3 part series: Why ERP? | 100-Day ERP Discovery | ERP Technology Selection|
Selecting the right ERP (Enterprise Resource Planning) system is a critical decision for any mid-market organization. As businesses grow and their operations become more complex, the need for an integrated system that streamlines processes, improves data visibility, and supports strategic goals becomes increasingly important. However, with a wide array of ERP solutions available, selecting the right technology can be a daunting task.
This blog is part of a 3-part series on ERP selection that guides mid-market organizations through the key stages of choosing and implementing an ERP system. In the first part, we explored Why ERP? is essential for mid-market companies. The second part focused on a 100-Day ERP Discovery plan to set the foundation for success. Now, in this final installment, we delve into ERP Technology Selection, where we illustrate how to make informed decisions that align with your business needs and financial objectives.
In this blog, we’ll explore the ERP selection process for a fictional mid-market company, Sparks Manufacturing, to illustrate how to make informed decisions that align with business needs and financial objectives. We’ll also include cost assumptions based on our proprietary Strategic Cost Analysis (SCA) framework to provide a clear understanding of the financial implications, including implementation costs.
Understanding the Unique Needs of Mid-Market Organisations
Mid-market organisations like Sparks Manufacturing, which has annual revenues of £150 million and 500 employees, sit at a unique crossroads: they are too large for entry-level software solutions yet not quite as complex as large enterprises. This means that the ideal ERP solution must offer robust functionality without overwhelming complexity or cost.
Key considerations for mid-market organisations include:
- Scalability: The ERP system should be able to grow with the organisation, accommodating increased transaction volumes, additional users, and expanded functionality as needed.
- Cost-Effectiveness: While mid-market businesses require comprehensive solutions, they also need to manage costs carefully. An ERP system must deliver value without exceeding budget constraints.
- Ease of Use: The ERP system should be user-friendly, with an intuitive interface that minimises the learning curve for employees across departments.
- Industry-Specific Features: Sparks Manufacturing, operating in the industrial goods sector, requires an ERP system that offers specific modules for supply chain management, inventory control, and manufacturing processes.
Step 1: Define Your Business Requirements
The first step in selecting an ERP system is to clearly define your business requirements. This involves understanding the specific challenges your organisation faces and the goals you aim to achieve with an ERP implementation.
Table 1: Business Requirements Definition for Sparks Manufacturing
| Parameter | Requirement Description | Importance (High/Medium/ Low) | Current State Rating (1-5) | Target State Rating (1-5) |
|---|---|---|---|---|
| Core Process Improvement | Improve efficiency in manufacturing and supply chain | High | 2 | 5 |
| Strategic Goals Support | Support expansion into new markets and product lines | High | 3 | 5 |
| Regulatory Compliance | Ensure compliance with industry standards (e.g., ISO, OSHA) | Medium | 4 | 5 |
| Integration with Existing Systems | Integrate with existing CRM and financial, HR systems | High | 3 | 5 |
| Industry-Specific Needs | Support for manufacturing and inventory management modules | Medium | 2 | 5 |
By mapping out these requirements, Sparks Manufacturing is better equipped to evaluate ERP solutions based on their ability to meet these specific needs.
Step 2: Evaluate ERP Solutions Against Your Criteria
Once you have a clear understanding of your business requirements, the next step is to evaluate ERP solutions that align with these criteria. This is where Ybrant’s Strategic Cost Assessment (SCA) framework to provide valuable insights into the financial aspects of ERP implementation and operation, including the crucial implementation costs.
Assumptions:
- SaaS (Software as a Service): Cost includes licensing fees and subscriptions, estimated at £300 per user annually, with 250 users.
- IaaS (Infrastructure as a Service): Cost includes cloud infrastructure for data storage and computing, estimated at £100,000 annually.
- PaaS (Platform as a Service): Cost includes the development and customisation platform, estimated at £100,000 annually.
- Support & Ongoing Costs: Include maintenance, updates, and vendor support, estimated at 20% of the total SaaS, IaaS, and PaaS costs.
- Resource Costs: Internal resources required for implementation, training, and change management, estimated at £100,000 annually.
Refer to our FAQ section for the terms and definitions used in this blog
Table 2a: ERP Solution Evaluation – Functional Ratings
| ERP Solution | Functionality Rating (1-5) | Integration Rating (1-5) | Customisation Rating (1-5) | Vendor Support Rating (1-5) | Total Functional Score |
|---|---|---|---|---|---|
| Solution A | 4 | 3 | 4 | 5 | 16 |
| Solution B | 5 | 5 | 3 | 4 | 17 |
| Solution C | 3 | 4 | 5 | 3 | 15 |
This table helps in comparing the functional aspects of each ERP solution, focusing on key areas that are critical to Sparks Manufacturing’s needs.
Table 2b: ERP Solution Evaluation – Costs and Deployment Models
| ERP Solution | SaaS Cost | IaaS Cost | PaaS Cost | Implementation Cost | BAU Costs | Staff Costs | Total Cost |
|---|---|---|---|---|---|---|---|
| Solution A | £75,000 | £100,000 | £100,000 | £200,000 | £55,100 | £100,000 | £630,000 |
| Solution B | £87,500 | £120,000 | £100,000 | £200,000 | £61,500 | £120,000 | £689,000 |
| Solution C | £62,500 | £90,000 | £80,000 | £200,000 | £46,500 | £80,000 | £559,000 |
*Note: SaaS costs are calculated based on 250 users at £300 per user annually, and the other costs are based on the assumptions provided.
This table breaks down the costs associated with each ERP solution, including Software as a Service (SaaS), Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and other ongoing and resource-related costs.
SCA Score is calculated by combining the functionality ratings with cost assessments and calculations to provide a more holistic view of the solution’s value.
Step 3: Consider Cloud vs. On-Premises Solutions
One of the key decisions in ERP selection is whether to opt for a cloud-based or on-premises solution. Each option has its own advantages and considerations, particularly in terms of cost-effectiveness and long-term sustainability.
Table 3: Cloud vs. On-Premises Evaluation with Strategic Cost Analysis (SCA) Cost Insights for Sparks Manufacturing
| Criteria | Cloud-Based ERP Rating (1-5) | On-Premises ERP Rating (1-5) | SaaS Cost | IaaS Cost | PaaS Cost | Implementation Cost | BAU Cost | Long-Term Staff Cost |
|---|---|---|---|---|---|---|---|---|
| Initial Cost | 5 | 2 | £75,000 | £100,000 | £100,000 | £200,000 | £55,000 | £100,000 |
| Scalability | 5 | 4 | £87,500 | £100,000 | £100,000 | £200,000 | £61,500 | £120,000 |
| Data Control | 3 | 5 | £62,500 | £90,000 | £80,000 | £200,000 | £46,500 | £80,000 |
| Maintenance | 5 | 2 | £50,000 | £100,000 | £50,000 | £200,000 | £30,000 | £40,000 |
| Customisation | 3 | 5 | £120,000 | £150,000 | £120,000 | £200,000 | £60,000 | £80,000 |
| Security & Compliance | 4 | 5 | £130,000 | £130,000 | £130,000 | £200,000 | £70,000 | £90,000 |
This table helps in understanding how the financial implications differ between cloud and on-premises ERP solutions, allowing Sparks Manufacturing to make an informed decision that aligns with its financial strategy.
Step 4: Conduct Demos and Proof of Concept (PoC)
Before making a final decision, it’s crucial to see the ERP system in action. Request demos from shortlisted vendors to understand how the system works in a real-world setting.
Table 4: Demo and PoC Evaluation
| ERP Solution | User Experience Rating (1-5) | Fit with Business Processes Rating (1-5) | Performance Rating (1-5) | Saas Cost (£) | Iaas Cost (£) | Pass Cost (£) | Total Costs (£) |
|---|---|---|---|---|---|---|---|
| Solution A | 4 | 4 | 4 | £75,000 | £100,000 | £100,000 | £275,000 |
| Solution B | 5 | 5 | 4.5 | £87,500 | £120,000 | £100,000 | £307,500 |
| Solution C | 3 | 4 | 3.5 | £62,500 | £90,000 | £80,000 | £232,500 |
Incorporating cost data from the SCA framework into the demo and PoC evaluation provides a clearer picture of the financial impact associated with each ERP solution, in addition to its performance.
Step 5: Make an Informed Decision
After completing evaluations, Sparks Manufacturing is ready to make an informed decision. Gathering input from key stakeholders, the company will weigh the functional benefits against the financial implications as revealed by the Strategic Cost Analysis (SCA) framework.
Table 5: Final Decision Matrix with SCA Cost Analysis for Sparks Manufacturing
| ERP Solution | Weighted Score from Step 2 | Cloud vs. On-Premises Score (Step 3) | Demo/PoC Rating (Step 4) | Total CO Cost (£) | Total Score |
|---|---|---|---|---|---|
| Solution A | 16 | 4.2 | 4 | £430,000 | 24.2 |
| Solution B | 17 | 4.6 | 4.7 | £489,000 | 26.3 |
| Solution C | 15 | 4.0 | 3.7 | £359,000 | 22.7 |
The final decision matrix incorporates both the functional evaluation and the TCI cost analysis, providing a comprehensive overview of which ERP solution delivers the best value for Sparks Manufacturing in terms of both functionality and financial impact.
Conclusion: Selecting the Right ERP for Sustainable Growth
Choosing the right ERP technology is a strategic decision that can significantly impact your organisation’s efficiency, competitiveness, and growth. By following a structured approach—defining your requirements, evaluating solutions, considering cloud versus on-premises options, conducting demos, and making an informed decision—you can select an ERP system that aligns with your business goals and sets the stage for long-term success.
By incorporating our SCA framework into your decision-making process, you gain a clearer understanding of the financial implications associated with each ERP option. This ensures that your chosen ERP system not only meets your functional requirements but also aligns with your organisation’s financial strategy, paving the way for sustainable growth and success.
This version of the blog post includes tables that takes inspiration from Forrester’s Total Economic Impact (TEI) calculations, providing a comprehensive view of both the functional and financial aspects of ERP technology selection for mid-market organisations. This approach helps ensure that the final decision is well-informed, balancing both operational needs and cost considerations.
Ready to Choose the Right ERP System for Your Organisation?
Selecting the perfect ERP solution can be challenging, but you don’t have to navigate this journey alone. Our team of experts is here to help you evaluate your options, assess the total economic impact, and find the ERP system that aligns with your unique business needs.
Contact us today for a personalised consultation and let’s start building a stronger, more efficient future for your organisation. Whether you’re just beginning your ERP selection process or need help fine-tuning your strategy, we’re here to guide you every step of the way.
