ERP System Evaluation: Checklist, Criteria, Selection Process
ERP system evaluation is a critical step with far-reaching consequences for every company. Our experienced experts provide a checklist for successful ERP software evaluation and highlight the most important criteria and the decision-making process.
ERP software evaluation is a decisive factor for the productivity and efficiency of any company. It creates priceless competitive advantages, but may even threaten a company’s existence if it fails to do so, namely if critical business processes are not properly mapped. The ERP evaluation process is divided into the following five key steps:
- Definition of requirements
- Market research of potential ERP systems
- Tendering process
- Workshops with the vendors on the shortlist
- Choosing the right implementation partner
This clear and methodical approach puts your company on a solid footing for sustainable growth and innovation.
1. Requirements
Precisely defining the requirements is crucial when evaluating ERP systems. We recommend the following checklist:
- What goals are to be achieved?
- Which business areas and processes should be mapped?
- Focus on the future: The new ERP software should still cover the requirements in 5 or even 10 years’ time.
- Put the processes with the greatest current pain points and the greatest potential for optimization at the top of the list.
- Put together a competent team, involve all relevant departments and get external support.
And above all: allow for enough time for this project phase.
At the end, you will have your requirements specification or catalog of requirements in your hands and can start your market research.
2. Market Research
During the market research, you explore the ERP market in order to evaluate the best ERP systems for your company from the hundreds of ERP companies. We recommend the following criteria in particular:
- Industry suitability: Is the ERP system suitable for your industry and can the ERP vendor demonstrate his expertise and references in the industry?
- Functionality: Does the ERP software fully map the required functional areas?
- Technology: How flexible is the ERP solution when connecting other systems? How easily is the ERP solution scalable?
- Investment protection: How long has the ERP software manufacturer been established on the market and does it offer a high level of investment security?
TIP: Let the independent experts at ERP Scout put together your top 5 ERP providers – free of charge and without obligation.
As a result, you will have compiled a longlist with which you can go out to tender. We recommend a pre-selection of 5 to 8 providers in this phase.
3. Tendering Process
As part of the tendering process, you send your requirements to the vendors on your longlist. Pay attention to the following points during your initial contacts:
- Presentation: Ask for an online or on-site presentation of how the ERP system meets your requirements. Pay attention to the solution competence of the provider specifically in your industry.
- Cost estimate: Get an initial quote that includes licenses, services, support and maintenance.
- Look & Feel: Get a first impression of how your employees can work with the ERP software during the presentation.
Based on these criteria, select 2 to 3 providers to be included on your shortlist.
4. Shortlist
With the providers on your shortlist, it’s now time for the final phase of your ERP selection. We recommend the following process:
- Workshops: Conduct a 1 to 3-day workshop with each ERP company in order to go through your requirements with in detail. At the end of the workshop, ask for a concrete presentation of how your requirements can be implemented. Provide the script and focus on the processes with the greatest current pain points and the greatest potential for optimization.
- Reference customers: Contact one or more reference customers of each vendor and check to what extent the customer is satisfied with the ERP solution, but also with the cooperation with the vendor.
- Costs and schedule: Request a binding offer with an equally binding implementation schedule.
TIP: The chemistry has to be right. Ensure constructive, pleasant cooperation with the employees of the ERP vendor who will later be part of the project team.
With this information, you are well equipped to take the final step in the ERP evaluation process.
5. Final Decision
When deciding on an implementation partner, you are simultaneously deciding on two things: an ERP system that will be a core element of your business over the next 10 years, and an implementation partner who will accompany you on this journey. Pay attention to the following points:
- Contract negotiations: The contract should include all relevant components, including licenses, services, support and maintenance and all other ongoing costs. Negotiate favorable terms and conditions, including payment terms, and make sure to specify in which cases the partner is liable and in which cases the ERP software manufacturer is liable.
- Requirements specification: The requirements specification is part of the contract and describes how your requirements will be implemented with the new ERP software.
- Schedule: The project schedule should be a binding part of the contract.
You have now successfully completed the ERP evaluation and are starting the ERP implementation phase.
What are the benefits of ERP cloud software?
Four out of five companies are pursuing a digitalization strategy in which ERP cloud software is a high to very high priority. This is the result of the Cloud ERP 2021 study by Computerwoche, which is based on a survey of 365 companies. Of course, the reasons and goals for implementing a cloud ERP system that is not operated in the customer’s own IT infrastructure (on-premise) but “in the cloud” are interesting.
The main reasons cited by the study participants were (1) rapid implementation, (2) the transfer of existing company processes to the cloud and (3) the simpler connection of subsidiaries and branch offices. The most important goals are (1) saving IT costs and (2) mobile access to ERP functions and data at any time and from anywhere.
Most ERP software manufacturers have their solution in the cloud and an ERP cloud solution is favored over a hosted on-premise installation for the majority of new projects. SAP, for example, is targeting a turnover of 22 billion euros (out of a total turnover of 36 billion) in 2025 with its cloud division alone.
So there is a lot to be said for a cloud ERP system. The most important decision criteria for selecting the optimal ERP cloud software in the aforementioned study are (1) the long-term availability of the solution on the market, (2) extensive functionalities and (3) the financial stability of the ERP vendor.
ERP evaluation is a separate project!
Evaluating ERP software is a resource-intensive task and should be seen as a project in its own right. Even if the responsible employees are at least partially released for this project, it should by no means be underestimated. The costs and time “saved” here will be recouped by a factor of x in the later project phases of the ERP implementation. In a study of ERP implementation projects, the participating companies across all company sizes and industries stated that they invested an average of 17 weeks in evaluating and selecting a new ERP system, with the duration of the selection process increasing with the size of the company. (Source: 2021 ERP project report from Softwarepath)
As the requirements specification is the linchpin of every ERP selection project, we present you with the 360° requirements specification template for download at your disposal.
Conclusion
ERP software evaluation is a critical and resource-intensive task for companies. Systematic ERP selection includes (1) defining the requirements, (2) market research, (3) the tendering process, (4) workshops with the shortlisted vendors and finally (5) the final decision for the best implementation partner. The right decision creates competitive advantages and increases efficiency and productivity. A wrong decision can threaten your existence. This is why many companies seek external support.
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