeting during the visit. Once on site, carefully judge whether their success is replicable in your environment. Also ask the tough questions: “What were your biggest surprises?” and “If you had to do it over again, what would you do differently?”

Continue to ask questions. Encourage your selection team to ask questions, even if only to clarify answers. Do this in the RFP review as well as during the demonstrations; this will significantly reduce the chance of future surprises. Now is the time to discover any answers you do not like—before negotiations begin. Also, bear in mind that you receive your answers free of charge at this stage, so learn as much as possible. Once you begin to implement the product, you may have to wait for support or even pay for answers to your questions.

5. ERP selection and contract

When you have completed the detailed evaluations, you will likely find that you have two or three suppliers that meet your criteria. Select the one that you believe best meets your current and future needs—but do not dismiss the others. Instead, let them know that they are suitable but not your first choice; this leaves the door open in case your negotiations with the top candidate do not work out as planned.

Now, you can begin to negotiate contract details with the top candidate. Most companies know how this step is “supposed to work.” But as with every other step in the ERP evaluation and selection process, you may encounter some surprises here.

The power is on your side in the negotiations. However, it’s best to consider the provider to be a partner in your company’s future success, not an adversary in negotiations. Aim for a fair deal that gives both parties incentives to get the system in place efficiently and running effectively.

Every aspect of the system implementation and ongoing support should be discussed and documented—detailing the price, who is responsible, and in some cases, the time required. There are many aspects of the contract, including (but not limited to):

• Initial purchase, lease, or licence of hardware and software
• Implementing the hardware and software (specifying what “implementing” means)
• Cost and timing of the conference room pilot (before or after software payment)
• Initial and ongoing training costs
• Ongoing maintenance support for hardware and software (and at what level)
• Data conversion and integration with other systems
• Networking and security
• Customisations (initial and with future releases)

Key tips for your final ERP software selection

Don’t announce your final selection before negotiations. At the end of the detailed evaluation stage, the team may wish to declare a “winner.” However, informing the leading candidate that they are the “chosen one” is not in the best interests of the company. It is not uncommon for there to be surprises in the negotiation process and you might need to reconsider your choice.

Plan for the long term. In the rush to get started, make sure you carefully review the long-term costs so your estimates are correct and you do not skew the ERP ROI figures. Some providers offer more free services for a longer period and some may outsource their long-term support to a pay-by-support-call firm. Some providers have a cap on how much they will increase the annual maintenance or subscription rates, and many do not. Others sell a low software-as-a-service (SaaS) subscription and after a few years start to raise it significantly. Some providers offer an annual update but no significant support in the update process. Ask questions and obtain the answers in writing to ensure you fully understand your long-term costs.

It takes a village (or, at least, a team)

The most important factor in the success of the ERP system evaluation process is the project team. This team should be established very early on and should be the driving force in the development, distribution, and evaluation of the RFP and the selection of the new ERP system.

In our experience, when teams are in the midst of detailed investigation and evaluation, shortcuts are often taken. But if your project team follows these five steps and pays attention to the lessons learned, they will be able to find the optimal solution to meet your company’s requirements, now and for the future.

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