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What Every ERP Vendor Doesn't Want You To Know
For those of you who still have memories of your last ERP selection and implementation endeavor, some of what we will discuss in this article may not surprise you. For those who have not gone through an ERP conversion process, read carefully. When you decide to invest in a new ERP system strongly consider getting independent expertise to help.
Discounts and terms abound
While the negotiations don't begin in earnest day one, you should be positioning yourself for a strong, but fair negotiation. Discounts vary by vendor, but there are always discounts available. There are various factors that impact your ability to maximize these:
- One is the time of year. This doesn't mean that the summer is better than winter, but what it does mean is that almost all software firms are public and have quarterly reporting requirements. Getting to the apex of the negotiation as their quarter or year-ends is the best time for you to be negotiating.
- Another factor is the state of the vendor's economy. Have their sales been flat? If so, they are hungrier than if they just closed a large number of deals in the past thirty days.
- Hold your ground on payment terms. Often they will insist that you pay for all or the majority of the software when it arrives at your dock. Don't do it. They have flexibility in their payment terms, leverage them.
The demo is always better...
It just is. The people that "perform" the demo, because it is a performance, are well practiced in their craft. Their job is to make their software dance and sing. Most software solution providers know that if the demo doesn't go well, then you are likely NOT going to buy from them.
The demo should be focused on what YOU want the software to do for your business and not what the software vendor wants you to see. Take the time to develop a demonstration script that the software vendor will be expected to follow. This will help you determine if the software can handle the unique requirements of your distribution business.
Implementation will take longer
ERP Vendors have most likely scoped out your project and put together a very thoughtful proposal. What they didn't tell you is that you forgot to tell them about an aspect of your business that will require more work. One of our clients had not mentioned to anyone that they manually created special invoices for eight customers. The new software could handle this requirement, but it required hours of time customizing the invoice forms for each of these customers. You also will find out that something you thought could be done by your people with a little bit of training is too stressful on your organization and will take four times longer if you try to tackle it yourself. The bottom line is that the scope will almost always expand. So how do you minimize this from happening?
- Ask a lot of questions. Tell them everything about your business, down to the smallest details, and ask them how their software will accommodate those needs.
- Be skeptical when they tell you that with their award winning training program, your people will be able to work miracles with their software before you go live.
- You may be best served by having the software vendor develop a well-thought out proof of concept. You may have to pay for them to perform this work, but it will give you a clear view of what their system can and cannot do for your company.
Implementing ERP software is difficult for three main reasons:
- Change: There will be undoubtedly be some, and often many, changes in your business processes due to the implementation of ERP software. Most people prefer not to change, so you will be swimming a bit upstream during the entire implementation project. Make sure you have a good change manager involved at a high level in this project.
- Rare activity: Selecting and implementing ERP software is just not done every day. Without expert guidance, you will struggle with this decision and the implementation process. If you have someone in your organization that has selected systems in the recent past, tap into their experience. You will need it. If not get independent outside help.
- Extra work: This is more true during the implementation process, but can still affect the selection process. You will need to assemble a team to be involved with the selection of new software. Since ERP covers the entire organization, you should select people from all critical areas to help make the final purchase decision. Then the "real" work begins. The implementation may involve the same people that were on the selection team, but they need to be properly prepared for the extra effort that will be REQUIRED to successfully implement a new ERP system. Your implementation team will need to commit on average about 8-10 hours per week on the implementation of your new system for 6-12 months. That is a minimum of 260-520 hours for each person on the implementation team. Even your most loyal people may balk at this requirement and often need a carrot to help them through this extra work. One of our clients offered every team member an additional week of vacation time to thank their people for their commitment to the company. This was very well received and didn't have a negative impact on cash.
Be prepared to train your employees
During the implementation process, the software solution provider will offer training and education to your implementation team. This should be a combination of face-to-face, online and self-directed work. In most cases, the implementation scope will NOT include the training of your entire company. That burden will fall on your implementation team. The good news is that this keeps your costs down, but the bad news is that this will increase the stress and responsibilities of your implementation team. They must learn your new software well enough to teach others. Most companies get to the point of training their entire company and when they look around they realize that only some of their people will be effective trainers. This will unexpectedly place new (increased) demands on the best people in your organization.
ERP software vendors are not paid to improve your business processes.
What? "I thought the new ERP software was going to fix some of our broken business processes."
The short answer is that it will. The long answer is that the software vendor did NOT budget consulting time for them to help lead this important business process improvement initiative. Their job (unless you did a great job of scoping out your own project) is to implement their software into your CURRENT business processes.
The unspoken word here is that during the selling process you thought you kept hearing about how the software was going to help improve your business processes. To be fair, you probably did hear this and you probably will get "some" business process improvements, but the improvements will most likely fall woefully short of your expectations.
If you are looking for improvement in your business processes, make sure that you either put some specifics into the scope agreement or place it into your implementation project plan.
The Bottom Line
Selecting and implementing ERP software is often one of the most important projects that a distributor undertakes. Distributors need to be knowledgeable about the things that ERP vendors don't want you to know. It is important to have a well thought out ERP software acquisition and implementation plan. Have clear goals defined before you start your selection project.
Keep the thoughts that we have detailed in this article handy as you embark on your project.
- Negotiate from a position of strength and leverage
- Disclose everything, document it and ask "dumb" questions
- Prepare for change and plan on more work
- Invest in training for your internal trainers
- Take responsibility for business process improvement
You would also be well served by having an independent organization guide you through the selection and implementation process. The Distributor Board has led some of the best mid-sized companies in the US through these efforts and we have been told that they could never have done it without our help. Contact our Technology Advisor, David Panitch for a conversation about your technology and to determine if we can add value to your next technology project.