bonus mfg erp champion users guide

7/30/2019 Bonus Mfg ERP Champion Users Guide

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CTS Guides

ERP Champion Users Guide


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2012 CTS Guides www.ctsguides.com 2

Table of Contents

WHY NEW SOFTWARE, WHY NOW.......................................................................................... 3

WHAT TYPE OF COMPANY ARE WE? ..................................................................................... 10

VENDOR GROUPS IN THE ERP MARKETPLACE ....................................................................... 13

IN OUR BUILDING OR IN THE CLOUD..................................................................................... 16

HOW SHOULD OUR SOFTWARE SUPPORT US TODAY AND IN THE FUTURE?.......................... 19

COMMUNICATING YOUR NEEDS TO ERP VENDORS............................................................... 39

DEMONSTRATION PREPARATION AND SURVIVAL................................................................. 42

FINAL DUE DILIGENCE PRICE NEGOTIATIONS, REFERENCE CHECKING, AND CONTRACT

REVIEW ................................................................................................................................ 46

ACHIEVING THE BEST POSSIBLE OUTCOME ........................................................................... 49


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Welcome to CTS Guides ERP Champion Users Guide. This document has been developed tosupport you or your teams efforts to best utilize your companys time and resources to makethe best possible ERP software decision for the best possible price. Each section of this Guide is

part of a structured process to help its users to select the right software for your Company forthe right reasons.

It is suggested that you review the entire document first before undertaking the initial steps inthe process of selecting ERP software. This will allow you to see how the entire process isstructured as a roadmap to software selection success. You will then understand where youare on the journey and how all the stops along the way form a logical progression through theactivities that support a successful software selection process.

Why New Software, Why NowThe staff of your company likely thinks constantly about improving your products andprocesses. Hopefully those considerations include thinking about what your software does orneeds to do when you consider process improvement. It has never been more evident thatsoftware and technology are key components to continuous improvement and businesssuccess. Every aspect of growing business value requires technology to support and controlimprovement activities. Your companys ERP software is a critical aspect of any plans andpotential benefits.

During the recent economic downturn between 2008 and 2011, many manufacturers learned alot about the value their software was providing to their company good or bad. Businessleaders began to realize just what their Companys software really offered and how well itworked as fewer staff was available to supplement deficient software with spreadsheets andother activities to achieve a desired result. Many business owners came to realize that theirsoftware was not as supportive of their business as they had thought.

At the same time suppliers and customers began to require stricter compliance with moreefficient electronic processes (use of portals, EDI, and EFT) as they worked more efficiently to

control costs and maintain or improve profitability. Marketing and sales increased its focus onthe Internet and Social Media, requiring software to be web enabled and configured for remoteaccess from tablets and phones.


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As businesses continue to rebound from previous lows, their objective is to grow with minimaladditional overhead. This means that software and technology needs to be most effective insupporting how they company does business and executes every day transactions mostefficiently. The key is linking suppliers, customers, and utilizing the Internet to enhance

company profitability.

And it is no longer a given that your software needs to reside on a server in your building.Opportunities for minimizing in-house technology via running your software in the cloud (cloudcomputing) or having your software vendor provide a solution from their secure facility(Software as a Service or SaaS), are growing quickly. For more about the cloud vs. on premisedecision please read the section titled In Our Building or In the Cloud.

As you and your selection team plan for the future (you will hopefully only do this once every 7-10 years if done right) you should carefully consider the role updated software can play for your

business. Your objective should be to make sure that current software technology is supportingyour business goals so that your employees can provide the greatest possible value to yourCompany.

Along with enhanced responsiveness from lean improvements (elimination of non value addedactivities in your processes), technologically current software can best present your Companyto your customers as their preferred business partner. Web customers will appreciate howyour Company responds to their orders and inquiries. Your suppliers will be very responsive toa customer who works most effectively with them to communicate changing needs for thegoods and services they produce. Customer service will be enhanced by the access toinformation that a well-structured software solution provides such as portals to check orderstatus or inventory availability.

Given that backdrop you and your selection team should begin this activity by deciding, fornow, why your Company believes it needs new software. Also consider the timing of when anew software solution is needed (seasonality of business may impact timing for example).While not all of these reasons may apply to your specific circumstances here is a table ofreasons (topical headings) that you should consider when determining why you are undertakingthis important project. Please use the right hand table to list out your reasons.


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Typical Software Issues Our Companys Particular Issues

The Age of Our Software : While it is not

known who invented the term legacysoftware, the age of your softwaretechnology can become a significant issue.Software written on older platforms is not aseasily integrated to newer technologies forinteracting with customers and vendors. Arelated issue may be that your Company hasnot taken advantage of the updates providedby the vendor so you have made the software

old through not paying annual maintenancefees to maintain the competitive advantage ofthe current version of the software. This maybe a problem that you created for yourselves.

The Scope of the Software Functionality : Thecurrent configuration of your software maylack the functionality that your business needsor will need as business circumstances andtechnology changes. Do you own all themodules your software vendor offers that areapplicable to your business process today andin the determinable future? Are the modulesyou need truly embedded in the software orare they third party solutions. If there areintegrated third party solutions, who isultimately responsible for them and whoprovides training and implementationassistance.

The Financial Health of Your Vendor: Oneobvious reason for changing is that yourvendor is no longer in business. Another more


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subtle reason is that your vendor is notupdating their software to the latest version inthe marketplace (still on Visual Fox Pro andnot on .NET). Their customers may be used tothe current version (their rationale) but thesoftware developer does not have thefinancial resources or the future focus to makethe change.

Support From Your Vendor: You areconvinced that your vendor is not providingappropriate support. Symptoms are long

delays in responding to phone or Internetbased inquiries. It can be awkward to gothrough three levels of support personneleach time you have a problem until you get toa properly knowledgeable person who canhelp you. Or worse, your software has beenacquired by another software developer whohas guaranteed support of your software fora defined number of years but has no

intention, for example, of improving thesoftware in the future to keep the softwarecurrent with Microsoft releases. Or yourcurrent vendor has announced plans todiscontinue support for your version of theirsolution.

Your Business Has Changed but Your

Software Cant Keep Up: You were a job shopbut now you make a product line. Youproduced to order but current customerrequirements now force you to make both toorder and to stock. You now sellinternationally and you need documentation


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in multiple languages. All these are examplesof how your business can change, sometimessuddenly, and your software will not keeppace. The vendor often makes you feel likeyou are the only user who needs enhancedfunctionality.

Your Company Has Grown Up: Quick Booksor Peachtree and spreadsheets just dont getthe job done any more. There is too muchinformation on one persons desktop harddrive. Multiple people come to a planning

meeting with their own spreadsheet copiesand nothing (important) agrees. Without jumping to an overly sophisticated solution itis time to have everyone on the same pagewith information that is widely visible andproperly secured.

Other Reasons Unique to Your Company .


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Once you have scheduled various challenges you should convert those challenges to real valueproposition statements. For example, if your vendor is not updating the software that may beOK if nothing is really changing for your Company. But if those absent updates preclude youfrom doing business with one of your major customers then the value proposition associated

with this deficiency is potential loss of (significant) business.

Please review the comments you inserted above and convert them to Identified Challenges andRelated Value Propositions. You do not have to quantify the impact of the value propositionsbut you will want to complete this activity to make sure that you begin the remainder of theeffort on solid assumptions about why you and your team will undertake this project. Thisinformation will be included in a document that you will send to potential vendors with yourcurrent state and future state user requirements based on a later section of this guide.


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Our Identified Challenges The Related Value Proposition


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What Type of Company Are We?The reason you and your selection team need to answer this question is that software

developers in the marketplace for manufacturing ERP design their software based on the typesof companies or industries that they want to support. Keep in mind that all software startedsomewhere (at some company) possibly a long time ago. Other software solutions weredeveloped independently to serve an entire industry or industries. However, all software has afundamental design approach for how it will support the manufacturing and business processof companies who choose to purchase that program.

There are potentially two views of your Company in the ERP Software marketplace your viewand the software vendors view. They may not differ a great deal but it is still worth discussing

both sides of this foundation issue.The highest level of design difference addresses how a company produces their products forsale. Companies that take a number of small components and combine them into a larger itemare know as discrete manufacturers. The majority of software is designed for discretemanufacturers. However there are companies that effectively take big items and make themsmall. These manufacturers are known as process manufacturers.

A company that uses numerous components to make equipment is a discrete manufacturer. Acompany that converts tanks of chemicals to smaller containers is a process manufacturer even

though that process manufacturer has a formula or recipe for the elements that go intoproducing the tank contents. In summary the main design difference is many to one fordiscrete manufacturing and one to many for process manufacturing.

For purposes of communicating with software companies a discrete manufacturer must furtherdefine themselves in the following categories:

Job Shop There are fewer job shops today than in the past. The definition of a jobshop is a business that produces what customers design after winning a quote based onthe customers engineering drawing. The item(s) may be produced only once and never

made again. Components are bought to and costed to the job/order. There is nopractical inventory because the inventory bought was consumed by the job build. Ifthere are left over parts due to minimum purchase requirements then the inventoryvalue is zero.


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Repetitive Job Shops There are job shops that (continually) get repeat orders fromtheir customers. Some of these orders are blanket orders with structured releases ofthe total quantity of parts ordered for a defined period of time. These shops also quotefrom customer drawings the first time a finished part is produced. Or the customer

orders additional parts when they are needed without a structured relationshipsupported by a blanket order. In the Repetitive Job Shop environment an inventory ofraw materials, work in progress, finished sub-assemblies, and finished goods exist andhave calculated values. It is not unusual in this environment for a customer to requirethe repetitive job shop to carry inventories of certain levels of parts.

Make to Order These manufacturers design and produce products that are sold into amarketplace. They create their own engineering drawings, maintain quality systems forthe products they produce, and stock raw materials, work in progress, finished subassemblies, and finished products. They quote their products to existing and potentialcustomers but do not bid on custom work. All inventory has value. Finished goods aremade only from customer orders.

Configure to Order These manufacturers are a special sub-set of Make to Order. Theproducts that they design and build can have features changed in the final design of theproduct. They allow for features and options that are used to take the standardproduct and produce an item that is better able to meet the customers needs, allwithin the parameters of the features and options offered. There is more about productconfiguration in a later section of this Guide.

Make to Stock This type of manufacturer treats a customer order differently from amake to order company. In a make to stock company the inventory of finished goods isbuilt to a forecast of customer demand with orders for the companys products ideallyshipped from finished goods inventory literally the same day the order is received. Thistype of manufacturer relies on finished goods inventory availability rather than the rapidturn around of customer orders as the make to order company,

Process Manufacturers These companies manufacture large batches of product andthen sell their products in smaller quantities. These types of companies include chemical

manufacturers, pharmaceutical companies, and food processing companies. Instead ofengineering drawings they have formulas and recipes. They measure the yields ofproducts produced based on raw material inputs. Their business practices still includequoting new opportunities. Smaller process manufacturers, often called pilot plants,


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function more like job shops where small quantities of special products are produced ina non-repetitive environment.

Mixed Mode - Primarily connected to discrete manufacturing, this classificationhappens when multiple type of manufacturing philosophies are in place at one company possibly your company. The most common mixed mode scenarios are make to orderwith configure to order. Repetitive job shop is often found with make to order. Thismodel is the most complex to address due to the multiplicity of production modes andrequirements.

Finally, many manufacturers distribute products made by other companies. This is not a mixedmode concept but rather a modification to the regular course of business where finishedgoods are bought and sold within the same environment as other products are produced. Thisis similar to distributing the products that a company makes on their own.

Based on the descriptions just presented please complete the following for futurecommunication to software vendors:

We are a _______________________ manufacturer since we

__________________________________________________________.

Software vendors have solutions that address one or more of these segments of themanufacturing marketplace. Some of the largest and most sophisticated offer solutions forboth discrete and process industries but these software offerings do not target the small tomedium sized manufacturing marketplace. All vendors will tell you where their products fit.Some will tell you that their products fit everything. Well-structured demonstrations andreference checking will determine the validity of these statements.


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Vendor Groups in the ERP MarketplaceIt is important to understand how software solution providers are positioned in the ERPmarketplace. While you and your team may not be ready to fully communicate yourrequirements to software vendors you should be aware of how these companies are focusedand who they want as customers. Here are some of the general categories:

Job Shops, Repetitive Job Shops, and Small Make to Order Manufacturers: Software solutionsfor these categories of companies (refer back to the previous section if necessary) are designedto provide more basic capabilities. Without you or your team interpreting that negatively,these companies offer solutions that are less robust and at a lower price point than othercategories of solutions.

They may offer their own CRM solution that addresses only lead management and customerservice. The CRM may or may not integrate MS Outlook e-mails. They may offer shop floorscheduling but primarily as infinite scheduling as their customers tend to manage capacityissues (overloaded or underutilized in work centers) rather than exact production schedules(when can this job be completed at a specific work center). Their capability to handle cyclecounting includes the designation of whether an item is an A, B, or C count cycle withoutproviding the software capability to actually determine how those designations are derived.Without citing further examples these solutions are complete offerings for their market that donot offer extensive capability. They are designed for users who want to manage at a higherlevel of business process and dont want to utilize significant staff time to feed the beast.

Pricing for these solutions, for budgetary purposes, should be estimated at $2,500 perconcurrent user. The accounting suite can be an additional $3,500 for fully integratedcapability vs. $500 for a link to Quick Books or Peachtree for batch transfer of data to thesesolutions. Other capabilities not offered as standard sometimes includes shop floor datacollection software for time and materials tracking, as well as quality modules beyondincoming, first, piece, and final inspection. Yearly maintenance cost is still in the 15% to 20%range, and daily on-site implementation costs are $1,000 to $1,200 per day plus out-of-pocketcosts. All price estimates presented here are pre-negotiation values.

Note: A concurrent user or user seat is the number of users who can access the software atany one time. Named users are individual users identified by user login. A company with 15named users may need only 10 concurrent user licenses or seats because not all users use thesystem


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Small to Medium Sized Engineer to Order, Make to Order, Configure to Order, and Make to

Stock and Process Solutions: These solutions are the heart of the small to medium sizedmanufacturing marketplace focused on companies form $5 million to upwards of $50 million ofsales. They feature a large combination of modules from which you can pick and choose. The

breadth of their software is reasonably comprehensive and their capabilities flex well to the lowand high end of this revenue range. They differ from the remainder of the mid-market in thatthese solutions function better in a single plant multi warehouse environment. They are notdesigned to truly support a multi plant platform where all operations in multiple locations arefully integrated (example: scheduling of one work order through work centers in three distinctplants all coordinated from one location).

Pricing for these solutions, for budgetary purposes, should be estimated at $5,000 perconcurrent user. Additional modules for special functionality are priced in the $5,000 to$10,000 range sometimes based on the number of named users per special module who may ormay not be concurrent users otherwise. Maintenance should be estimated at 20% of the finalcost of all the software licenses. Daily implementation rates begin at $1,400 and go to $1,800per day depending on the level of person involved in the implementation effort.Implementation cost for these solutions often ends up in a one to one ratio between cost ofsoftware and cost of implementation and training. All of these costs are subject tonegotiations.

Advanced Mid-Market Software Solutions: Before addressing high end solutions with productnames familiar to many software users there is a group of ERP software solutions that are for

more sophisticated mid market companies with sales in the range of $50 million to $100million. These solutions offer comprehensive multi-plant capability and a full range ofcapability that is almost as the level of a large system solution. Their capability should beconsidered by large organizations with an international presence only in major countries. Inmany cases they are differentiated from the top level systems in that they are more pre-configured and have implementation cost to software license costs that do not typically gobeyond 1.5 to 1.0 for dollar cost (example is software that costs $300,000 should not go beyond$500,000 to implement).

Pricing for these solutions, for budgetary purposes, should be estimated at $8,000 perconcurrent user, $15,000 to $30,000 for special modules depending on unique user counts,maintenance at 20% of final negotiated cost and implementation at a 1.5 to 1.0 ratio.


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Tier One Solutions: These solutions offer full functionality and are sometimes sold on thepremise that they will be almost totally configured to the needs of the customer. Because ofthis philosophy they really do not lack any functionality that is documentable. The haveversions for discrete and process companies and have significant international presence on all

continents. These solutions are typically considered by companies with hundreds if notthousands of users and have price points that frequently start at $1 million for softwarelicenses and increase dramatically from there. For budgetary purposes maintenance is stillaround 20% of the software licenses and implementation costs are at least 2.0 to 1.0 againstsoftware license cost.

Commentary about negotiating the cost of software licenses, annual maintenance, andimplementation + training is provided in the last section of this guide.


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In Our Building or In the CloudThis section of the guide is included to provide you and your selection team with backgroundinformation on Software as a Service (SaaS) and Cloud Computing. These terms are notinterchangeable. These terms have been used extensively for some time so this guide willprovide you with an understanding of what they mean in the manufacturing softwaremarketplace and how they might be applicable to your specific opportunity.

Software as a Service (SaaS) is a term used to describe ERP software that is not owned directlyby your company nor loaded onto your server(s). Instead SaaS ERP software is rented by acompany for a defined period of time and accessed via the Internet. This software is controlledby the software developer on fully secured servers (in house or outsourced). The softwaredeveloper takes responsibility for upgrades of the software as well as the maintenance of thesoftware so that all remote users have continual access to its capability.

With SaaS you do not need extensive hardware at your facility. High speed Internet accesssufficient to allow all users of the software to work with it effectively is most important. Tobegin to use these solutions you do not need to upgrade hardware other than to meet therequirements of the users for doing their jobs effectively. This can represent a significantcapital cost savings to your Company.

As of the spring of 2012 there are not a large number of Manufacturing ERP solution providerswho are offering SaaS solutions to the small to mid size marketplace. One of the reasons thatthis alternative is not being more widely offered, for now, is that software developers need to

add an entirely new business model in order to support SaaS customers.

Rather than the developers merely having resource that designs and codes software programsand supports users, the developer now needs to manage customer data and possibly operate adata center. The financial model is different in that there is no up front software licensepurchase revenue and maintenance fees are collected monthly rather than annually.

The good news for developers is that customers can no longer discontinue maintenance, as theversion of the software that they are accessing daily is the only version of the software in use.You should reasonably anticipate that in the next two years all the leading ERP vendors will be

offering a SaaS solution to existing and new customers.

Using a SaaS solution is also different for the customer. You trust the vendor to safely storeyour data off site from your business. You are also going to be faced with updates to the


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software that are not of interest to you. You will no longer be able to skip annual maintenancecharges since this cost will be included in your monthly rental fee. You may be perpetuallypaying for the solution that you are using and those costs, over time, may exceed the cost toyou of buying the software outright and continued the maintenance.

In addition to the software cost analysis required to make a decision on acquiring ERP capabilityin a SaaS model, you should calculate any potential savings that might be realized by reducingthe management effort of your in-house network installation. One major saving could bereduced staff resource needed to address network and hardware issues related to an in-houseinstalled ERP solution. With stable and fast Internet connectivity to your SaaS solution, yourCompany may not have to respond to as many daily issues of hardware and operating systemerrors. The savings may be even greater if your company is multi-location.

Your Company may also be able to postpone additional hardware investments, particularly if

the choice of new ERP software for in house operation would have included upgrades to notonly hardware but operating system software both on the server and on the desktop. Thiscould represent a significant savings to your Company. All of these factors must be consideredwhen evaluating a SaaS solution for your business.

Cloud computing is a much more generic topic. Cloud computing is really any type of dataprocessing performed outside the business. Computing in the cloud means accessing a desiredapplication via an Internet connection. The number of opportunities is virtually endless.

Some of the ways that manufacturers use cloud computing are presented below:

Manufacturers can buy their software solution but have the developer host it. Thismeans that the company is accessing its own software via the Internet but this is nota SaaS model where the developer is responsible for all aspects of the software.Because you own a version of the ERP solution you are not necessarily contractuallycommitted to upgrading your version as if it were the common version used by allSaaS subscribers. Your company might have saved hardware costs at the onset ofusing the chosen ERP solution and then managed the maintenance cost differently insubsequent years. Regardless you are operating in the cloud.

Manufacturers can run and host their ERP solution on site and back it up at a chosenfrequency off site in a secure data center. You are backing up in the cloud.


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Manufacturers can utilize their ERP software in house but go into the cloud forapplications like CRM. Depending on the CRM solution the user may or may not beable to share information between the in-house ERP solution and the cloud basedCRM solution such as sales history, invoice history, recent payments, etc.

Final thoughts about SaaS and Cloud Computing are the following. If your company already hasa substantial investment in hardware, networking, and web interface, going to the cloud andincurring cloud related processing and support costs is not usually attractive, particularly if yourCompany operates from a single location. If your company operates from multiple locationsthen a SaaS or cloud configuration may be cost justified. Clearly if your company is a start up oryour organization is acquiring its first true ERP software then a SaaS solution may be the rightway to go and the comprehensive upgrade costs for hardware and non-ERP licensing may makethe SaaS long term cost more tolerable. When making these decisions please take intoconsideration the cost of in-house resource to manage a more complex in house application.


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How Should Our Software Support Us Today and In the Future?In this section of the Guide you and your team will determine your current state and futurestate needs for ERP software to support your business process. The key concept to understandis that this is not about software, this is about your business process today and what youanticipate that your business will be like in the future. You should not plan on changing the wayyou do business to accommodate the software you select. You and your team should becarefully examining software to see how it will support what your Company wants to be andhow software will help you to get there.

Getting everyone on your team to agree to agree what the Company needs software to docan be harder than actually selecting the best possible software for your Company. Your teamneeds to be structured well so that different areas of the business are represented. Thoserepresentatives should be looking to find an ERP software solution that is good for the entire

company. Where that is an issue then it is the responsibility of the leader to make sure that theorientation of the team is for a comprehensive solution and not islands of excellence.

This guide is structured to help you and your team make the best possible choice for thebusiness. The first level of needs assessment begins at the application level. The following listpresents typical ERP systems application modules that are available in the ERP marketplace.From the earlier section titled What Type of Business Are We you and your team havedetermined whom you are and possibly who you want to grow up to be.

The columns on the software application table that follows include the application name and a

short description of its basic functionality. More information will be available in a second table.There is a column for you to check off the need as Current and the need as Future. You cancheck off one or the other or both. The combinations may include, per application, the currentbut not future need for an application, the future but not current need for an application, orthe need for both. Current and future needs change due to strategic direction, life cycle end ofa product or process, or addition of new product lines or markets.

As much as practical the list is sequenced in the flow of a typical manufacturing companybusiness process beginning with attracting new opportunities to quote work and ending withthe accounting transactions and financial reporting that present the results of the businessoperations.


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Module Overview We Need It Today We Will Need It

Sales Forecasting Track and utilize sales

forecasts (customer orinternal) to impactproduction planning,purchasing, andscheduling

CustomerRelationshipManagement (CRM)

Different levels of CRMsophistication supportlead/customermanagement, helpdesk, marketing, tradeshows, etc. withintegration to e-mail.

Estimating & Quoting Summary or detailedBOM and routingdevelopment toprovide quote of one ormore products.

Product Configurator Features and Options,Rules Based orParametric capability tobuild product structure

for quote or orderentry..

Sales Order Entry Entry of customerorders for conversion towork orders or productdemand for make-to-stock pick.

Internet Connectivity Ability of your softwareto connect totransactions recorded

on your web site forcustomer orders orinquiries

Purchasing/Planning From demand signal,visibility of purchase


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history and vendorpricing to createpurchase orders

including blanketorders.

Receiving Receive against openPOs and transfer toincoming inspection.

InventoryManagement

Visibility of transactionhistory, costing, andtime phased availabilityof parts.

Formulas BOM's for process

industry functionality.Laboratory Support of laboratoryfunctionality includingdesign of experiments.

Master ProductionScheduling

Forward, Backward,Finite, and Infiniteschedules visible touser with what ifcapability.

ManufacturingRequirementsPlanning (MRP)

Requirements planningshowing satisfaction ofdemand fromcustomers or toplanned stocking levels.

Bill of Materials(Work Orders)

Listing of parts and subassemblies used tomake an end product,single- or multi-level.

Routing/WorkInstructions

Tracking of a jobthrough the factorywith work centers barcoded for datacollection.


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Shop Floor Reporting Tracking of timereporting and partscompletion to support

scheduling and jobvisibility.

Quality Assurance Incoming, first piece,and final inspectionwith parts dispositioncapability and RTV.

Shipping Relief of finished goods,tracking # integration,signal for billing, andbill of lading and int'l

docs.Invoicing/AccountsReceivable

Billing, credit memos,cash application, ARAging and collectionfollow up.

AccountsPayable/CashDisbursements

Match PO and receiver,schedule payment, viewcash commitments, anddebit memos.

General Ledger Integration ofsubsidiary ledgers, journal entries, trialbalance and financialreporting.

Payroll In house processing ofwork hours and salarycommitments, directdeposit, and taxreporting.

Time and Attendance Tracking work hoursintegrated to payroll

calculations, visibility ofwho is at work daily.

Human Resources Tracking of interview totermination of allaspects of an employee


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relationship to anemployer.

Costing (Standard,

Actual)

Support of multiple

methods ofdetermining what aproduct costs andvaluing inventory.

Fixed Assets Acquisition,maintenance, anddepreciation of physicalassets.

Service Management Support of schedulingand delivery of remote

activities for productinstallation and repair,warranty tracking,costing.

WarehouseManagement

Specialized tracking ofwarehoused goods forstorage, picking,packing, and shipping.

Project/ContractManagement

Viewing multiple workorders as part of acontract. Support of %completion revenuegeneration. Customerdeposits and progressbillings.

Product LifecycleManagement

Engineering support oftechnical aspects ofproduct design,revision upgrades, andcontrol of drawings inconcurrent engineering

environments.Business Intelligence(Cubes)

Graphical/tablereporting of businessperformance asmeasured by the ERP


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system.InternationalTransactions

Multi-currency andlocal reportingcapabilities for neededoverseas customers andcompany locations.

Once the selection team has agreed on how the application level table should be completedyou can move on to more specifics about what is needed for each application in the scope ofyour current state and future state business process requirements. The next table takes each ofthe applications listed in the first table and adds some depth within the application bypresenting functionality typically offered in these applications.

The suggested functionality is not a list of all functionality offered by all vendors in themarketplace. Rather the functionalities listed are talking points for the selection team to use indeveloping the next level of detailed analysis of what your Company needs software to supportin your current state and future state business process.

The table is designed to allow you to check off the need for functionality (regardless of currentor future state designation) so that you develop a list of functionality that can be both sharedwith potential software suppliers and then used as a demonstration checklist. At the end ofeach functional section there are two blank lines for items to be added that were determinedby the selection team during discussion of that functional area of need. Feel free to add asmuch detail as necessary.


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Once you have completed this section for the applications that you determined are necessarythe next section will present how to communicate these needs to the ERP marketplace.

Application Functionality Need

Sales Forecasting Download forecast amounts from a MS ExcelSpreadsheet.

Based on a user defined number of prior periods.

Needs to be able to work with factors of seasonality.

Sub-total logical groupings of products to support internalmanagement needs.

Drill down in the forecast to underlying data.

CustomerRelationshipManagement

Manage prospects, leads, customers, contacts. Completeintegration of e-mail correspondence whether generatedfrom CRM or from e-mail software.

Support the upload from event software and utilization ofcontacts identified at a trade show.

Track trade show costs, resulting contacts, proposals,business won, profitability, etc.

Support for marketing campaigns by searching contactand company database in CRM to identify recipients.

Access through drill down capability to the remainder ofthe ERP solution as appropriate. Example: answeringcustomer questions about invoicing by accessing thatfunction from CRM.

Advanced functionality for call center support.

Estimating andQuoting

Development of quick quote for an item that is notcurrently in the system for a customer not currently in thecustomer master file


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Multiple quantities to quote with proper allocation offixed and variable overhead to properly price differentvolumes.

Copy a previous quote and change for the newopportunity.

Attach text for terms of business to the quote when sentto the potential customer.

Develop new estimate by building detailed BOM andRouting for new opportunity.

Auto fax or e-mail quote from the users desktop.

Quoting system supports either Available to Promise orCapable to Promise scheduling linkages.

ProductConfigurator

Offers features and options or rules based productconfigurator capability to build properly configured enditems during quote or order entry

Offers parametric (dimensional) configurator if needed.

Configurator software creates intelligent part numberused to identify specific part and its inherentfunctionality.

Can be accessed from the Internet so web site user cancreate part to their specification on line.

Configurator software creates image of item beingdeveloped while configuration is taking place.

Sales Order Entry Quote line items can be converted to an order while linesnot selected by customer for order remain as an openquote or cancelled at the discretion of the user


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Sales order can show your part number and customerpart number if necessary

Blanket sales orders can be entered for items where thecustomer has committed to a long term quantity butsmaller quantities will be purchased as identified by thecustomer during the year.

Customer is ordering for future delivery at specifiedintervals and specific quantities.

Software can differentiate sales order line items ascommissionable or not commissionable for purposes ofcalculating sale commission.

All sales order line items have notes capability that canappear on the physical sales order or internally in theSales Order Entry system.

Sales order converts to work order for eventualproduction scheduling

Internet

Connectivity

The ERP solution should provide secured access to

information that can be utilized by potential or currentcustomers including inventory availability, order status,product catalog and inquiries on a variety or subjects.

Remote user, primarily salespeople, can access thesystem securely to look up information, or enter orders.

Purchasing/Planning Order requirements drive purchasing recommendationsusing either Net Requirements Planning (order demandagainst available inventory for each order or Material

Requirements Planning (multiple orders at future timesagainst time phased available inventory).

Purchase orders include your company part number and


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supplier part number.

Request for Quote for specific part numbers automatically

generated for primary and secondary vendors identifiedin the item master file.

Demand from Net Requirements Planning System orMaterials Requirements Planning system across allcustomer requirements grouped by supplier andcombined on one purchase order with appropriate lineitem due dates cross referenced by sales order or workorder number.

Purchase orders can be e-mailed or faxed from usersworkstation.

Receiving Items received against open purchase orders with barcode or data entry.

Items identified for incoming inspection requirements orwarehouse location for put away.

Receiving information used in automated three way

match of purchase order, receiving documentation, andcustomer invoice for payment to supplier.

Items not received automatically entered in back orderstatus or vendor relationship identified as no back ordersallowed with auto notification to purchasing ofundelivered items.

InventoryManagement

Item master file contains sufficient information for itemidentification, item quantities status, costing information,

and other fields of data that your Company needs tomanage inventory effectively.

Item quantities are shown as on hand, on order, demand,


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and available. There are min-max quantity fields as well asminimum order quantity fields.

Lead times, primary vendors and unlimited secondaryvendors are identified. Item vendors have fields to enterand update quantity price breaks. Vendor e-mailaddresses for on-line RFQ issuance and evaluation.

Time phased visibility of each part with running balancegoing forward based on order demand and customersupply from open and planned purchase orders.

Preferred method of inventory valuation offered by thesoftware solution including Weighted Average FIFO,Weighted Average LIFO, Actual, Average, Standard, Last,or Lot.

Formulas For process manufacturers this is the equivalent of a Billof Materials. In the food processing industry this can alsobe known as a recipe.

Sufficient decimal places need to be supported. Smallbatches may require items with three to six places to theright of the decimal point.

Laboratory Software functionality supporting all testing anddevelopment activities that are performed in thelaboratory of a process manufacturer or discretemanufacturer.

Verify support for Design of Experiments (DOE)functionality and well as sufficient support of trackingresults.

Master ProductionScheduling

Support of forward scheduling, backward scheduling,infinite scheduling, and finite scheduling methodologies


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as needed by your Company.

What if scheduling allows for recasting of the current

schedule with one or more changes without finalizing thechanges as the newest version of the schedule.

Support for scheduling of multiple locations on separateschedules or one schedule. Scheduling for multiplelocations should include support for a routing wheredifferent operations of a work order are performed atdifferent locations but coordinated on one masterschedule.

If needed utilizes a time fence to segregate orders thatare released to a schedule that will not change whileorders on the far side of the time fence are tentativelyscheduled.

The schedule can be adjusted for splitting lots to moveforward a smaller quantity that identified on the workorder while accommodating the scheduling of theremaining amount.

MaterialsRequirementsPlanning

Ability to forecast into a defined period of time thedemand for and supply of components in a Bill ofMaterials

Flexibility to set time periods by days, weeks, monthsbased on the needs of your Company.

Capability to take forecasted demand for known needsand not consume the forecast if a new need is identifiedthat adds to the forecast rather than uses a portion ofwhat was already known.

Can be as simple as Net Requirements Planning where


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demand is for one order at a time.

Bills of Materials

(Work Orders)

Single level or multi-level listing of all components and

sub assemblies that comprise the structure of the toplevel or end item to be manufactured. The BOM shouldhave unlimited levels of production (indentation)

BOM revision level must be tracked for all versions.System must support the ability to create a work order fora prior revision level of a BOM.

BOM should be able to accommodate a unique item inthat version that is not in the item master file as a onetime addition to the structure.

Capability to copy and edit an BOM into another BOM.

Capability to support where used search for any item inany of the BOMs in the system.

User should be able to drill down from the BOM (doubleclick on the BOM line item) to see the item master fileinformation including quantity details.

Provide for phantom items. Verify each softwarevendors definition of a phantom item in comparison toyour Companys definition.

Routings (WorkInstructions)

Includes sequenced operations that present the details ofhow the top level item will be produced. Sequencesinternal and external (sub-contract) operations (workcenters) and activities (first piece inspection) to representproduction.

Routings need to be flexible to support splitting of a workorder quantity with a smaller quantity moving throughthe remainder of the production process and costs


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properly matched to the newly structured activity.

Unlimited notes capacity to support work instructions and

the attachment of pictures or CAD drawings to supportthe manufacturing process.

Recognition of cellular activities where routing stepsinclude more than one individual in a group or routingsteps identified separately but produced in a multi-workstation cell.

Closing each routing step individually or closing selectedrouting operations causes the previous routing steps notclosed to close simultaneously with identical quantitycomplete.

Shop FloorReporting

Automated collection of data for labor time and partscompleted, scrapped, or held for lot splitting using barcode data collection technology.

Operator can split time between two or more work orders(pieces of equipment) with either an actual or defaultallocation of time.

Offers sufficient flexibility of reporting to allow operatorto identify scrap but also identify a code for scrap reason.

Operators have codes for charging time to activities otherthan work orders (Safety Committee, Materials ReviewBoard, Waiting for Inspection, etc.)

Quality Assurance Capability to record results of incoming inspection, firstpiece inspection, in-process inspection, and final

inspection results.

Support of inspection failures and other issues into aMaterial Review Board with resolution recorded in the


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software for analysis at a later point

Vendor performance ratings for quality of product

delivered, on time delivery, correct quantity received, andother agreed upon measures of specific vendor quality.

Functionality for Return Material Authorization (RMA)with complete tracking of disposition of product returned,cross reference of product replacement, warrantytracking of the returned part as well as warrantedcomponents of the returned part.

Support of specific ISO requirements for documentationas defined in the Quality Manual of your Company.

Lot and serial number traceability with support for whenthe serial number is assigned to the finished part(beginning or end of the process).

Tracking of serialized components in the completed partfor possible warranty claims.

Shipping Support for shipping with common carrier for on-line

access to relevant information from UPS, FedEx, DHL, or acommon carrier for full or LTL truckloads.

Preparation of all documentation associated with shippingsuch as Bill of Lading, packing slip, and internationaldocumentation as required for export activities.

Shipping activity, including freight cost where applicable,drives billing of shipment in the associated accountingsoftware on a batch or individual shipment basis.

Invoicing/AccountsReceivable

Linkage of shipping actions to drive invoicing


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Real time or batch updating of invoicing to AccountsReceivable functionality.

AR Aging detail sufficient to support collection activity.

Flexible data entry for on-account customer paymentsand NSF check adjustment to the Accounts Receivableinformation.

Month end closing, ability to post to a future month, andnumber of open months satisfactory for your Companysunique circumstances.

AccountsPayable/CashDisbursements

Support for the three way matching of purchase order,receiving reports, and supplier invoices, either manuallyor automated to validate payment of the supplier invoice.

Support for adjustments of supplier invoices forsubsequently discovered quality problems causingrejection of supplied parts or costs for modifications thatwill be absorbed by the supplier as an invoice adjustment.

Real time or batch linkage to the general ledger of

accounts payable and cash disbursements transactions.

Cash management supported by an aging of accountspayables that allows easy selection of open supplierinvoices by as of date or individually selected invoices.


General Ledger Ability to support financial information of more than onecompany as required by your Companys uniquecircumstances.


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Flexible general ledger chart of accounts structure withsufficiently long number structure to accommodatedivisions, departments, staff, etc.

Journal entry flexibility to support recurring, reversing,and other entries with sufficient description capability.

Structured as a batch or real time system relative to yourCompanys need for General Ledger detail needs.


Ability to enter a GL account budget and allocate aportion of each actual transaction to a budgeted amountin more than one GL account.

Payroll Ability to use the payroll capability offered by the ERPvendor or gather payroll data effectively to interface toone of many payroll service bureaus.

If payroll is processed internally, make sure the system

can handle all overtime calculations and fringe benefits,particularly if union contract terms are involved.

Time and Attendance

This is not the same as shop floor data collection but arelated timekeeping system on which payroll can bebased. Confirm how the proposed solution handles earlyand late clock ins as to time docked from pay or time notcompensated for.

Determine compatibility of your current automated time

and attendance system with the software proposed if in-house payroll will be calculated and paid.

Human Resources Verify the scope of HR software offered. HR software can


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manage activity and transactions from the time theposition was identified as needing to be filled until theemployee who fills the position leaves employment of theCompany.

Costing Financial statement costing methods such as standardand actual need to be evaluated based on your currentmethodology.

Costing of inventory can include Weighted Average FIFO,Weighted Average LIFO, Average of quantity on hand, LastCost, Actual Cost (bought to the job, no inventory), andLot Cost. Ensure that they method you use is supportedby the solution(s) under review. Confirm any changes inmethod of inventory valuation with your Companysaccountant.

Fixed Assets Support for all asset additions, useful lives, and multiplemethods of depreciation.

ServiceManagement

Support for separate scheduling of service calls andallocation of resources of service staff to support calls.

Segregation of service parts from regular inventory in aseparate warehouse location. Warehouse locations alsoinclude service vehicles or service cases where parts andtools are stored.

Determine whether installation of new equipment istracked in service management software or is the lastoperation in the equipment build routing.

If appropriate understand how the proposed software willshare staff between production and serviceresponsibilities and how movement of a worker fromproduction to service trips reduces capacity in the factory.


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WarehouseManagement

Review flexibility of warehouse location designations. Ifneeded understand how warehouse physical locations arethen broken down as warehouse shelf or area locationsand how both are linked when necessary.

Determine warehouse pull structure between primary,secondary, and overstock locations when large quantityorders are involved.

Verify that needed pick, pack, and ship functionality isavailable based on your Companys detailed needs,particularly if your Company is delivering to a majorretailer.

Verify support for activities like walking sequence forpulling orders, zone picking, partial picking on incompleteline items, and early picking of future orders.

Project/ContractManagement

Verify support for business processes such as progressbillings and percentage completion calculations thatimpact financial policies and practices.

Flexibility of quoting system to support a major proposalfor a project or a contract that includes significant text,images, and schedules.

Verify that routing and BOM structures support multi-phased activities. If a military contract make sure thatsupport of production includes rules of the customer forwork breakdown structure data collection, reporting, andbilling. WBS may require special software modules.

Product LifecycleManagement

Identify need for support of New Product Developmentactivities by the Companys Research & Developmentgroup. This includes product definition and managementof the steps required to bring the product to market.


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In Engineer-to-order companies ensure that PLM supportsfull management of technical drawings including initialdrafting, revisions (definitions), concurrent engineeringactivities (your engineers and the customers engineers),vaulting, and other controls

Verify how PLM links drawing revisions to manufacturingactivities and how manufacturing activities (as designedvs. as built) are linked back to the PLM system.

Business Intelligence Understand the full scope of how the proposed BusinessIntelligence system will add value to your Companysneed to manage and sort data. Be sure the offered BIcapability is not overkill for your Company. Identifywho in the business may be able to learn the BI capabilityto continue to utilize the tool for the Company.Understand how many cubes come with the basesystem and the vendors interest in and cost for creatingnew ones.

InternationalTransactions

Verify the utilization of foreign currency calculations inthe proposed software and how those valuation principles

impact costing and inventory valuation.

Make sure all the foreign currencies your Company needsare included in the system under review.

Verify that the international capabilities of the softwareunder review support local requirements for financialand compliance reporting.


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Communicating Your Needs to ERP VendorsNow that you have completed the information in all the previous sections you are in a positionto begin the activities of contacting potential vendors to see how they can support yourbusiness processes today and in the future. This is not just about using their software solution.This is about using their software solution to full advantage to enhance the value of yourbusiness.

From previous sections you have identified your basic business structure. You have identifiedthe types of vendors you should be considering. Your team has agreed not only whatapplications should be used by the business, but what functionality will be most helpful tosupporting your business processes today and in the future.

Your approach to contacting ERP software vendors is to provide more than a checklist of needsthat need to be reviewed. Most good vendors respond to only a checklist reluctantly as theyneed to know more about how the potential customer works and in what environment thesoftware will be used. To communicate best with software vendors utilize the followingapproach to developing a comprehensive document for each vendor to review.

Introduce the business Explain what type of manufacturing the Company does, what productsthe company makes, and to what industries you sell your products. Explain what makes yourcompany unique. Include your web address so the vendor can look up the company on theInternet to get a better understanding of your business and how their software will help you.

Explain Your Current Technology Provide a quick overview of your current hardwaretechnology including server configuration, desktop environment, and related operatingsystems. Letting the vendor know what tools the company uses such as Microsoft Office orother software solutions is also important. Please tell them if you are using an e-mail solutionother than Microsoft Outlook as this may be an issue.

While this part of the document does not have to be highly detailed it should tell the potentialvendor where your technology stands. Also tell the vendor how many users are on yournetwork and how many are using your current ERP software. You should provide the numberof named users on the network and both named and concurrent user counts for those who will

need access to the ERP software.

Overview What the Company is Trying to Achieve Another term for this is explaining thevalue proposition. Why is the Company looking for new software? How does new software


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add value to the business? Is there a budget for the new software (optional). What is thetimeframe for acquiring and implementing new software? Is there something(s) about whatnew software needs to do that, if absent is a deal breaker.

In todays software sales environment these are important questions that a potential vendor isgoing to ask. Explaining all this up front adds efficiency to the overall process of selectingsoftware. It is surprising how quickly potential vendors will refuse an opportunity that is notideally suited for them despite the low cost of remote demonstrations.

Explain Your Business Processes Using the initial software application list in the beginning ofthe previous section; provide an overview of your current business process. Begin with howyour company gets business (customers), how you make what your customers need, how youdeliver products to your customer, and how you get paid.

For this portion of the document you will want to provide two paragraphs on each section ofthe applications software list where a capability is needed. In connection with these applicationlevel needs you can then add the functional requirements from the second table above. Pleasebe sure to use both the functionality pre-listed in the table and the additional needs your teamadded to each section.

Identify Potential Vendors: Using the information presented earlier in this guide select thevendors that should receive your document. Make sure that every member of the team hasagreed that the document that was prepared was the best possible presentation of who yourcompany is and wants to be.

Define What You Want the Vendor to Do and When: Your document should be sentelectronically to each vendor after you have contacted the vendor either by phone or e-mail tosee who in the vendors organization should receive it. Wait until the correct individual hasbeen determined and then e-mail your document to all vendors on a single e-mail. Sending toall together allows each vendor to see whom the other vendors are so that they can furtherdetermine whether they want to compete for your business.

In the e-mail it is recommended that you first ask the vendor to review your document and letyou know if they have any interest in the opportunity. They will likely want to ask a number of

questions prior to communicating their interest. Do not be surprised if they ask questions youthought you already answered. Sometimes these questions are confirming questions thatexplain to the vendor the importance of a particular function or functions. Other times thequestions may be asked because your document was not reviewed carefully. The way the


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questions are asked and the tone of the conversation are potentially early indicators of thequality of the vendors effort and effectiveness.

If the vendor expresses an interest you should ask for budgetary pricing for the software thatappears to be needed to meet your current state and future state needs for support of yourbusiness process. Cost should be presented for software licenses (estimates provided earlier),annual maintenance, and an estimate for implementation and training. The implementationand training estimate may be presented as either a dollar amount or as a mathematicalrelationship to the software license cost (1 to 1).

In your e-mail you should also ask each vendor to respond to each section of your documentwith a short summary of how their solution meets your current state and future state needs.Their responses should be only a few paragraphs each. They should not copy text from a sellsheet (too long and not necessarily focused well or too short (We do that). You and the

selection team are trying to get an early view of the capability of the proposed softwaresolution.

Once you get all the responses you should schedule out the information received on aspreadsheet to begin to determine initial questions as you line up proposed capability applesto apples. Initial questions primarily focus on clarifying the scope of applications softwareproposed in comparison to other vendors proposed solutions. Not all vendors title eachapplication similarly and it is not unusual to learn that a particular functionality you are seekingclarification on is included in another application. For example, many software now processRMA transactions in CRM.

It is likely that you will see pricing variations. A good guideline is to see variation in softwarelicenses of about 25% from the average of the proposed solutions for the initial review. If thereare variations greater than that then you should contact the vendor to understand the largerthan expected variation (both higher or lower). Do not consider initial discount offers as thatdiscussion should be saved for later.

Once you have obtained full disclosure on the applications that are included in the proposedsolution and you have obtained any adjusted pricing estimates, you are now positioned todecide which potential solution(s) you will move forward with for full evaluation. At this pointyou and the team should be satisfied that you have identified three or four vendors who appearto have the functionality you are seeking and a price point that is in a range of reasonablenessbased on your initial assessment.


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Demonstration Preparation and SurvivalThe selection team should prepare for two rounds of demonstrations. The first round shouldinclude all the vendors that you want to review initially. The second round of demonstrationswill include only those vendors who you want to evaluate more carefully. At the end of thesecond round of demonstrations your team should be in a position to decide which vendor ispreferred so that final due diligence can be completed along with negotiating a contract.Looking at four solutions in round one and narrowing down to two solutions in round two is agood way to proceed.

First round demonstrations are usually limited to the selection team members completing theinitial review of the software in response to user requirements provided. The first round oftentakes from three to six hours depending on the extent of the requirements you need to review.This round is presented using the vendors existing data in their demonstration database. Manyfirst round demonstrations are presented remotely over WebEx.

You and your demonstration team, and not the vendor, are responsible for the structure of thefirst round demonstration. You are responsible for telling the vendor what you and theselection team need to review and not just what the vendor wants to show you. You achievethis by providing the vendor with a list of what you want the vendor to show you and yourselection team.

The vendor must show the team at least what the team needs to see. More could be presentedbut the needs of the selection team must be met first. It is best to provide the list of needs tobe reviewed on a two-column table (use Microsoft Word) with the first column showing thefunctionality and the second column for team members to write comments about thefunctionality being reviewed.

Most first round demonstrations begin with a Microsoft PowerPoint presentation introducingthe developer of the software and the reseller if one is involved, the product, its presence inthe marketplace, its philosophy of software development, and what in their opiniondistinguishes them in their marketplace. This presentation usually includes one slide that is a

compilation of the logos of many of the companies that use their software. You should tell thevendor ahead of time that they have no more than 20 minutes for this portion of thepresentation.


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Once that presentation is completed the vendor will provide an introduction to the navigationof the software including how screens work, how the directory of functionality is structuredand how a user will navigate the various applications. This overview often includes how reportsare accessed and how database searches are done. This segment of the demonstration should

take no more than one-half hour.

Following that overview the vendor should begin to show the selection team how the softwarewill actually work for your company. Your structure of the demonstration should be based on aflow of CRM all the way to accounting, often known as quote to cash. The vendor should beencouraged to follow the outline you have provided. If they stray too far from your list theymust be told to return to the structure provided. Caution team members to stick to the outlinein the first round so that the presentation covers the scope identified so that the team will beable to fully compare competing solutions.

You should control the flow of the demonstration by making sure that an area of thedemonstration checklist should not be left until the comment fields in the right hand columnhave been completed. This is an appropriate control over the flow of the presentation and arealistic way to make sure that all the information the team wanted to know is recorded. Atthe end of each round one demonstration the document should be filled in and the selectionteam should feel confident that they have had a quality review of the potential softwaresolution.

It is recommended that one of the team members take the notes and combine the commentsof team members in the right hand column into a final demonstration checklist. You shouldsend a copy of the final document to the vendor and ask them to confirm that the notesincluded are an accurate representation of the presentation. This is useful in referencingrepresentations that were made in earlier sessions when there are discussions with a finalistcompetitor.

At the end of all round one demonstrations the selection team should meet to determine whichtwo vendors should move forward to the final round. Since the ultimate objective is to selectthe best solution for the Company, the initial number of vendors should be narrowed to nomore than two finalists if possible. Even if one solution is preferred over all the others it isnecessary to have two finalists for negotiating the final terms of the contract and for protectionif the preferred solution is not as good as originally understood in the initial review.


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Selecting the final two solutions for more detailed review can be challenging for a number ofreasons. The primary reason is that many of the better software solutions offer similarcapabilities. To help with screening options you can use the following criteria:

Technical capability of the software across all the areas of need. Presentation of the demonstration was the presentation team well prepared and didthey support your efforts by sticking to the checklist as much as possible.

Did you sense that the product was being oversold when the vendor made a number ofcomments about being the only solution to offer a particular capability when you sawthe same capability in other systems?

Did the team like the user interface how the system was organized, systemnavigation and whether perspective users find it intuitive and easy to use?

Is each system appropriate in scope for your company? Does your staff agree that thescope of the functionality matches the resources available to implement and gain fullvalue from the solution? Is the solution too much for your internal resources to learnand operate successful? This is a crucial question to ask because a good percentage ofsoftware failures can be attributed to buying capable software but one which is toocomplex for your staff to use effectively.

Sometimes the decision is easy when clear functional differences allow you to eliminate one ortwo competitors easily. Another common elimination factor is when the team did not like thevendor presentation or selling approach. At this point you may also have a vendor come backto you and withdraw from the competition when they have determined they are not a good fitfor your opportunity. This can also mean that their resources are stretched and they are notconfident that they can win the business.

Once you have decided on the finalist systems you are ready to prepare for second rounddemonstrations. Round Two demonstrations are more detailed than the first round overview.The approach to the second round is that this is the opportunity to see your company runningon both finalist systems. In this round you will provide both vendors with sample data fromyour company and you will be inviting company staff to see the portion of the demonstrationthat applies to their work.

The sample data supplied to the vendor is based on what you need to see to confirm that aparticular software solution is right for your company. The second round demo will be basedon, mostly, seeing orders for your parts entered in the system and then seeing how the systemworks with your parts from quote to cash.


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At this point it is essential to provide the vendor with information on two or three parts thatincludes item master file information, the related bills of material and routings (can be partials),a few vendors for buying the BOM parts, and a few work centers for producing and schedulingportion of the demonstration. You can provide names of customers and contacts for CRM,

order entry and ship to demonstration. Without asking the vendor to take days to enter yoursample data, you can position the second round demonstration presentation so that thoseviewing each solution will feel like they are looking at their company rather than sample datathat has no relevance to your companys operations.

You should anticipate a different timetable and participation for the second rounddemonstration. For instance, the first segment of the demonstration may focus on CRM,quoting, and order entry. You should allocate a segment of time for this portion of thedemonstration (45 minutes for example) and you should invite key system users from those

areas to view each demo and provide feedback on the presentation. These new attendeesshould be encouraged to ask questions so they can formulate their preferences.

You should plan that a round two demonstration will take most of a day with each segmentbeing allocated sufficient time for a larger number of participants viewing and questioning thefunctionality of the two finalists. Original team members should continue to take notes onwhat is being presented and share those final notes with the vendor for confirmation ofrepresentations made during the session.

In the second round of demonstrations yes we do that is not an acceptable answer to aquestion. All functionality must be demonstrated, particularly what you consider criticalfunctionality for your business. At the end of the round two demonstration, you should feelthat you have seen what you need to see to make a final decision. If there are specific areaswhere more review is needed, dont hesitate to set up a short Web based review of theapplication necessary to reach a final conclusion on the capabilities of each finalist solution.

The original selection team aided by input from the additional attendees who viewed the roundtwo demonstrations should make the final decision. If possible your team should be ascomfortable telling the successful vendor why they were successful as telling the unsuccessfulvendor why they were not chosen. This means that you have thoroughly examined all theissues that were part of the decision and you have solidly concluded why you chose onesolution over the other.


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Final Due Diligence Price Negotiations, Reference Checking, and

Contract ReviewThe team is now at the point where you are ready to take the final steps to contracting with thesoftware vendor. Communicate to the vendor your continuing interest and request three tofour references (preferable of companies in your industry or having your fundamental structuresuch as make to order or make to stock) and one site to visit before making a finalcommitment. Ask for a final cost proposal based on the two rounds of demonstrations and anydiscussions that have occurred during your interaction with them. Immediately send thesedocuments to your companys attorney for review and comment.

Reference checking is an often-debated practice. Many believe that checking references isreally nothing more than talking to the better users of the vendors software or those that arehappy with its functionality. It seems as though you never talk to companies who are unhappywhich may yield the real truth about the software.

The response to that argument is there must be reasons why the vendors software is workingwell for a company, so knowing those reasons may be important to your ultimate decision.Problems with implementation of software are much more the fault of the customer than thevendor if the correct review of potential software solutions was completed.

Reference checking should be completed with the following dozen questions as a guideline:

Why did you choose this solution? What other software did you compare this solution to? Has the software met you expectations for providing the value you were seeking? Have you implemented all the functionality you acquired? How close did the implementation planning come to the actual implementation

activities? What problems were encountered during implementation and how were they resolved? Were you satisfied with the quality of the training? How did the final cost of implementation and training compare to the budget estimate? How is ongoing support for the software? Is your company getting any value for the annual maintenance fee you are paying?


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Can you recommend any vendor staff members for implementation, training, or ongoingsupport that we should request for our project?

Please name three functions about the software that you would like to have changedtoday.

Since you are presumably reference checking the good customers you should be looking tohear some enthusiasm for the software over the phone. You should expect to hear aboutproblems and how they were overcome. You will hope to hear that the reference company isgetting full value from the software they chose.

Once the reference checking is complete you should consider a visit to a user. It is helpful to goto a company and discuss how the software is working for them. You should expect to get aplant tour and a meeting in a conference room with some of the users to discuss the softwareand how it is working. You should not expect to visit with users at their work stations to see

how they are actually using the software.

The vast majority of plant tours provide a tangible event where part of the due diligence for thepurchase of a solution is the completed plant tour. Plant tours rarely yield more than a candidconversation with multiple users of the software.

There is a difference between negotiating the terms and provisions of a software contract andnegotiating the cost of the software, annual maintenance, and implementation cost.

Software vendors rarely change the legal terms of their contract. In essence this documentsays that your company is paying an amount of money to license the software for daily use inyour business. If you find a problem with the design of the software the vendor will fix it. If yneed more or better functionality the vendor will charge you to change the software, often onlywhen they believe it will benefit a large number of users as the vendor does not want to be inthe business of supporting a large number of versions of its original solution.

Negotiating cost is a different opportunity. The profitability of a software vendor is moreclosely tied to the implementation revenues they earn and the annual maintenance fees that

they collect. Profitability from new software sales is more subjective and open to broadernegotiations. Given this financial reality here are some guidelines for negotiating price:


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Software Licenses: Initial offers of 20% discount are not unusual. Improvement beyondthat discount is then based on the interest of the software vendor in your business andtheir desire to compete with the other vendor(s). If your opportunity is small then theflexibility to push discounts beyond 20% is limited but larger projects with aggressivevendors can result in surprising discounts. Also some vendors who have quotedconcurrent user prices can switch to lesser-cost named user prices to the benefit of yourcompany.

Annual Maintenance: This is an area of significant vendor income so it is less easilynegotiated because of its significance to the vendors financial performance. A requestfor a 10% to 15% reduction in the annual cost and a cap on the annual cost for up to fiveyears can result in savings in this area.

Implementation Cost: The biggest savings in the potential cost of the implementation ismanaging the process as well as possible and transferring as much of the effort to yourcompanys staff as possible. Beyond that many vendors offer a discount on hourly ratesif a block of hours are prepaid (10% off the hourly cost if a block of 100 hours is

prepaid). You can push back on hourly rates based on the rates that you have seen froma competitors proposal, but the larger and more complex the project and the softwarethe less chance to adjust downwards the hourly rates. Try for a 10% reduction withoutprepayment but expect the vendor to try to hold the line.

Every vendor expects to negotiate price. Some of the smaller vendors provide initial estimateswith discounts already included. As the size and scope of the project increases the opportunityfor flexibility in software license cost increases while reductions in the cost of implementationdiminish, especially since the total cost is an estimate anyway. By working with two finalistsolutions unti

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