ERP Procurement: Discovering the Method That’s Best For You
Byon March 19, 2013
Enterprise Resource Planning (ERP) procurement is an area that I find fascinating. Undertaking to purchase one system that spans the entirety of an organisation’s processes is both ambitious and risky — it promises enormous reward but is ready to trip you up if you don’t handle the process properly.
In purchasing and implementing ERP software you are essentially stripping down your organisation’s infrastructure and building it up again from the ground up. Few things can have a similar impact on the likelihood of your organisation achieving its desired outcomes. The potential benefits are vast — impacting upon every area of the organisation, from customer service to long term-planning and supply chain management.
However, there has been more than one high profile example of ERP procurement failure in recent years (such as that of MFI). The simple fact is that ERP procurement failure is relatively common and when it goes “wrong” the fallout can be catastrophic. The key question, therefore, is how do you prevent failure and successfully implement ERP software in your organisation whilst preventing its failure? There are four methods to consider and I have outlined each one below.
Method 1: The Chain of Consultants
This is the time-honoured method of ERP procurement — the approach you are most likely to see amongst the big operators. While it can work, it’s also extraordinarily expensive and seems to be the source of many high-profile procurement failures.
The chain of consultants method essentially revolves around (as you might expect) contracting a number of experts to advise on the recommended implementation of an ERP package, with the implementation of the software to be handled in-house. Typically this entails a large team of external consultants undertaking an end-to-end business process analysis and re-engineering exercise. The main output from this will commonly be a design blueprint for a future-state target operating model. Once that is signed off, a system is then built to underpin the future state model.
This is the most transformational type of project or programme as its basis is to radically alter and improve the way that a business operates. It is often a huge undertaking but with potentially equally huge benefits – an organisation is able to re-design itself optimally and then build an underpinning system to support that. The flip-side is that this type of project is typically very expensive and can often fail due to a variety of factors. Before embarking down this route, I’d advise you to consider many factors and many vital lessons to be learnt from other projects and programmes.
If you have already embarked down this route, and the procurement has not delivered the benefits you’d been advised of, then you may have been told that there is not much you can do about it. That may or may not be the case, but unless dealt with in the right way, one key failing in this approach is that the buyer will have taken on all of the risk of project/programme success and waived its rights to any redress.
To put it succinctly, unless you happen to nail down your future business processes perfectly and align them, your people, and the new system first time, you will not be assured of contracting for a complete solution for ERP procurement with this method.
Method 2: The ‘Out of the Box’ (or ‘Vanilla’) Solution
This approach is an attractive proposition for many and with good reason. The out of the box solution offers up a simple premise: on the assumption that you would like your organisation to operate within industry best practice, an industry-specific ERP package that is built to industry best practice specifications should be perfect for your organisation.
That all sounds wonderful in theory, but it can fall apart in practice. The major risk is that if your organisation is so fragmented — with disparate departments essentially operating in silos or as standalone entities — there will be no way of knowing whether or not an out of the box solution will work until you put it into practice. The key principle of ERP procurement is to have a solid understanding of your business processes from A to Z — if you do not have this, then a best practice solution may fall on its face when it comes to practical implementation.
As with the Chain of Consultants method, when you sign off on an out of the box solution you are taking a huge step towards signing away your provider’s liability should there be implementation or post-implementation issues. If your organisation is not already aligned with industry best practice then this approach could get pretty hairy.
Method 3: Gap Fit
This is the first example of what I would consider a truly ordered approach to ERP procurement. You start from the foundation of the issue by carefully documenting all existing processes within your organisation. After all, it is only when you understand how your organisation currently works that you can move onto assessing how it should work.
Once you have a detailed analysis of your organisation’s current processes you can then go out to the market. The key move at this stage is to ask providers to explain how their system can operate successfully in the context of your organisation’s unique makeup. By doing this you can identify potential efficiencies and enter into a procurement process with a much higher surety of the likelihood of success.
We recently worked with Bradfords Building Supplies to procure an ERP system and they chose this method. By adopting a gap fit solution they were able to assess each individual proposed efficiency and quantifiably assess its cost-benefit; in doing so they managed to complete the successful implementation of a new system ahead of time and under budget — not to mention that it was a successful big-bang go-live across all 26 branches.
Method 4: Going Into the Cloud
This is the DIY method — whilst it’s not for the faint of heart it offers up extraordinary reward if implemented successfully.
Going to the cloud requires you to take on board much — if not all — of the responsibility of ensuring that the system you implement is fit for purpose and configured correctly. Rather than asking providers to pitch you their solution, instead you go out to the market in search of it yourself. Although you may want to work with a very switched-on and eager SaaS provider, the onus will ultimately be on you to make the right decision. Click here for a guide on helping to ensure a successful procurement.
The beauty of this approach is that you can essentially work within a sandbox and test out every imaginable scenario before you implement the system. Although this is extremely resource-intensive upfront, the potential gains are enormous — cloud software can cost next to nothing in comparison to the solutions discussed above.
At BPG we recently chose this method of procurement for our own ERP package — as far as we are concerned it is the best approach if you are equipped to handle it. With the system now successfully implemented the cost is just one tenth of what we were paying before and we are of course benefitting from a consolidated and integrated system that handles all of our business processes.
The purpose of this post is not to tell you which approach is right for you — after all, I have no doubt that each of these approaches will continue to be used into the future (although cloud is likely to continue to become increasingly popular). It is ultimately up to you to assess (a) your desired outcomes, (b) the make-up of your organisation and which method it fits best with, and (c) your in-house experience and to what extent that can support your chosen approach.
We wouldn’t typically advise the first method (due to the number of failures we have observed), but the other three all have their place. There is no one-size-fits-all solution — at the end of the day it is up to you to make a decision based upon your own unique circumstances.
Photo Credit: van Van Es