Meaden & Moore

Meaden & Moore

Scott A. Holter, CPIM October 3-4, 2012

Shopping for a New ERP System

How to Specify the Right System for your Application

Meaden & Moore

ERP Software Brief History

ERP Industry Background

• Pre-1990s Manufacturing Software– Accounting software packages for

mainframes and minis– Separate MRP and Job Shop packages for

operations– Heavily customized in most instances– Complimentary custom applications

developed internally – hard-coded or using tools like dBase


• Early 1990s through 2000s– ERP unites accounting, operations, and others– Thousands of custom developers attempt to

brand/“package” their software for re-sale– Industry and software company consolidation

accelerates but new ones emerge– Environment changes over time: mainframes,

minis, fat client-server networks, thin-client and browser-based applications


• Early 1990s through 2000s– Software management trend

– Custom applications dwindle, remain– Modifying packages’ source code

comes and (mostly) goes– Plain-vanilla implementation strategy– Customization and personalization

strategy emerges


• 21st Century – 2nd Decade– Dozens (100+) viable ERP software vendors

remain– Most have carved out target markets based

on size, scope, industry, or niche features– 5-25 competitors in a target market– Continuum of integration: fully-integrated

ERP to core plus best-of-breed.– Vast differences in technology,

sophistication, rigidity, and cost to own

Importance of Choosing

Your ERP Partner

ERP Partner Selection


• ERP Vendor/Partner is a strategic choice that:

– Touches virtually every aspect of a manufacturing business

– Is a marriage– With rocky relations, at times– Where divorces are painful and expensive– That requires a careful courtship

– Requires executive leadership and mid-level management and staff support and input


Decision Dimensions to

Consider


“He who knows others is wise; He who knows himself is

enlightened.”- Chan

As applied to ERP – know what you want from ERP before going

shopping


1. Strategic Factors – Company-based2. Strategic Factors – Partner-based3. Features / Functionality4. Technology5. Cost of Acquisition and Ownership6. Initial Implementation and Long-Term

Support Approach

Strategic: Company-based

1.1 Business and departmental

1.2 Supply chain1.3 Manufacturing mode1.4 Information technology


Business / departmental • Size (revenue, employees)• Strategic Competitive Focus

• Low-cost / low-price• Product differentiation• Customer service• Hybrid


Supply Chain Model(s) • Engineer-to-order• Make-to-order• Configure-to-order• Assemble-to-order• Make-to-stock• Distribution

MaterialAcquisition

Manufacturing

Distribution


Manufacturing Mode• Continuous flow process• Batch process• Repetitive / rate-based discrete• Intermittent / batch discrete• Project / one-off discrete


Information Technology Continuums• Technology follower / early adopter

Follower InnovatorMiddle of the Road


Other IT Continuums• IT Staff: Self-sufficiency to

outsourced service• End-user autonomy / rigidity • Data-based / intuition-based

decision-making• Customer and supplier collaboration

and interchange intensity


Partner (Vendor) Dimensions

Strategic: Partner-based

Vendor Criteria Continuums• Vendor size and reach – large multi-

national to boutique• Industry / niche specialization• Single source to best-of-breed

approach• Availability of 3rd party resources • Local support – does it matter to you


Vendor Criteria Continuums• Vendor Viability

• Strong financials and longevity are important but don’t prevent acquisition

• Even acquirers become targets• Independents resist more than publics


Vendor Criteria Continuums• Product Viability

• Strong, modern, and accepted technology increases odds of life after acquisition

• Large installed base (500-1,000+) increases odds of on-going support post-acquisition


Sample Client Strategic Profile

Sample Client Profile

Strategic, company-based factors• $20MM annual revenue, 150

employees with plans to grow 2-3X next decade

• Intermittent, discrete manufacturer with 75% MTO and 25% MTS

• Compete based on low cost/price and don’t need a high-end ERP solution


Strategic, company-based factors• More of a technology follower – just

want stable and reliable technology• 1-2 person IT staff forces them to rely

on outsider expertise to manage our system

• Extensive quote and order exchange with customers


Strategic, partner-based factors• Open to any sized software vendor

but must have a 10-year history as a going concern

• Open to reseller or direct-sale channel provided there’s strong local (100 miles) support


Strategic, partner-based factors• Prefer a vendor that specializes in or

has numerous metal fabrication shops as customers

• Core ERP functions must be owned and maintained by vendor, but open to interfaced products for reporting, analytics, asset management, and CRM


Using the strategic requirements • Enable a company to reduce the

potential list of candidates to 20-30• Enable an experienced consultant to

reduce the potential candidates to an even shorter list


Using the strategic requirements • Framework for functionality and

technology requirements • Those become implementation vision

or checklist, so don’t skip next step• Framework for implementation

approach and on-going support preferences

Strategic Evaluation

Research• Trade associations, magazines• Internet• Other companies• Consultants, industry observers• Software vendors / partners• See Samples

Strategic Evaluation

Req ID Subtopic Attribute (Short Description)Client

Priority A B C D E F G H I J K

3 Size and Scope Tier 3 ($30- 70MM) Required Exceptional ExceptionalAbove

AverageAbove

Average Exceptional ExceptionalAbove

Average Exceptional ExceptionalAbove

Average Exceptional

4 Size and Scope Tier 2b ($70 - 150MM)Nice-to-

HaveAbove

Average Exceptional Exceptional ExceptionalAbove

Average ExceptionalIndustry Standard Exceptional

Above Average

Industry Standard

Industry Standard

10Manufacturing Strategy Make-to-Stock Discrete Key

Above Average

Above Average Exceptional

Above Average

Above Average

Above Average Exceptional Exceptional Exceptional


12Manufacturing Strategy

Make-to-Order Discrete (Job Shop) Key

Above Average

Above Average

Below Average

Industry Standard Exceptional Exceptional

Industry Standard

Above Average

Above Average Exceptional Exceptional

13Manufacturing Strategy Engineer-to-Order Discrete

Nice-to-Have

Above Average N/A

Below Average

Below Average Exceptional

Above Average

Above Average N/A

Above Average

Above Average

Industry Standard

15 IT Strategy Technology Leadership KeyAbove

Average ExceptionalAbove

AverageAbove


AverageAbove

AverageAbove

AverageAbove

Average

16 IT StrategyIT Staff Technology Self-Sufficiency Key

Industry Standard

Industry Standard

Above Average



Above Average

Above Average

Above Average

Above Average

18 IT Strategy Analytical, Data-Driven Key ExceptionalAbove

Average ExceptionalAbove

AverageAbove

Average Exceptional Exceptional Exceptional Exceptional ExceptionalAbove

Average

19 IT Strategy External Collaboration KeyAbove


AverageIndustry Standard

Above Average

Above Average

Above Average

Above Average

Above Average

25Industry Specific Support Automotive Required Exceptional Exceptional Exceptional Exceptional

Above Average

Industry Standard N/A

Below Average

Industry Standard

Industry Standard

Industry Standard

34Industry Specific Support Medical Required Exceptional N/A


Industry Standard

Above Average N/A

Below Average

Industry Standard

Below Average

Below Average

37Industry Specific Support Plastics / Polymers Key Exceptional

Industry Standard

Industry Standard

Above Average

Industry Standard


Below Average

Industry Standard


39Industry Specific Support

Non-Consumable Tooling Intensive Key Exceptional Exceptional Exceptional Exceptional

Above Average

Above Average

Industry Standard

Industry Standard

Industry Standard

Above Average

Above Average


Functionality Requirements

Functionality Topics

Marketing Management Process Master Data Asset Maintenance

Sales Automation Sales Forecasting Purchasing

Quoting and Estimating Dist’n. Planning/Control Receiving

Sales Order Processing Master Prod. Scheduling Inventory Control

Shipment Processing Material Req’s. Planning Cost Accounting

Post-Sales Service Production Scheduling Accounts Payable

Product Master Data Shop Floor Control Accounts Receivable

Project Management Quality Management GL / Financial Reporting

ERP Groups/Topics to Dig Into


Functionality requirements building• Typically 50-100 requirements per topic• Include master files and transactions• Should be weighted relatively (High,

Medium, Low, etc.)• Require input mainly from users• Consider future needs, not just current,

so executives must be involved• Use industry accepted terminology from

GAAP, APICS, etc.


Approach1. Do-it-Yourself

• Online template or “clean sheet of paper”

• Online knowledgebase2. Consultant facilitator / architect

• Online knowledgebase• Proprietary tools and knowledgebase


Approach3. Review Your Business Processes

Supported by• Current package(s)• Custom software• Reports• Excel spreadsheets and Access db’s• Manual systems – log books• Include the basics; focus on what’s

unique


Requirement and Use/ApplicationRequirement Use / Application in Our Company

Estimate and quote with non-existent items

Win 20% of custom jobs (job shop) and don’t want to set them up

Link a Shop Order to a Sales Order For our MTO jobs, print customer information on shop documents

Forecasting with seasonality model Products sold to construction market (25% of our revenue) are seasonal

Scheduling groups like work together Sequence paint line by colorSequence presses by raw material

Record production of co-products Many family dies produce more than 1 item when run (left side / right side)

Multiple costing methods within plant Product line ABC costed at standardProduct line XYZ costed at actual

Consolidated cash application Large corporate customers central AP pays invoices for multiple customers


Technology Requirements

Technology Topics

User Interface Query and Reporting Tools

Document Management Business Analytics

Training Aids and Help Simple Personalization Tools

Database(s) Advanced Customization Tools

Network Operating System(s) Workflow Management

End-User Access (Fat Client, Thin Client, Browser, Tablet, Phone)

Integration Tools

Security

Tend to be features, not functions

On-Paper Comparisons

Approaches to Getting AnswersSolicit Responses from Vendors Utilize Online or Consulting Firm KB

Lowest internal cost alternative Best option if engaging a consultant

Will the vendors understand the requirements, applications descriptions?

Consulting firm and online research can be expensive. Are the time savings and quality worth it?

What incentive do vendors have to respond completely and accurately?

Understand consulting firm’s research process

Start with module configuration needs and only most critical, deal-breaker requirements, especially those that are high-degree of difficulty.

Examine samples from prior engagements

Many Ways to “Yes”

Comparison Matrix

Req ID Topic (Client Sort)Subtopic Attribute (Short Description)

Client Priority A B C D E F G H I J K

778Manufacturing Execution Work Order Creation

Conversion of planned orders directly into work order

Nice-to-Have Y Y Y Y Y Y Y Y Y Y Y


Link a work order to sales order (order line item/release)



Warning or hold capability for work orders with open engineering changes

Nice-to-Have N Y N Y T T Y T Y Y N


The Work Order maintains both the quantity to be produced and the customer's required quantity.

Nice-to-Have Y Y Y T Y N T T Y Y Y


Material availability inquiry at work order release



Multiple outputs for a single work order

Nice-to-Have Y Y Y Y Y Y Y Y Y Y N


Multiple output work order creates multiple scheduled receipts

Nice-to-Have Y Y Y Y Y Y Y Y Y Y N


Work order release allocates required components / materials Required Y Y Y Y Y Y Y Y Y Y Y

794Manufacturing Execution Work Order Creation Material pick list Required Y Y Y Y Y Y Y Y Y Y Y

797Manufacturing Execution Work Order Creation Consolidated material pick list Required T N N Y Y T P T T T N

798Manufacturing Execution Work Order Creation Shop traveler for a work order Required Y Y Y Y Y Y Y Y Y Y Y

799Manufacturing Execution Work Order Creation Bar-coded pick list and shop traveler Required Y Y 3P Y Y Y Y Y Y Y Y


Automatic print of attached / linked documents and files Required Y Y T N Y P Y T Y Y Y


Automatic generation of lot / serial numbers Required Y Y Y Y Y N Y Y Y Y N

802Manufacturing Execution Work Order Creation Automatic print of lot / serial labels Required N Y Y Y T N T T T Y N

Software Evaluation Model

On-Paper Research and Analysis

Proof of Satisfaction to Highest Weighted Requirements

Proof of Concept Demonstration / Workshop

20-30 Candidates

4-6 Candidates

2 Finalists

Winner

Using Functional and Technology Requirements


Evaluating the

Software

Software Evaluation

Demonstrations provide• For evaluation of qualitative factors (user-

friendliness, flow, and integration)• Quality test of “Yes” responses• Opportunity to assess acceptability of

workarounds, tailoring, and customizations

• Opportunity to gain employee buy-in for change that’s coming

Software Evaluation

Software Demo Preparation• Define your own agenda, but assist

vendors with preparation – minimize curve balls

• Communicate agenda internally to all attendees

• Allow vendors to visit your facility• Provide them with sample data• Give vendors 2-4 weeks to prepare• Ensure vendors are clear on contents

Software Evaluation

Software Demo Conduct• Keep all internal attendees on script –

questions need to be timed • Let the vendor present – seek first to

understand, then to be understood• Document issues and fit mismatches

quickly and move on• Observe, don’t pilot test or implement

Software Evaluation

Software Demonstration Types• Vendors’ overview demo• Prequalification / Pre-screen • Scripted Day-in-the-Life • Proof-of-concept workshop

Software Evaluation# Demonstration Scenario A B C D

1 Technology, Navigation and User Friendliness 57.00 50.00 54.00 55.00

2 Alert/ notifications and workflow 52.00 46.00 56.00 46.00

3 Centralized item master 42.00 37.00 48.00 39.00

4 Engineering change control 49.00 39.00 31.00 49.00

5 Customer quote / order management 45.00 32.00 37.00 28.00

6 Serialization 28.00 37.00 40.00 37.00

7 Multiple plants 38.00 37.00 37.00 38.00

8 Incoming inspection and quality control 39.00 36.00 37.00 49.00

9 Product structure variables 41.00 38.00 28.00 36.00

10 Shipping, including Data Collection 18.00 34.00 32.00 44.00

11 Service and Repair 41.00 33.00 30.00 52.00

12 Customer Demand / Forecasting Management / MRP 34.00 29.00 30.00 38.00

13 Costing / Cost Accounting 17.00 10.00 15.00 32.00

14 Purchase order flow 31.00 28.00 27.00 48.00

15 Production Scheduling and Control 32.00 23.00 30.00 33.00

16 Customer Relationship Management 28.00 31.00 26.00 37.00

Total Score 592.00 540.00 558.00 661.00


Cost Dimensions

to ERP Purchase

Cost Evaluation

Software Cost ComponentsTraditional On-Premise or Hosted Model Software-as-a-Service Model

Infrastructure N/A

User Devices (handhelds) User Devices (handhelds)

Specialty Hardware (printers) Specialty Hardware (printers)

Software Licenses N/A

Lower Assurance and Support Higher Assurance and Support

Implementation Services Implementation Services

Staff Costs Lower Staff Costs

Software Evaluation

General Observations on ERP Costs• Software licenses are close within a market

segment vendor-to-vendor• Different cost structures than manufacturers• Multiple demonstrations and antagonistic

interactions and negotiations can increase buyer’s costs

• Timing means a lot, but not everything• Niche leaders have pricing power• Large, stable vendors have pricing power• Conclusion – costs are more useful when picking

semi-finalists, not finalists or winner


Implementation and On-Going

Support Dimensions

Software Evaluation

ERP Implementation Observations• Companies are attempting to implement more

features and capabilities than in the past• Business software has become more flexible –

no longer “install, convert data, train, go-live”• Companies’ personnel are already taxed

running the day-to-day• Consulting costs have gone up as software costs

have come down• ERP is a buffet – be conscious and realistic of

what you can digest over a reasonable timeframe

Software Evaluation

Partner Source Considerations• Vendor – Local? Cost? Available?• VAR – Local? Quality?• Other 3rd parties – Quality?• Independents – Current? Local?• Combination model often win-win• Validate with customers

Software Evaluation

Implementation Sequence• Conflict between time-to-benefit and

time required per day/week• Implement what was purchased – “All In”• Phased approach to minimize disruption

• By module or feature• By location or department

• Companies need to compare software vendors’ approaches with preferred strategy and confirm with customers

Software Evaluation

Internal Resource Considerations• Skills to retain in house or outsource – initial and

on-going• Choose a vendor that fits with your strategic

spot on the continuum• Validate your choice with other companies

Do It Yourself Combination Consultant Driven

Software Evaluation

On-Going Support Options• Direct vendors typically include phone

tech support in annual assurance fee• Phone support is not the same as consulting

• Vendors that sell through resellers generally do not offer phone / tech support

• Resellers typically offer phone support as an add-on service at additional cost


Summary and Conclusion


Decision Dimensions• Series of hurdles or filters• Quantitative and qualitative• Objective and subjective• Cannot put a weight on each

dimension, compute scores, and let math pick the winner


Decision DimensionsQualifier Dimensions Winner Dimensions

Strategic – Company Based

Functionality

Strategic – Vendor Based Technology

Cost of Acquisition Implementation Approach and Resources

On-Going Support


Questions

Documents

Meaden & Moore