How to evaluate and select ERP

The greater the care taken during evaluation and selection of the ERP product, lesser the time for implementation, and greater the chances of success, says B K Khaitan. Here’s an overview of how RPG Cables went about its ERP implementation

Investment required in ERP is very high and an inappropriate selection of ERP could prove to be a nightmare for the company. Meticulous planning is therefore required in the selection process. If we take adequate care in the evaluation and selection of an ERP product, lesser will be the time taken in implementation and greater the chances of success. My experience is that selecting an enterprise-wide ERP should typically take anywhere between five to six months from the word go, to finally signing the order.

ERP selection is very different from purchasing off-the-shelf software like accounting or payroll packages. We don’t need much skill to evaluate an accounting software since it does not impact the business as a whole, and moreover, accounting practices are fairly standardised everywhere. Therefore, if an accounting package works for company A, there is a good chance that it will work for company B too. But the same logic does not work with ERP. There are a number of cases where the same ERP product has been successfully implemented in company A but failed miserably in company B. We need to analyse carefully as to why ERP fails and take appropriate preventive measures.

In the evaluation process, to start with, at RPG we performed the health check diagnostics in the organisation to gauge how prepared it was for an ERP implementation. On a scale of one to ten, our score was six. We had fixed the minimum score as five, below which we would have postponed the decision to implement ERP and concentrated on improving the business process, systems and procedures. Many ERP implementations fail not because of any technical defect in the software but because the organisation is not ready for it yet.

ERP vis-à-vis business objectives

No IT initiative can be effective if it is not aligned with the company’s business objectives. It is therefore necessary to formulate a business strategy to achieve business objectives and then align IT initiatives to achieve them. ERP implementation may be one among such initiatives. We conducted a workshop in the company to identify objectives and critical success factors of each SBU. The objectives were defined keeping in mind the organisation’s strengths and weaknesses, opportunities and threats prevailing in the market. We then studied existing business processes of each SBU and identified pain areas. The entire exercise was documented. A detailed RFP was prepared based on this exercise. The RFP contained functionalities required by us under each module—it was used as a Bible to test the functionality of ERP products.

Our next step was to call ERP product vendors and submit a complete business document along with RFP with a request to fill in the blank columns so as to understand the product’s suitability. We asked vendors to sign a non-disclosure agreement before handing over sensitive business documents.

After two weeks of submitting business documents and RFP to vendors, we arranged to meet with vendors, where they came prepared with their presentations. We met with our SBU heads to give briefings of their business and to sort out any clarifications from the vendor’s side.

Having understood our business, vendors were asked to submit the RFP duly filled in. On the basis of their response, we gave ratings against each functionality, depending on suitability. Some weightages were given to core functionalities that were specific to our business. The total score was arrived at for each product and ranking was done accordingly.

Product demo

Product demo is a very important step in the evaluation process. Our experience has been that the look-and-feel of the product, the level of flexibility, user friendliness, etc, can be seen only in a product demo. Besides, product demo helps determine end-user comfort level. It is at this stage that the key users must be involved and their opinion taken. For the demo to be effective, we prepared business data covering the entire business cycle, right from enquiry to shipment stage and passed on this data to the vendors. During the demo, we concentrated on looking at the core functionality in the product. For example, we are in the manufacturing sector and our products are mostly made-to-order, we were looking for an ERP solution with a strong product configurator. We wanted our customer to be able to configure the product on the Web before sending an enquiry to us. We wanted to reduce our time in responding to a customer enquiry. Similarly, we were looking for functionalities like drum selection and cut length management in ERP, which are specific to the cable industry. We did not waste time looking into standard functionalities of sales, purchase, stores, accounting, etc, since these functionalities could be found in all top-of-the-line ERP products we were evaluating, such as SAP, BaaN, Oracle, Intentia, JDE.

IT infrastructure

Since ERP cannot be implemented without strong IT infrastructure at the back-end, we looked in to our IT infrastructure needs along with the ERP evaluation. We wanted to connect our factories and branches through leased lines, VSATs or VPN. Each of these options had advantages and disadvantages. The advantage of VSATs, for example, is that it can be installed anywhere with a very high uptime and consistent performance. Opting for a leased line would mean spending three months to first avail approval from MTNL for a leased circuit. VPN is a cheaper option than VSATs and leased lines; but for VPN to work, Internet service providers would have to have a point of presence (POP) in locations where we have business units. In case of locations in remote places, we would have to go in for VSATs. We realised that the initial investment in VSATs is not as high as leased lines but the operating expenses of VSATs are higher than leased lines or VPN. We opted for a hybrid solution using a mix of VPN, leased lines and VSATs depending on the physical location of the unit and the type of application we wanted to run in each unit. Bandwidth requirement is an issue that must be addressed to be able to provide necessary bandwidth for enterprise-wide ERP to work.

Computing total cost of ownership (TCO) for each of the ERP products was a tricky issue. TCO comprises licensing cost, implementation cost, hardware cost, AMC, networking cost, etc. Licensing cost may be determined on the basis of named users or concurrent users or may be a combination of both. There are hidden costs, which if not understood will come out in the implementation stage, which will raise the TCO substantially. We defined our own standard template and submitted it to the vendors for their feedback. In this way we standardised on the bundling of various software modules in ERP.

Implementation partner

Implementation of ERP in most cases is not done by the vendor but a third party. Therefore, evaluating the implementation partner along with the vendor is extremely important. We left it to the vendor to submit the cost of implementation on behalf of implementation partners. We did not deal with implementation partners directly in the beginning. All communication with implementation partners was channelised through the vendor to avoid any confusion or misunderstanding. We observed that implementation cost varied from one implementation partner to another for the same product. The difference in cost was as much as double and in some cases even trebled. We ensured that the implementation cost given by the vendor was agreeable to all implementation partners nominated by him.

We shortlisted vendors on the basis of technical and commercial evaluation. Evaluation of implementation partners was done on the basis of skill sets of implementation teams, domain knowledge of the industry and their track record in implementation. We asked each of the implementation partners to submit a document containing details of scope, project plan, implementation methodology used by them, etc.

Hardware cost also has several components that need to be understood thoroughly. We asked our vendor to do a sizing of the hardware on the basis of number of user licenses and volume of transactions. In order to arrive at the user licenses requirement, we did not go by the number of PCs we had. We knew ERP was not going to replicate our existing business processes. Roles and responsibilities of end-users were going to undergo drastic changes. Keeping this in mind, we prepared a table in matrix form in which we listed down names of employees with key responsibilities according to their department. We then determined whether each employee had to play any role as an ERP user and then defined his new role. Correct estimate of user licenses had a direct bearing on the TCO.

Verification

A site visit is very important to understand the implementation issues, if any, during implementation. We were very selective in site visits. We asked our vendor to give us the list of sites where they fully implemented ERP, preferably in industries similar to ours. We visited at least one site of each vendor and talked to project managers to know how they went about implementing ERP and what according to them were the pain areas. We had closed-door meetings with them, avoiding the presence of a vendor representative. We were able to get balanced feedback on products. In case of reference sites in other countries, we got feedback through e-mail.

Whether to implement ERP in a big bang approach or in a phased manner is something left to the individual organisation. Decisions should be taken keeping in mind level of preparedness, physical location of various units, availability of resources, etc. There is a cost implication in each of these approaches.

Finally, we did overall assessment of ERP products based on functionality suitability and standard features, product demos, TCO, site visits and feedback from reference sites.

The author is the CIO, RPG Cables. He can be contacted at bkay@rpgcables.com