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3 key steps for selecting an ERP system for your business

3-minute read

What is an ERP system? It’s a software package that manages key functions in your business with a shared information database.

ERP systems allow you to automate and efficiently manage finances, customer relationships, human resources, supply chain as well as other industry specific functions.

With an ERP system, your business no longer struggles to integrate various tools in different departments. The system does it all, saving time and money, while providing your company with business intelligence at the same time.

Failures traced to poor system selection

However, many ERP systems fail to deliver the benefits that companies expect. In fact, one study of 1,600 ERP implementations found that over two-thirds of users failed to achieve the benefits they expected.

Other studies indicate that many ERP failures can be traced to systems that don't fit the needs of the business.

That's why a rigorous system selection process is so important.

Make sure you need an ERP

Because of their substantial cost, you should be certain your business needs an ERP and not a more modest software package. You’ll want to start by reviewing your current systems to determine whether you can make do with them. It’s also important to evaluate your future needs and do a cost-benefit analysis.

An ERP system may be warranted if you’re turning away business because of a technology bottleneck and if your current systems can’t be improved.

Once, you’ve determined your company really does need an ERP system, there are three steps to follow for a successful project.

1. List your requirements

There are hundreds, if not thousands, of ERP systems on the market. Your first job is to understand what functions you need your new ERP system to perform.

Once you have documented your requirements, you can develop an initial list of potential vendors whose systems could meet your requirements.

2. Evaluate systems

Now, it’s time to prepare a request for proposal (RFP), a document that sets out your requirements and asks selected vendors to bid for your business.

When the vendors reply to your RFP, grade their proposals against your requirements and compare the cost of the systems (including ongoing maintenance fees). On this basis, you can come up with a short list of vendors and invite them to demonstrate their systems to your selection team.

3. Select your system

For the demonstrations, you should provide vendors with a script that ensures they demonstrate how their system performs the most important tasks for your business. To increase the objectivity of your selection process, use a scorecard to rate the pros and cons of each system.

When you have made your choice, it’s important to talk to other clients of the vendor about their experience. Think of it as checking references in the same way you would if you were hiring an employee.

Once you’ve decided to go ahead, you have to negotiate a contract. It should refer back to the requirements the vendor has promised to fulfill and be looked over by both legal and IT experts.

Most entrepreneurs and management teams have little experience in managing a major software system selection. So it makes sense to seek the help of an outside consultant who has system selection expertise.

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