By Josh Chernin, Business Improvement Group

Enterprise Resource Planning (ERP) Systems connect all functions of a business so that information is entered only once, everyone has the information they need when they need it, and calculations and many simple operations are performed automatically. They are big systems, and can improve organizational productivity greatly. Most of them now live in the cloud.

ERPs also include Material Resource Planning (MRP) Systems, which manage your purchasing and inventory, and time purchases so that you have what you need when you need it.

Recently, a lot of power has been put in the hands of users. Users can customize reports and write work flows (which make the system do what you want it to do) without knowing programming. They can also connect to outside Application Programming Interfaces (APIs) which can automate interactions with vendors, customers, and delivery services.

But many SMBs have no idea how to choose or implement an ERP system. With over 60 vendors and 100 platforms, it is confusing. Many companies start by taking their best guesses or asking for references and inviting vendors in for demos.

That’s a mistake. Companies have no idea what they need at that point, and the vendors don’t know your business. A couple years after implementation, companies discover that their systems “don’t really” fit their needs.

Business Improvement Group takes clients through a process to help them identify the ERP that best matches their needs. We begin by mapping out current business processes—good or bad. This may seem irrelevant or boring, but it is a necessary step to the rest of the process, because it gets everyone on the same page as to agreeing what the current problems and inefficiencies really are.

The next step is to re-map those same processes in a better state. Where is information entered twice? Who doesn’t have the information they need? Where are the chances for errors? Can a 27-step process be reduced to 15 steps? We encourage clients to be as creative as possible, because with modern systems, the answer to the question “Could we maybe do…?” is almost always Yes.

Out of these new “imagined” processes falls a list of features that you’ll want in your new ERP. They often number nearly 200. These features are then weighted, from “nice to have” to “dealbreakers”. Usually there are about a half-dozen deal breakers.

Depending on what features you value most, that will narrow down the logical list of vendors to perhaps 8-10. We will then interview the vendors regarding the deal breakers. Anyone who says “Yes” to all goes on to Round Two. Anyone who says “No” to even one deal breaker is out.

We then send all the homework—the current state flow charts, the future state flow charts, and the list of weighted features—to all the remaining vendors, and invite them in for demos, which often last 3-4 hours. We ask them to study these documents—and they will be impressed by the thoughtfulness of your homework.

A good deal of work is done in terms of preparing the vendors to make these presentations. We help them to understand your business and what’s important to you and work with them to tailor their presentations to those issues. For example, unless your business has some extraordinary accounting issues, ERP accounting modules are not a differentiator. They all provide AR, AP and GL, and they all work well. It isn’t worth wasting time on those. But if importing a bill of materials from your engineering software into the MRP system is important, we want to see it, right on the screen.

We also explore some “softer” issues—how intuitive the system feels, the ease of navigation, etc. Most important is the quality of the implementation. We want to see project plans, data plans, and meet the people who will actually be helping to implement. A good system poorly implemented is useless.

Usually, one vendor will stand out, but if not, we’ll invite the final two back for final questions. We will then help you negotiate the best deal for you. Like buying a car, it’s not the list price that counts, and there are many options.

The point is to make the best match, and I would argue that unless you first take the time to understand how you want to run your business, you won’t get the best match to those goals for the long run. ERPs are big investments, in both hard and soft costs, and a little time up front can save a ton of pain later, and provide you with a system that accelerates growth and profit.

In Part 2, we’ll cover implementation.

Josh Chernin is a Partner with Business Improvement Group, LLC, Consultants to Manufacturers, and has more than 30 years of manufacturing and operations leadership experience in the US and Europe. He’s had P&L responsibilities in printing, metals, converting, contract manufacturing of medical devices and aerospace modules, and textiles, built three plants, consulted to many manufacturers, performed several turnarounds, and visited over 300 manufacturing plants. Josh is an expert project manager. Josh has a BA in Economics from the University of Massachusetts, Amherst, and an MBA from the Harvard Business School. He can be reached at Josh.Chernin@bizimprovementgroup.com.