Chapter 5 ERP Planning and Package Selection

Reporting

-Purchase history by product group report - Supplier delivery report - Procurement costs report

Requirements documents for purchasing

Business process requirements Reporting

Discounted ROI formula

Discounted ROI= Present value of net profit/ present value of total investment

Project Portfolio Management (PPM)

Prioritize projects within the organization and staff them realistically with qualified individuals.

Scope Creep

The expansion of the project's original boundaries

Software license costs

"how much does an ERP system cost?" It depends -ERP system's price tag depends on: -Number of employees that will be using the system -Vendor tier being deployed -Number of modules purchased

Steering Committee responsibilities

- Be aware of project portfolio management (PPM) -Should meet regularly to make important decisions

Roles/ documents to govern the ERP project

- Steering committee -Project Manager -Project team -Project charter -Scope Statement

Information the PM presents to the steering committee

-Achievements since last meeting -Project metrics (effort vs. cost vs. time) -Financial status (actual spend-to-date and estimated remaining spend compared to budget) -Top 10 risks to the project, action items to mitigate these risks , owner of each action item -Any proposed changes to scope (justification of the scope change and impact of the change) -Project roadmap (overview of upcoming milestones on a timeline) -Summary of actions/decisions needed from the steering committee

3. Discuss ways a company can ensure that demo days run as smoothly as possible.

-Agree on an agenda and stick to it -Give each vendor demo scripts reflecting typical workflows in the company -First confirm the "must haves" then the "nice to haves" and lastly the "bells and whistles" -Require that the selection team be on time and attend the same sessions for each software vendor -Assess the vendor culture if the vendor is also being considered as the system integrator -Evaluate the ERP software based on requirements as opposed to the vendors slick performance. Do not be swayed by a sales pitch or flashy appearance -Designate a timekeeper to make sure sessions stay on schedule; leave enough time post-demo Q&A session -Use a weighted score sheet for ranking the packages

Rules for Demo Days

-Agree on an agenda and stick to it -Give each vendor demo scripts reflecting typical workflows in the company -First confirm the "must haves" then the "nice to haves" and lastly the "bells and whistles" -Require that the selection team be on time and attend the same sessions for each software vendor -Assess the vendor culture if the vendor is also being considered as the system integrator -Evaluate the ERP software based on requirements as opposed to the vendors slick performance. Do not be swayed by a sales pitch or flashy appearance -Designate a timekeeper to make sure sessions stay on schedule; leave enough time post-demo Q&A session -Use a weighted score sheet for ranking the packages

Maintenance and support costs

-Application management services (AMS) -The cost for maintenance ranges from 18%-25% of software license cost -Levels of NetSuite support (Basic, premium, Advanced customer support)

Steps to create a business case:

-Determine the business case rationales -Estimate the potential benefits of the ERP investment -Estimate the potential costs of the ERP investment -Estimate the potential ROI.

Database License cost

-ERP vendors will provide the specifications for the type of database needed -Some vendors, including cloud vendors, will bundle the database cost with he software license cost -A favorite pricing structure of database vendors is a tiered model using three or more levels

Assessment Questions to help determine an organization's readiness:

-Is now the right time for change? -What is our current level of business standardization? - What is the level of C-suite support? -Is our culture open to change? -Are we financially ready?

RFI includes questions such as:

-Is your ERP software written in a commercially available development language that is still being enhanced and support? -What is the cost for the first and subsequent years' maintenance of your software? -What is the typical implementation time

Responsibilities of the PM

-Make timely, effective decisions at the project level -Communicate decisions both up and downstream -Review team members' qualifications and submit names to the steering committee for approval -Motivate, inspire, counsel, and facilitate individuals to take responsibility for project goals - Deliver the project on time and within budget -Present the status of the project to the steering committee at its regular meetings

1. Describe the differences between two types of perpetual ERP software licenses.

-Named user licensing: Company identifies the total number of individual users who will access the ERP system and pays a license fee for each one (per-seat licensing) -Concurrent user licensing: allows for an unlimited number of named users and accounts, but it limits the number of people that can actively access the software at a given time.

Business Process requirements

-Purchase requisitions: supports stock, non-stock and service requisitions -Request for quotes: supports processing, response tracking, award tracking, and conversion to a purchase order - Purchase orders: supports automatic creation once requisition or request for quote is approved -Vendor performance: tracks on-time/ late delivery, order fill rates, and quality

Steering Committee Responsibilities CHART

-Set Project objectives and value expectations -Establish project scope, timeline, and budget and approve any changes to these -Champion the project throughout the company -Endorse the selection of the project manager and project team -Approve the ERP package selection methodology -Approve potential ERP vendors, short list, and vendor finalist -Choose system integrator -Ensure human resource and capital availability -Stay informed of the project status -Give regular feedback to the project manager on expectations and performance

Core team includes:

-Subject matter experts -Technical people -Site champions -Some employees- the "best and brightest"

Tips for negotiating the best ERP deal

-Use your leverage while you still have it: A company will never have more negotiating power than before it signs the deal. The vendor's first price quote is only the starting point. -Keep shopping around: Also negotiate with the runner-up to keep the heat on the finalist vendor -Don't overbuy: Unless modules support the scope and list requirements, do not buy them. -Use your name as a bargaining chip: If a customer is a brand or a well known company, the vendor would like to use you as a reference. Use this fact to negotiate -Make the deal sustainable: Make sure the deal covers potential issues like acquisitions, which will add more users. Know what the potential additional license fees will cost -Negotiate the deal at quarter or year-end: When the vendor's reported financial results are on the line, they are more apt to give discounts.

Pertinent questions to ask of references

-What problems have you had with the software or the vendor? -Are you happy with maintenance and support? -How often does the vendor come out with updates and upgrades? -Would you choose the software all over again? Why or why not? -In what area of your company did you achieve the most benefit from the software?

What are some considerations for choosing a system integrator?

-need to determine responsibilities of system integrator -rates per hour -invoicing procedures -how billing issues are resolved

2. list five responsibilities of the ERP steering Committee

1. Set project objectives and expectations 2. Establish project scope, timeline, and budget throughout the company 3. Champion the project throughout the company 4. Endorse the selection of the project manager and project team 5. Approve the ERP package selection methodology.

What rubric should the ERP selection team employ to assist in making an objective selection during demo days? BLANK

Weighted score sheet

The fact finding exercise the selection team uses to determine all the technical, functional, and commercial requirements for the ERP system is called BLANK

Requirements gathering

Named user licensing

Company identifies the total number of individual users who will access the ERP system and pays a license fee for each one (per-seat licensing)

ERP costs: Total cost of ownership (TCO)

Components include: - software licenses - Data base licenses -Third-party software licenses - hardware and IT infrastructure - Implementation costs -Maintenance and support costs (Some pf these costs will be one-time costs while others will be recurring)

Scope Statement

Details what is and is not included in the ERP project so that project boundaries are crystal clear -A major reason why ERP projects exceed their implementation schedule and budget is scope creep -Change Control

Questions to Consider when Building Project Team

Does this person understand multiple parts of the business or just his or her own domain? Does this person express a willingness to embrace organizational and business process change, or is this individual set in their own ways? Will this person influence others in a positive way? Does this person work well with others?

True/False The ERP steering committee is staffed with functional people in all areas of the company to help plan for and implement the ERP system.

False

True/false Best in class describes software selection in which the company will "mix and match" modules from more than one ERP vendor to create the best overall solution for its needs.

False

ERP benefits

For business case, benefits need to be quantified if possible. (Key performance indicators KPI's) For an ERP project, the capital investment window is typically 5 years.

Project Governance

Helps keep projects running smoothly, on budget and on time (before the project begins project roles and responsibilities should be set up as well as governance documents compiled.)

Hardware and IT infrastructure costs

If running the ERP system on-premise, a company will need to invest in IT infrastructure components. -Hardware, failover solutions, network connectivity, power, and security Hardware may include: servers, routers, backup and storage, desktops, laptops, tablets, and printers If an ERP system is being hosted by the vendor or a third party, IT infrastructure costs are included in the monthly subscription cost.

Implementation costs

Implementation costs are one of the highest-cost components of the TCO. (total cost of ownership) Functional and technical consultants (system integrators) are expensive Cost of internal resources also needs to be estimated -Full time equivalents (FTEs)

Best of breed

Implementing some modules from a niche vendor and integrating these modules with modules from the ERP vendor.

Weighted Score Sheet

Often used to assist in making an objective decision by giving a weight to each requirement or set of requirements deemed important in the package selection decision All members of the committee must agree to the relative importance of the requirements (weights) Each team member of the team has a score sheet; committee head compiles responses

Best of Class (PROS/CONS)

PROS: -Full process integration, single database of records, and standardized technology across the enterprise -Single system implementation with single vendor -Single user interface eases training -Possibly more control over TCO because buying from only one vendor. CONS: -Single vendor may not adequately address all the customer's requirements -More customization may be needed, as a single suite may be not be best fit in every area -Tied to one vendor for support and maintenance -Vendor viability may pose a risk

Best of Breed (PROS/CONS)

PROS: -Very strong functionality in certain areas as the vendor might specialize in just one area -Customer is protected from dramatic price increases from one vendor -May cost less than purchasing all modules from one ERP vendor -More opportunity for differentiation from competitors CONS: -Requires multiple package selection processes -IT infrastructure requires more attention because of different maintenance needs and upgrade schedules - Training ca be disjointed across departments -Potential for integration issues; integration with core ERP takes time and consumes resources

Software License costs models

Perpetual licensing model -named user licensing (heavy user licensing and casual user licensing) -concurrent user licensing Subscription- based licensing model

Project Team

Plays a critical role in the success of the ERP project as they "live and breathe" the implementation daily (The size of the core ERP project team depends on the size of the organization and the project scope) (participation in the project generally requires a 100% commitment of time on behalf of the team members.)

Application management services (AMS)

Post go-live maintenance and support -Includes functional and technical support, installing updates and patches, application monitoring, and back-up and recovery

Change control

Process of controlling changes to project scope

The BLANK is a project governance document that contains the project mission and objectives, the business case, a description of how the project will be organized and conducted, and start and end times

Project Charter

What are the differences between and RFI, RFP, and an RFQ?

RFI: Sent to potential vendors to prequalify and shorten list to a manageable number of vendors (3-4) RFP: sent to short-listed vendors so they can indicate what specific requirements their solution meets RFQ: solicitation for the financial conditions of the proposed solution, including initial licensing costs for the number of users, annual maintenance costs, and payment terms

Basic ROI formula

ROI= Net profit/ Total investment

Request for proposal (RFP)

Sent to short listed vendors so they can indicate what specific requirements their solution meets -RFP could contain several hundred requirements The RFP outlines due dates for vendor responses, the selection and award process, and the estimated award date The ERP committee will examine each vendor response to see if vendors software should still be considered

Three types of business case rationales:

Technology rationale (e.g obsolete systems) Strategic rationale (e.g., M&A mergers and acquisitions) Business process rationale (e.g., decrease inventory levels)

System integrator selection

The level of knowledge the system integrator has with both the ERP package being implemented and with the company's industry is critical. -Also important: the project management methodology and the system integrator culture, and composition of the system integrator team. Need to determine responsibilities of system integrator, rates per hour, invoicing procedures, and how billing issues are revolved

Request for Quote (RFQ)

The selection team should make sure that all information collected thus far has been painstakingly and impartially analyzed. -RFQ: solicitation for the financial conditions of the proposed solution, including initial licensing costs for the number of users, annual maintenance costs, and payment terms -The price of ERP software is "firmly written in Jell-O" -There are multiple ways to negotiate down the software

Third party software license costs

Third party software offers additional features or logic that becomes part of the overall solution to solve certain business' needs (ERP vendors will partner with third parties for these "bolt-ons" (e.g., EDI, bar codes) (Third-party software needs to seamlessly integrate with the ERP system)

Return on Investment (ROI)

When the costs and benefits have been estimated, a project ROI can be calculated (5 year window is typical)

concurrent user licensing

allows for an unlimited number of named users and accounts, but it limits the number of people that can actively access the software at a time.

Demo Days

are when the vendor must "walk the walk and talk the talk" -allows committee to check out vendors self reported information Selection committee should provide a script ahead of time to each vendor that dictates what the demo should cover. Vendor to focus on "must haves" but "nice to haves" and "bells and whistles" will also be of interest to the committee Company should make sure that vendors have not added any customization to their software.

Best in class/ family suite

combining core functions of the enterprise into a single integrated ERP software suite.

Market Survey

determines which vendors' systems might be contenders Vendors can identified through various means: -Websites -Industry magazines -Trade exhibits -Customers -Suppliers -Business partners

Subject matter experts

employees that are highly respected in their business units and have extensive domain knowledge in their functional area.

Project Charter

governance document for deployment and completion of the ERP project (Details the project mission, objectives, business case and budget information, and description of how the project will be organized and conducted) (Differentiates the roles and responsibilities of internal resources versus external resources) (Signed by the executive sponsor authorizing the project to commerce and funding to begin)

Project Manager (PM)

has the lead role in planning, monitoring, controlling, and closing the project

Business case rationales:

high-level reasons why an organization needs to implement an ERP system.

Full-time equivalents (FTEs)

is a measure of how many employees a project requires, assuming all employees work a full work week.

ERP selection Committee

is charged with selecting the ERP system -Final decision made by the steering committee Selection committee should be led by the ERP project manager and exclusive sponsor and include subject matter experts The committee should be small so decisions can be made more efficiently -The end goal is to choose an ERP system that bests meets the company's requirements out of the many choices available

Organizational readiness assessment

is the formal evaluation of a company's preparedness for ERP

Steering committee

is the highest decision making authority for the project; determines the project's ultimate success or failure (Typically small so that high-level decisions can be made efficiently)

Executive sponsor

leads the committee - sets the tone and vision for the projects success -Develops a realistic scope -Communications with and empowers the project team - Is most accountable for the project and team success

Key performance Indicators (KPIs)

measurable values that a company uses to determine how effectively it is in attaining its target business objectives (e.g. inventory turnover, capacity utilization) -KPIs are the detail behind the business process rationale

Reference Checks

organizations should always obtain references from customers of the ERP vendors a good reference should be a company comparable in size and in the same industry the committee should also seek out additional references to obtain a more objective viewpoint

Business case

outlines the justification for ERP, including the costs, expected benefits and anticipated ROI.

Requirements gathering

process whereby selection team will determine all the functional criteria the company needs and wants out of the ERP system -Functional requirements depend on what business processes are in scope Many companies use a series of workshops to gather requirements

Request for information (RFI)

sent to potential vendors vendors to prequalify and shorten the list to a manageable number of vendors (3-4)

Middleware

software that facilitates sharing data and business logic across systems but requires IT expertise to set up and maintain

Fit/gap analysis

the methodology that companies use when comparing their business process requirements with what an ERP system offers "Fits" are where the ERP system matches the company's required functionality and process design needs "Gaps" are where there is a mismatch between the company's required functionality and process design needs -the more gaps, the more difficult it will be for a company to implement and use a specific ERP system. Major gaps need to be uncovered during package selection

Requirements document

the result of requirements gathering -details all business requirements for a new system

Perpetual licensing model

the vendor allows access to the software for an indefinite time period upon payment of an upfront licensing fee.

Casual user licensing

those who just view reports or run occasional queries

Heavy user licensing

those who use more of the systems functionality and are thus charged a higher license fee.

subscription-based licensing model

used by cloud vendors and grants customers access to the software for a specific period for a fee. -the company pays the ERP vendor on a monthly or yearly basis -Licenses are renewed regularly