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ERP Selection Methodology Success

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ERP Selection Methodology refers to the process and steps you take to evaluate and choose a new Enterprise Resource Planning System. Wikipedia defines a methodology as “A documented process for management of projects that contains procedures, definitions, and explanations of techniques used to collect, store, analyze and present information as part of a research process in a given discipline.” This seems to be very appropriate when it comes to evaluating ERP Software. Your ERP Selection Methodology can determine the success or failure of your subsequent implementation.

If you choose to forego an ERP Selection Methodology when evaluating new systems, you will run into problems. The most prevalent issue is the ERP Vendors driving the selection process. You, as the buyer, end up hanging onto their coattails and ultimately go where they lead you. A proper ERP Selection Methodology will lead the vendors down your path and provide you with the details you need to make an informed decision.

This ultimately affects the outcome of your implementation in a number of ways. If you have chosen software that fits your business, then the implementation will be easier due to the fact that you will not need to bend your processes dramatically to make the software effectively process your transactions. If however, you end up choosing an ERP software that does not fit your business processes very well, you will have to change your business processes and could ultimately create a situation where your unique value in the market is diminished. For example, if you have to change a process that previously required two steps, but now requires five steps in order to ship a product, this could lead to delays and bottlenecks and can potentially can create customer issues.

An ERP Selection Methodology Example

ERP Selection Methodology
A typical ERP Selection Methodology Flow

The following is an example of ERP Selection methodology that you can model.  It is not a complete process and should be used for reference purposes only, however, it does show typical tasks that are involved in selecting an ERP software solution.

Phase I – Strategy and Requirements Definition

This phase develops the vision for the future ERP system taking into consideration the key drivers for the company from both inside and outside the company.

The following are the major tasks that occur in this first phase:

  • Develop a clear understanding of your current business and information systems
  • Interviews are scheduled and held to understand the company’s future plans and focus
  • Working with top management, develop the top four or five strategic objectives required to achieve the company’s plans for the future
  • Review technology status and trends based on your understanding of the “best of class” organizations
  • Develop a high-level “Future State” model that describes the attributes of the future system required to support the company’s vision for the future.
  • Develop a detailed list of specific and distinctive requirements that must be supported by the new ERP software system
  • Develop a Long List (8-10) of ERP Vendors based on initial understanding of your requirements
  • Research each vendor’s product functionality and features as well as key vendor issues/deficiencies to arrive at the short-list finalists
  • Identify the two vendors who shall provide an end-to-end demonstration of how they will support your future vision
  • Optionally, evaluate ERP software Value Added Resellers (VARS) for each candidate software to participate as potential implementation partners
  • Based on the requirements and business processes, a demonstration script is developed
  • Optionally, develop a high-level business case to justify the investment in a new ERP system

Phase 2 – System Evaluation and Selection

This phase is the detailed analysis and comparison of the two software vendors chosen above.  Your role as project manager is to ensure that the information provided by the vendors during their demonstrations, functionality and features discussion, hardware configuration recommendations, and reference assessment is as accurate and factual as possible.

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During the vendor evaluation phase, the following key tasks need to occur:

  • Review the demonstration script with the selected vendors
  • Create scoring sheets based on the demonstration script
  • Manage the vendor demonstrations closely.  Work to avoid exaggeration and embellishment and keep the demonstrations on course
  • Score and rate the vendors
  • Conduct reference checks
  • Visit and interview vendor customers at their site
  • Rank the two vendors based on all the relevant business and technical criteria
  • Review vendor proposals and determine key areas for negotiation
  • Hold software vendor contract negotiations
  • Prepare a high-level implementation plan, schedule, and budget
  • Communicate to vendors the selection outcome

ERP Selection Methodology Summary

As stated above, the ERP Selection Methodology shown is only an illustration of the various tasks that need to occur and should not be used as a final template for your selection.  Rather, use it as a checkpoint for ensuring you do not miss any key tasks in your own ERP Selection Methodology.  Spend the time to build out your plan and research other alternative approaches.

When building your personal ERP selection methodology, be sure to keep in mind that you are the one who will be driving the project.  Not the vendors.  If you follow the ERP selection methodology closely, you will have a higher chance of  bringing the selection in on time and within budget.

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What to look for in an MRP System

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Key things you should know about an MRP System

An MRP System (Materials Requirements Planning) helps a manufacturing company utilize built-in scheduling logic to manage the flow of materials in the manufacturing operation. Companies are looking at ways to reduce inventory costs, drive down lead times while improving customer service, improve the manufacturing process and improve product quality. Using an MRP system, a manufacturer can become much more efficient and better plan the needs for resources, both in terms of materials as well as capacity within the factory and better serve the customer.

There are two types of MRP Systems that can be discussed. First is Material Requirements Planning and the second is Manufacturing Resource Planning or MRPII. A traditional MRP System is one where the software uses the Bills of Materials, Inventory levels, and the Master Production Schedule to calculate and plan the need for replenishment orders. An MRPII system is a system that plans many more functions of the entire manufacturing process, including Capacity Requirements planning, Master Production scheduling, Plan Simulations and all the aspects of the classic MRP system.
MRP System
Most systems today are MRPII based systems, so from this point forward, if we are referring to an MRP System, we are really discussing MRPII systems as that is what is presently offered in the market and includes the earlier aspects of MRP.

Researching an MRP System often brings about a lot of questions and uncertainty. Not so much about the MRP System and how it calculates the requirements, that is usually just a calculation that you can get from a good Material Requirements Planning book. Really, the question usually comes about as to where the differences are between the systems.

Essentially, the key differentiators of MRP systems would be the ease of their ability for them to allow you to see the multiple layers of planning. But even more, the ease in which you can keep the data clean. With thousands of parts and possibly thousands of Bills of Materials (along with the many variations), you will need to be able to easily update or even mass update parts, BOMs, routings and all of the detail surrounding them.

MRP System as part of an ERP solution

As most MRP system software is a subcomponent of ERP (Enterprise Resource Planning), it is worth looking at how the materials planning aspect of the ERP interacts with the rest of the system. For example, how well does the MRP system communicate order requirements to the shop floor control system? How well does the Product Data Management aspect of the ERP interact with the Bills of Material module? How well does the inventory control system work with the Quality Management system? For example, if you receive inventory into the system, is there a way to isolate it from the MRP System while it undergoes quality inspections?

When looking at MRP Systems the real concern is how the users will use it. It needs to be as simple as possible to interact with from a user perspective. However, it needs to be able to drive all of the capacity and material plans that you need to run the business. An important thing to try is to let your material planning or purchasing people try out the system during the demo phase. They won’t be able to run the system without help, but at least they can get a feel for the screens and the depth of information provided.

Another important tip is to make sure that all of your people who are interacting with the system, such as buyers, planners, and inventory managers all have training on the concepts of MRP. This will help them get up to speed quickly once a new MRP system is in place.

Your Future MRP System

When you get down to a short list of vendors, it would be a great idea to start looking at the quality of the information from your existing MRP System. Clean up the Bills of Materials. Obsolete any that are out of date. Ensure that your inventory counts are accurate. Make sure that your customer orders are clean and old back-orders that will never ship are closed. You should begin the cleanup of the data in the source system long before you even think about transferring it to the new system. If you do it a little at a time over a period of months, by the time you are ready to migrate the data to the new system, you will be ready to utilize the new system immediately. At some point the data needs to be clean, it might as well be now.

Lastly, find out early from the software provider of the new system what additional data elements you will need to support their system. You may not be capturing that data currently, so start building the list now. Moving to a new MRP system does not need to be difficult, but it will take some cleanup and planning.

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Manufacturing ERP Fundamentals

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What is Manufacturing ERP?

Manufacturing ERP (Enterprise Resource Planning) software is a much more complicated system than standard ERP systems. Before we talk about software though we need to understand that Manufacturing ERP also consists of the business processes that it takes to run a manufacturing operation. Unlike distribution or service businesses, there is a complete set of processes that enable the create of value from raw materials. These materials are supported by a supply chain which also needs to be managed.

Setting the software aside, there are inventory processes, shop floor processes, design processes, procurement processes, quality control measures and processes, and order management processes that need to be properly managed in the manufacturing ERP system. Many people have tried to solve the issues related to all of these processes by applying a new software solution to manage the process and have failed.

A blend of people, technology and process factors needs to be evaluated and optimized. If any of these three areas are missing or weak then the overall manufacturing process will not succeed. What will make you successful is improving the processes before you apply a manufacturing erp software solution.
Manufacturing ERP

When evaluating Manufacturing ERP software, it is important that the functional requirements for each of the three factors needs to be evaluated. How will the people be managed and evaluated in the Manufacturing ERP system? How will controls on the machinery and other technology be managed in the manufacturing ERP system? How will the technology enable efficient operations?

A trend in manufacturing over the last decade has been to apply Lean Manufacturing principles. Essentially, you want to remove waste from a process before automating it. If you do not, you will make the inefficiencies operate faster, creating more in-balances in supply and demand. It really doesn’t matter what you produce in terms of products, or what you utilize as your input raw materials. Lean principles balance out your supply and demand and in doing so, create better throughput. With the advent of Lean Manufacturing principles, many ERP software systems have incorporated a lean thinking into their systems.

Using a combination of Lean principles and common sense, you can work at creating operational efficiencies that will help when you apply any manufacturing erp software system to help manage the business processes. Bottom line: don’t automate a mess.

Manufacturing ERP Software

Looking at Manufacturing ERP Software, you need to evaluate how well it manages the manufacturing business functions (such as creating purchase orders, the business processes (such as managing the demand planning process), and how well it manages the data (as in providing efficient access and ease of reporting). That being said, all systems typically have a set of financial modules, a collection of inventory modules, manufacturing modules, and sales and order modules. These various modules each have certain functionalities that help you run the core business.

The differentiation between these various systems is in how well they accommodate the niche business that you are in. If you are a process manufacturer making blends then there is a certain set of Manufacturing ERP systems that work best for you. If you are a machine shop, then another class of Manufacturing ERP solutions work for you. If you are a complex or project based manufacturer, then you will look for different software than others. The good news is that there are ERP vendors that specialize in these different niche areas and others.

Understanding the class of software you want to evaluate is key to creating a short list of vendors. Keep in mind that there is a class of ERP software that fits in as a generalist niche solution. In other words, these software do all aspects of manufacturing fairly well, but do not have a specialty in any certain industry. Often these manufacturing ERP solutions will rely on their value added reseller chain to create add-on modules to fit certain industries. For example, there may be a generalist solution that has a set of 3rd party modules (written in the native toolset) that provides the process manufacturing functionality.

Things to look for in Manufacturing ERP solutions

When you evaluate Manufacturing ERP software, it can seem overwhelming. There are hundreds of manufacturing ERP software vendors all looking to be the next system at your company. If you step back and look at the industry that you belong to and evaluate the systems based on those that are successful in your industry, you will have taken the first step.

Second, you need to look at those systems that support all areas of your business. If you have unusual requirements make the vendor demonstrate how they will handle these unique functions. Many vendors claim to support various business processes, but when you make them show them in detail, there will be a clear distinction between those that can and those that only think they can handle your requirements.

Thirdly, you should evaluate the standard functions, but do not spend too much time on those things. Being able to cut a check or create a debit memo are pretty standard these days. Rather, have the vendor spend time showing you how they will handle your unique Return Merchandise process or your specialized Quality Management requirements. There is a consulting joke about the fact that “you as a customer are unique just like everyone else.” This is both true and false at the same time. Every business thinks it is unique on the whole. But the reality is that you probably do a majority of the things that most other businesses do. However, there is probably 20 percent of the things you do that make you special and make you successful. You want to make sure that these are the things that you drill down on with the vendors to ensure that you can continue to be special in those areas.

Taken step-by-step or with an area-by-area focus, Manufacturing ERP systems can be selected and implemented with great success.

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