SELECTION OF VENDORS / ERP PACKAGES

MEETHU RAJAN

MBA (FT), 4th Semester

School of Management Studies
CUSAT, Kochi - 22
E-mail: [email protected]

Abstract: An ERP system is a software solution that addresses the

enterprise needs taking the process view of an organization to meet the
organization goals tightly integrating all function of an enterprise. It may also
integrate key customers and suppliers as part of the enterprises operation. It
provides integrated database and custom-designed report systems. When it
works well, ERP can speed up business processes, reduce costs,
increase selling opportunities, and improve quality and customer
satisfaction and measure results continuously. When it doesn't work well,
it can be a very expensive way to gum up the works. So it is very important
to select the appropriate ERP package for the organization. This paper
attempts to discuss Enterprise Resource Planning, Major players in ERP
packages, the selection process and its benefits.

Key Words: Enterprise Resource Planning, ERP Vendors, ERP Packages,

Selection, Criteria etc.

1.0 INTRODUCTION
In order to stay competitive in a dramatically changing business environment,
organisations have to enhance their business practices and operational procedures
through information technology such as enterprise resource planning (ERP) , e-
commerce, e-finance, Knowledge management, business process reengineering
 pointed out that information technology is an important weapon in the fight to improve
and keep an enterprises competitive edge in an ever-changing business environment.

The ERP concept can be viewed from a variety of perspectives. First, and most
obviously, ERP is a commodity, a product in the form of computer software. Second,
and fundamentally, ERP can be seen as a development objective of mapping all
processes and data of an enterprise into a comprehensive integrative structure. Third,
ERP can be seen as the key element of an infrastructure that delivers a solution to
business. The latter is the perspective taken by Information Systems[1].

2.0 ENTERPRISE RESOURCE PLANNING

Enterprise resource planning (ERP) is increasingly important in modern business
because of its ability to integrate the flow of material, finance, and information and to
support organizational strategies. Owing to limitations in available resources, the
complexity of ERP systems, and the diversity of alternatives, selecting an ERP project
is a time-consuming task [4]. ERP system is an integrated information technology that
uses common databases and consistent cross- functional information flow which
enables organisations to integrate information from various departments [5].

On the positive side lie all the great things ERPs promoters claim it can do. These
include streamlining and automating your business, and generally making it a model
of efficiency and cost effectiveness. On the negative side lie the scare stories of failed
ERP implementations. These range from total disasters resulting in losses of millions
of dollars and years of work to mere disappointing installations that provide little value
for the money [2].

Although implementing an ERP system may be costly and time-consuming, its

benefits are worthwhile. Therefore, ERP systems can be considered as critical tools
that can enhance business operations. Many organisations tend to purchase ERP
packages to shorten the ERP implementation cycle time due to a lack of professional
expertise and experience within the organisation instead of developing ERP systems
in-house. However, not all of the ERP packages in the market can meet all of the
requirements and anticipations of every organisation due to organisations different
scales, properties, strategies and goals. Therefore, management teams have to select
suitable packages which most closely meet their needs [5].

When it works well, ERP can speed up business processes, reduce costs,
increase selling opportunities, and improve quality and customer satisfaction and
measure results continuously. When it doesn't work well, it can be a very
expensive way to gum up the works. Accordingly, CPAs and other financial
executives selecting ERP are participating in a make or break decision for their
companies [9].
3.0 MAJOR ERP VENDORS AND PRODUCTS
There are a large number of ERP vendors to choose from. There is also a variety of
ways to categorize them. The most common method is based on Tiers:
Tier I vendors target the largest companies, with solutions that have the highest
complexity and cost of ownership.
Tier II vendors target mid-sized companies with less complex and expensive
solutions that are easier to support.
 Tier III vendors target the smallest companies with solutions that are cheaper
and less complex, and may be suitable for single-site installations.

Cloud providers offer ERP solutions running on their own servers, not on yours. They
offer the usual advantages of cloud services, such as lower upfront cost, greater
flexibility, and a lower burden on the customer to keep the software up-to-date
technically.

Vendors sometimes described as vertical, ancillary or third-party providers offer

specialized applications or modules that deliver functionality that mainstream vendors
cannot. These providers often dont offer core financial modules, but their applications
are compatible with the core software of the major vendors.

This combination opens up various mix-and-match options. You may, for example,
start with generic or general-purpose core software from a major vendor, such as
financial and HR packages. These will probably work for you because such functions
are largely the same across most companies. You may then add specialized modules
from other vendors that are compatible with the mainstream core modules. If
necessary, you might then fill in the gaps with cloud services that provide specialized
functions and let you add and subtract users quickly. And you might develop your own
software to fill some needs.
The accompanying chart shows a sample of 15 vendors of all types [2].

Table 1 : Major Vendors and Products

4.0 DIFFERENT TYPES OF ERP SOFTWARES

The most generic ERP apps cover fundamental or core activities common to every
company. Accounting and human resources (HR) are good examples. The most highly
specific modules, by contrast, may be applicable to only the narrow niche activities of
a single industry. In between are applications that may be common to multiple
industries. These often involve functions inherent in a certain type of business activity
such as distribution or manufacturing.

There are also middle-range applications covering somewhat specialized services.

These may be available as modules offered by core ERP providers, or they may be
offered as standalone products by non-core vendors. In any case, ERP apps can
meet virtually every common business need. You will likely find that at least some of
the following apps will help you gain the kind of benefits you have decided you want
from ERP implementation:

Procurement management software: This automates ongoing routine purchasing

activities, plays a key role in spending control. It may let employees connect directly
with suppliers online catalogs and buy from those suppliers according to preset rules.
It can automate the approval process and help manage purchases to save money via
discounts. Integration with invoice management software lets suppliers convert
purchase orders into invoices tailored to the needs of the ERP system, which helps
both suppliers and the accounts payable staff. Integration with supply chain
management apps automates shipping.

Invoice management software: This tames the chaotic process of receiving and
paying invoices, reducing the time spent on routine administrative tasks and the errors
that occur during those tasks. It accepts invoices in a variety of forms, both physical
and electronic, using various methods to extract the relevant information. It may
provide a portal where suppliers can check on payment status, freeing accounts
payable staff from having to field queries from them. Integration with core ERP
financial modules provides data that lets management understand spending patterns.
And integration with the procurement management software described above makes
both ordering and paying for ordered goods go more smoothly.

Supply chain management applications: These automate the transportation and

storage of purchased items. These may be parts and components used for
manufacturing, wholesale products for re-sale, or consumable supplies. Integration of
related applications or modules such as transportation management, fleet
management and warehouse management can be particularly effective in boosting
efficiency. Such integration contributes to improvements in customer support, control
of inventory and order-to-delivery time.

Asset management software: This monitors and manages both the physical and
financial aspects of major purchases. It records when and where the assets were
purchased, as well as their original cost and ongoing value. Integration with invoice
management software automates the provision of cost, purchase date and vendor
information.

Transportation management and warehouse management applications: These

keep track of the assets whereabouts, including their shipping details and physical
 locations. The software also monitors financial-related information as depreciation,
maintenance, warranties and the like. Overall, it contributes to improvements in
inventory control, spending control, time spent on routine administrative tasks and
overall visibility and control of the business.

Expense management applications: These keep track of and manage spending on

items such as travel. Like procurement management, their integration with online
travel services make it possible to automate purchases of flights and other travel
items, as well as the process of obtaining approval from supervisors. Similar to (or in
conjunction with) invoice management apps, they can accept invoices in a variety of
forms. Integration with core financial applications lets them provide data that
management can use to analyze spending patterns and enforce spending policies.
These apps play a key role in spending control and improving overall visibility and
control of the businesses for management.

The above ERP applications are useful to many types of businesses and
organizations. But there are also others that target specific businesses and industries,
or even specialized activities within those industries. Though there are a large number
of such applications, each one is suitable for a relatively small number of
organizations or activities the very definition of niche products.

In any case, ERP is broadly useful across industries. Though the technology started
as a way for manufacturers to streamline their operations, now there are solutions
designed for almost every type of industry or organization imaginable. These include:

Chemical
Construction
Distribution
Energy
Financial services
Government
Military
Non-profit
Petroleum
Pharmaceutical
Professional services
Restaurants
Retail etc.

In general, the more specialized your needs, the more likely it is youll be looking at
non-mainstream vendors products. Niche vendors typically do not offer core financial
applications themselves. But their products will certainly be compatible with
mainstream core modules.

If you have extremely specialized needs, your only choice may be custom software.
You may develop it yourself, or have a vendor do it. The advantage is that no one else
will have the same software, since it will be designed for your specific needs. The
disadvantage is that developing it will be time consuming and expensive. It may also
require modification when the commercial ERP apps with which it works are
upgraded.

5.0 A MODULAR APPROACH FOR ERP SYSTEM SELECTION

 It is a two phase algorithm for ERP vendor and software selection. In this procedure,
almost all of the customer organization members are involved and almost all of the
existing potentials of the customer organization (including knowledge and experience)
are used.

5.1 The preliminary phase

This phase consists of two steps. In the first step, a project team is formed. It consists
of top managers or decision makers, executive managers, stock holders, functional
experts, users or their representatives. The project team then has to model business
processes and reengineer them as much as possible. During the processes analysis
period, the functional characteristics of required ERP software are recognized to some
extent. In the second step, as much information about ERP vendors and systems as
possible are gathered from all possible sources including the internet, magazines,
exhibitions and so on. Initial requirements of the desired
system are submitted to the vendors representatives and they are requested to
respond to related questions included in questionnaires or check lists. After receiving
their responses, the clearly unqualified vendors are eliminated based on the
responses. The following classified factors can help us make decisions concerning the
selection of a few vendors.

Software system factors

These factors are related to the characteristics of a software system and its modules
which are offered by any of the ERP vendors. The factors are:

strategic fitness or fitting the ERP system to vision, strategies and goals of the
organization and adapting to environmental requirements;
required infrastructure, including required hardware and platform independence;
network architecture and security;
module completeness;
standardization (such as data standardization, multi-language, multi-currency, etc.);
user-friendliness including ease of operations, ease of learning, online and offline
help;
ease of integration with external systems;
ease of in-house development and upgrading;
use of newest capabilities of information technology;
automatic backup of information;
shorter processing times;
minimum of errors, bugs and breakdowns, automatic data recovery; and
maintainability.
Vendor factors.

These factors are related to the vendors of the ERP software system. The factors are:

supporting and consulting services;

experience and knowledge of our business area;
implementation ability, financial conditions, ERP market share and the scale of
vendor;
research and development (R&D); and
prices of products and services.
 Project factors.

These factors are related to terms and conditions of the contract and its contents. The
factors are:

total time of project;

total cost of project;
training, after sales services, technical support and upgrading the versions of
software; and
warranties and delay penalties.

5.2 The selection phase

In this phase, the best vendor from the vendors qualified in step 2 is selected. Also,
we consider the required ERP modules and decide which modules to purchase, which
modules to order according to special organizational requirements and processes
and, finally, which modules to produce using in-house experts. In this regard, we first
have to list the required modules by performing an organizational study and
considering all of the modules proposed by the vendors selected in the previous
phase. We have to consider the following aspects to determine which modules are
purchased, which modules are ordered and which modules are produced:

Processes. Before deciding on the modules, we have to consider the type of

processes of the respective organizational unit/units. The use of the standard modules
needs to impose new processes on the organization. It may also require changes on
the previous methods and procedures, completely. If so, the costs of the new system
training may be much more than the expected cost.
Organizational changes. The use of the ERP standard modules may need to change
the organizational units, the job descriptions including job duties, educational and
skills requirements, experience requirements, credentialing
requirements, etc.
Data. Experience has shown that if the standard modules are used, data conversion
may be the main challenge and a costly and time-consuming job.
User interfaces. User interfaces required by the functions are another important
factor.
Upgrading. The use of customized modules may be very risky because of the
upgrading and integrating problems.
Project team costs. If we use the customized modules, the duration of the ERP
project and ERP experts engagement may be increased and the work is often
dependent on the people [4].
6.0 EVALUATION AND SELECTION OF ERP PACKAGES
Evaluation and selection of ERP package is an essential criterion for successful ERP
implementation. Quality of selection will have a long term impact on the processes of
the organization. It is also not easy to switch to another product with concomitant
scale of investment and complexities. This evaluation and selection process should be
properly directed and normally comprises of following activities:

Formation of an evaluation committee

 An ERP implementation is not an IT project but a business oriented development.
Therefore, in addition to Chief Information Officer, this committee should comprise of
all functional heads and driven by a top management representative. Since all
business functions are represented in selection process, the chosen package would
have wide acceptance subsequently.

Requirement Analysis

This analysis should outline functional expectations of various business divisions,

such as warehouse, finance, procurement, from potential ERP package. Vital
requirements specific to the company should be highlighted e.g.
Must have Distribution Requirement Planning (DRP) functionality.
In transit inventory and pallet tracking, as a part of shipping requirement.
Multiple purchase orders linked to one bill of lading.
Multi currency and multi locations functionality.

Requirement analysis forms a base for preparing a Request for Proposal (RFP),
where important technical and commercial perquisites are incorporated. Common
examples of technical perquisites: flexibility, Upgradability, User friendliness, field level
security, Operating system and database compatibility. Common examples of
commercial perquisites: cost, reference sites, high level project plan, resumes of
consultants, post implementation support, financial health of the company, local
presence, number of installation and upgrade.

Selection Criteria

A pre-determined selection Criteria should be ready before actual selection process

commences. Selection criteria are normally in the form of questionnaire and point
system, where each question represents a business or technical need. Weightage for
each point or a group of points are predetermined which varies according to criticality
of the issue. These processes help in making the selection process objective and
transparent.

Selection Process

Selection process constitutes various stages as mentioned below:

Short listing of vendors: Hundreds of ERP packages are available in the market,
which have different concept, architecture and sets of functionalities. Analyzing all the
packages is not feasible. Organization need to identify a few best suited packages by
looking at product literatures of vendor, finding out which product is being used by
their peer organizations and getting help from external consultants. Once a few
packages are short listed, respective vendors should be asked to respond to the RFP,
as per its format.

Demo and Presentation: Responses from shortlisted vendors are evaluated by the
selection committee after collating scores obtained by them and a consensus is
reached about their final ranking. Anyone not fulfilling a predetermined vital
requirement is eliminated at this stage. Top two or three vendors, are then invited for
demo and presentation. Mode of presentation should be carefully scripted and send to
the vendors in advance. They should be asked to walkthrough a particular business
cycle through their vanilla software. They should be specifically asked to clarify any
 area of concern about their proposal, which may expose weak/ problem area of their
offer.

Site visit and Contract Negotiations: After tge committee has reached a decision on
best suited package, visits to reference sites are imperative. The vendor should
provide reference sites of similar size and industry, identical version and belonging to
same geographical location. Team members should have look and feel of the systems
operating at reference sites and ask pertinent questions covering overall satisfaction,
functionality, cost/ time over run, support concerns etc. After site visit, if the committee
members feel that their selection is right, they proceed with final negotiation and
procurement. Negotiations are normally held on license and annual maintenance cost,
payment plan including a leasing option, support issues and other commercial and
legal terms [15].

6.1 Benefit from ERP Selection Criteria

Once the vendors have been identified, the team should go about a process of
evaluating these criteria. Here is a definition of each criterion:

Company

Company size (annual revenues and number of employees) becomes very important
in your evaluation. Who will make the best partner? Who knows my industry the best
and has the most references of companies like mine? Are they committed to serving
my industry? Who will be able to keep my company abreast of technology changes for
the next 20 years? Who will make the best vendor partner?

Technology

We find that most companies have developed a technology strategy favored by top
management and IT. You will also find that ERP vendors have their own technology
strategy. Even though most vendors profess they are open systems, in truth, each
vendor has their technology sweet spot. Understand the technology platform and
architecture for each vendor and measure it against your strategy.

Function Fit

Even though there are dozens of vendors that have a good function fit, you will find
there are only about three or four vendors that are the best fit for your business. The
key in your evaluation is to quickly find those vendors that best address business best
practices for your industry.

ERP Support

ERP vendors have a number of ways to support their client. The larger firms have
significant support ecosystems to support their market. Buyers should evaluate all of
their support systems including the following:

Consulting organization
Implementation methodology
Education
ERP implementation methodology
Maintenance and phone support
 User groups
Partner network

Cost of Ownership

Learn from the customers of the vendors about their cost of ownership. We find that at
the end of the day, most software vendors all get to the same price for software. A
number of other factors differentiate vendors with cost of ownership. Annual support
fees vary, implementation rates and fees vary, and ongoing need for support varies
from vendor to vendor. Look to understand and confirm the total cost of ownership
over a five year period [14].

7.0 REFERENCES

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