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ERP Procurement

If you are facing the prospect of having to look for an Enterprise Resource Planning (ERP) solution, you are probably wondering where, and how to begin…

 

Recently, ZIS was engaged by one of our clients to Project Manage Procurement, Scoping and Implementation of a new ERP System. As this article is being written, we are currently engaged in the Implementation Phase, and I thought I would share some pointers with our readers who may be embarking on, or considering a similar journey.

When given this exciting Project, the first step was to break up the components into manageable and critical milestones. At a high level, these 7-steps were:

  1. The WHY?
  2. Scope out Requirements
  3. Form an ERP Vendor Panel
  4. Short list vendors
  5. Deep dive into solutions
  6. Negotiate & Sign off
  7. Implementation

Before embarking on this journey, it is critical to fully understand the WHY you need a new ERP. Perhaps you are replacing legacy systems or your current systems cannot support your business growth. Whatever the reason, we always recommend you produce a Business Case for requiring the potential ERP in the first place. This is also a great way to get executive alignment from day 1.

Before diving into the processes, another point which will not be received well by I.T. Staff – is that, an ERP Procurement process should never be driven by I.T. Often this is the case. ERPs are not I.T. Systems – ERPs will run your entire business! Hence, its critical that relevant stakeholders representing all the pillars of your business (Finance, IT, HR, Operations, Sales & Marketing, Distribution, Logistics etc) are part of the process.

One thing which many organisations fail to do (or at least, well) is adequately Scope out their requirements. Make no mistake, this is an arduous task. If you do not have detailed workflows and processes mapped out, it is near impossible for the potential ERP Vendors to fully understand your requirements – at least, during scoping and costing stages. If you fail to do this, I can guarantee the costs WILL increase quite dramatically.

There are two primary components to ERP costing: Implementation and the ERP Solution. Whilst the ERP Solution may not change if you do not scope correctly, the implementation costs certainly will. In the current experience, the implementation costs ranged from $ 300,000 to $ 650.000. As you can see, the Year 1 cost of a new ERP is a serious investment – so you should take every measure to get it right.

In the case of my client, we developed zScope (see Products menu) to provide a mechanism for the Business to record its detailed business processes and workflows. The staff of course, didnt enjoy this process – it took some 12 weeks to complete, however by the end, you could hire a new employee in ANY part of their business, and they could follow these processes as their induction – so as my client discovered, not only a critical first step in the ERP journey, but huge value to Business sustainability on multiple levels.

Once the scope was completed, before inviting Vendors in, we needed to conduct an analysis of where the business is today (aka, what are we replacing and why?) as well as what their plans for growth over the next 5-10 years looked like. Again, little point in investing millions of dollars on a system, only to spend more (unnecessarily) in two years time.

Next, we took a good look at our business practices and tried to identify areas where we could improve (in other words, adopt best-practices from these very experience potential vendors).

Note: Almost every client reference site I met and spoke with during “Deep Dive” all unanimously said “If we had our time over, we would have tried using the out of the box workflows and processes, rather than customising every work-flow”. There’s an important message here…

Another consideration is your interfaces. Whilst in utopia, the ERP will handle 100% of your business operations, in many cases, this is not reality. In some instances, you will need the ERP to interface with other/existing systems. Carefully map this out and ensure the vendor(s) are aware.

Now that you have your Business Case signed off by the CEO, or relevant executive, and have fully mapped out your business processes and workflows, its time to engage and speak with various ERP Providers, or form your Vendor Panel. I will not list the vendors we dealt with, however, there are many vendors all with great systems. Wherever possible, I would urge you to work directly with the provider, rather than via a re-seller (VAR as they are known) – unless the VAR is intimately knowledgeable about your business and industry.

Whilst I knew of the major players in the market (e.g. SAP, Oracle and the like), we spoke with organisations in our industry to see what they were using and how they found it etc. This helped us prepare a preliminary list of vendors, or Vendor Panel to invite to the table for discussion. We ostensibly created a panel of six providers. We decided to go with a reverse brief methodology, and invite them in without providing access (at this stage) to our eScope portal. This gave us great insight into their knowledge around business like ours as well as their general knowledge and expertise. We shared information about our business, the reasons why we need to implement a new ERP and what we were hoping to achieve (our Business Case). At this stage, we were uninterested in seeing demonstrations of their solution. We just wanted to meet and understand what industry experience they had.

In order to get to a Short-list, we asked them to provide high level costing estimates based on what we shared at the first meeting, and based on their experience working with like-industry clients. This quickly demonstrated to us which vendors were worth diving in deeper with, versus ones we thanked for their time and removed them from the process.

Now with a short-list, we invited them to come in and spend a couple of days in our HQ to see what we did and how we were doing it (using the legacy systems in place). Note: Some will charge for this service, although I wouldn’t baulk too much, as spending a little up front to get the right solution is far better than selecting a vendor, only to spend 3x more when they discover new and wonderful unique workflows you do everyday.

Additionally, we now provided access to eScope and invited them to tick each workflow we had recorded and make comments (e.g. which module would accommodate, did they have a best practice alternative suggestion, or cannot do this, or can be done via customisation and so forth). As per the important message earlier on in this post, try hard to limit customisation’s – you will benefit in the long run.

Now armed with ALL the information they needed, we requested a formal proposal based on the agreed scope. Note, we also prepared a formal “Project Charter” which outlined the “in scope” and “out of scope” requirements we were seeking.

As they vendors were busy putting together their formal proposals, we were preparing for the Deep Dive phase. Here, we wanted to go out to client reference sites and see their solution in action and ask the clients questions… One interesting point here was that in our experience, we didnt get a single client (until the 11th hour) which closely mirrored our business. Of course, there are competitive restrictions where references may NOT be keen for a rival to see their operations, however, this process can be a little frustrating – hence, stretch your legs and reach out to your contacts outside of what the vendors provide – its not that hard.

Now, we had seen multiple reference sites, spoken with dozens of clients via teleconference (both provided, and our own network), so the next step was to spend a day with each vendor at their HQ. Why? Some vendors conduct the scoping and proposal phase using one or two representatives, whilst others send a cast of thousands out to you. It is important to experience their workplace, see if you can work with their culture and people. An ERP investment is a long term investment. You really want to avoid having to repeat this process within 1o years (minimum). During these sessions, there will be demonstrations and various discussions. At this point you goal is to meet the actual staff who would potentially be working on implementation. Ask questions to ensure they HAVE indeed been part of their internal scoping and costing discussions. Test their knowledge.

If you are still with me – reading this, you are probably feeling a little weary… Strap yourself in, the final part is the hardest!

Now that you THINK you have a rock solid solution with costs all locked down, you are probably looking at a very complicated set of documentation as well as a big number! In our case, we wanted a fixed 5-year budget with price lock guarantees for as long as we could (have fun with that one too). In our experience, there is ALWAYS room to move (negotiate). This is where a senior sponsor in your organisation (e.g. CEO) can work their magic.

This was the hardest part in this project. Every step of the way, something shifted. A forgotten module. A forgotten customisation. A miscalculation. You name it, it happened. Not only was this incredibly frustrating for the stakeholders trying to make a decision, its incredibly time consuming. Furthermore, the documentation (or Statement of Work) they provide is in their language, not yours. So you feel like you need a university degree to understand what you are considering signing off on.

Tip: With ERP vendors, they will have by this stage have invested significant time, money & resources to be one of the final two vendors. As consequence, they will be more eager to get this signed off, than you are comfortable. Hold your ground! Take your time to understand the complex documentation. Sign when YOU are ready. Be prepared for the “These prices are only available until end of this month” type tactics. You will experience them all. ERP investments are not small change. If they want your business, they will provide the cost when you are good and ready.

Ensure ALL your expectations (scope in particular) are being met within the stated costing schedules. If you are mapping out a minimum 5-year budget (as we were), ensure you understand what components are handled by third party’s (you will be surprised of how many there could be). In this instance, each with have different price locking policies. Be sure you understand these. By mapping out the multi-year budget, there MAY be room to spread some costs over multiple years so you do not get lumped with a $1,5M year 1 cost expectation.

After you have lived through the stressful Sign-off process, you are now in the fun part. But be aware, you need to be aware of the business impact an Implementation will have. The first part is fairly easy. You will agree on various milestones and dates with an ultimate go-live date. You have no idea at this stage if any of them are achievable. After-all, there will be multiple stakeholders working on this implementation – some will be on leave, some may get sick, some may leave your organisation – there are so many variables to manage. The best advice I can give at this point is to:

  1. Over estimate ALL your milestone dates (make allowances for the inevitable)
  2. Ensure you have mechanisms in your contract with the Vendor for changes (without financial penalty)
  3. Involve your HR team and build out a “Change Management” Program to support this roll out.

Make no mistake, the impact on your staff’s time will be massive. They need to help configure, test and ultimate sign off various sign off points. You will need to consider back filling positions in some cases. These issues and strategies should be captured in your Business Case.

I could go on… but hoping by now this article has achieved its goal. ERPs will deliver real ROI and results to your business – if managed correctly! If you take short-cuts and get any part of the process wrong, I can say with certainty, both your budget and timelines WILL blow out.

Remember: If all this seems overwhelming – ZIS are here to help. We’ve done all this before, and can help your organisation on this journey. If this is something of interest, reach out to us and have an obligation-free discussion.

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