MD01 ME59N Execute MRP Convert to purchase order Purchaseorder 405 Independent requirement MIGO Post goods 401 receipts 406 MD61 Goods receipt Create forecast DB CR MIRO Raw mat GR/IR Post invoice DB CR 407 Domestic sale revenues F-53 Raw material DB CR consumption Post payment DB CR Cash Acc. Rec. DB CR Inventorysold productchange GR/IR Acc. Pay. DB CR Investments DB CR DB CR Factoryproduction output 410 Acc. Pay. Cash DB CR Acc. Rec. Revenues DB CR DB CR CO41 Finished Prod. 409 products output Mass release DB CR 414 production order DB CR Cons. Raw MD07 raw material DB CR Release DB CR VF01 Inventory Finished production order change product Production Create billing DB CR order 411 Delivery 413 DB CR Investments Cash CO15 DB CR 305 VL01N Conrm production Create delivery CHAPTER 3 Chapter 3 Susan E. Bristow, Mary M. Dunaway (University of Arkansas) The purpose of this chapter is to understand why an enterprise selects an ERP, the ERP selection process, and the steps involved in executing the process. : Process for Selecting an ERP System 3.1 Introduction MD01 ME59N An ERP acquisition is considered a high expenditure activity that consumes a significant portion of a company’s capital budget. Convert to Execute MRP Why? If the purchase is made and turns out not to be a good purchase order fit, it can adversely affect a company’s business in many differ ent areas and on many different levels (Verville, Bernadas, & Halingten, 2005). More importantly, selecting an inappropriate PurchaseERP system is a major reason why most ERP implementations fail order 405 (Lall & Teyarachakul, 2006). Hence, the wrong ERP selection can severely jeopardize a company’s operational performance and its very existence (Lindley, Topping, & Lindley, 2008). Therefore, Bristow & Dunaway - Process for Selecting an ERP System Independent making the right choice during ERP software selection can carry requirement a high level of risk and uncertaintyMIGO for a company. Whether a company size is small, medium, or large the process for selecting Post goods 401 an ERP system can be tailored to a company’sreceipts specific business objectives and goals. A wide variety of ERP systems have been developed to enable companies to become more competitive There are several types of vendors that provide ERP software by integrating almost all business functions that use industry applications and are sometimes characterized as best practices onto a common single database. Thus, the process 406 or niche market software application vendors. Best of breed MD61 can be tedious, lengthy, and must be conducted with great care. Goods receipt Create vendors are coined the best software applications of their type. forecast These types of applications are typically isolated to one process 3.2 Basic Concepts and Definitions or part of a process (Magal & Word, 2009). Often companies and organizations want to purchase software from different Several concepts and definitionsDB are CR important to facilitate MIRO vendors to obtain the best solution for each application area; for understanding of the process for selecting an ERP system. - Many of the terms are typical of any software procurement example, a supply chain package from one vendor and a finan Raw mat GR/IR Post invoice process that is undertaken, regardless of the type of applica cial package from another. While ERP vendors provide a wealth DB CR 407 tion software. This by no means is a comprehensive list of terms, of applications for the enterprise and advertise their integrated system as the superior solution, every module may not be best- Domestic but are concepts and definitions most often used in the ERP of-breed. sale revenues software acquisition process. The Niche market vendors are independent software vendors who features of a particular business function which may include, but have a unique andF-53 specific software application focus. Typically ERP module is a specific application encompassing all the a niche market software vendor provides highly specialized Raw materialis not limited to, transactions, data exchange, reports, workflow, DB CR consumptionand processes within the ERP system. For example, the accounts applications for a particularPost payment business industry or function to best of breed payable module’s purpose is to process the value of goods and DB CR satisfy specific customer needs. Cash Acc. Rec. services acquired by a company that have not yet been paid for. Value-Added Reseller (VAR) is a type of vendor that takes an DB CR Functions such as Inventorycreatesold productchangea vendor invoice, process payments to GR/IR Acc. Pay. existing product, and adds its own “value”, usually in the form a vendor, process vendor tax statements, and maintain a list of DB CR an integrated software application product or complete “turn- vendors are all common activities found in this type of module. key” solution. For example, an ERP vendor may sell the ERP software application and bundle in value-added services, such Investments as additional implementation support, training delivery, or customized programming just to name a few. Readings on Enterprise Resource Planning DB CR Preliminary Version - send comments to [email protected] The DB CR Factoryproduction output standard across industries and are common to any410 procurement softwareAcc. Pay. acquisition Cash process has several terms that are process. Listed below are a few of these terms and how they are - defined. DB CR Acc. Rec. Revenues - DB CR DB CR Request for Proposal, most often referenced as RFP, describes a feature and function list of how the company will operateCO41 or Finished Prod. function ( Umble, Haft, & Umble, 2003). Additionally, any applic 409 products output able vendor instructions, terms and conditions, and formsMass to release DB CR complete are included in the RFP. The complete RFP is sent to 414 production order the ERP vendorDB CR for a response. Cons.Request for Raw Information MD07 vendor raw to acquire material information about the ERP software solution. DB CR Release A typicalDB RFI CRwould request a “fit” response to the company’s VF01 requirements, specific criteria questions relating to the Inventory Finished production order change product company’s business, and the ERP software product information. Production Create billing DB CR order 411 Delivery 413 (RFI) is a formal request to the ERP DB CR Investments Cash CO15 DB CR 305 VL01N Conrm production - Create delivery 33 MD01 ME59N Execute MRP Convert to purchase order Purchaseorder 405 Independent requirement MIGO Post goods 401 receipts 406 MD61 Goods receipt Create forecast DB CR MIRO Raw mat GR/IR Post invoice DB CR 407 Domestic sale revenues F-53 Raw material DB CR consumption Post payment DB CR Cash Acc. Rec. DB CR Inventorysold productchange GR/IR Acc. Pay. DB CR Investments DB CR DB CR Factoryproduction output 410 Acc. Pay. Cash DB CR Acc. Rec. Revenues DB CR DB CR CO41 Finished Prod. 409 products output Mass release DB CR 414 production order DB CR Cons. Raw MD07 raw material DB CR Release DB CR VF01 Inventory Finished production order change product Production Create billing DB CR order 411 Delivery 413 DB CR Investments Cash CO15 DB CR 305 VL01N Conrm production Create delivery CHAPTER 3 Request for Quote (RFQ), sometimes referred to as Invitation For Bid (IFB), is the standard business process for inviting vendors to bid for the application software. The RFQ helps a company leverage the ERP vendor selection process’ competitive nature to negotiate the best possible purchase deal. Total Cost of Ownership associated with the acquisition of the ERP software solution. Usually these costs include the direct and indirect, maintenance, hardware, and any future cost related to the acquisition (Burns, 2007). MD01 ME59N Conference Room Pilot (CRP) or boardroom pilot is often Execute MRP Convert to used to demonstrate a company’s business requirements with purchase order the potential ERP application. The CRP offers a way for the ERP vendor to demonstrate an understanding of a company’s(TCO) provides visibility of all costs requirements, and for the company to better understand the PurchaseERPorder system before signing405 a contract to purchase. Proof of concept typically happens once the vendor list is narrowed down to two or three choices. It is a process where Bristow & Dunaway - Process for Selecting an ERP System Independent a script is provided to the vendor for one or more strategic requirement business processes that the vendor must demonstrate. MIGO Scalability is an item or concept’s ability to adjust to increased necessarily just technical gurus. This will help to ensure the Post goods way a company does business is personified in the new system. requirements. receipts 401 Outside expertise, which most companies use when selecting Service Level Agreement (SLA) is a type of contract that ERP software, should be brought in as well, as they can bring describes the partner relationship between a software vendor knowledge and understanding of current software offerings. provider and a company, usually defined in measureable terms Therefore, buying an ERP system means accepting the software to create a common understanding of services, priorities, and 406 MD61 Goods receipt vendor’s established interpretation of business process practi responsibilities. Create ces for a company’s way of doing business (Umble et al., 2003). forecast Software Maintenance Agreement (SMA) is a type of agree A company typically accepts the ERP vendor’s assumptions, ment between the software vendor provider and a company, providing the opportunity to map or reengineer their business whereby the vendor provides maintenanceDB CR and support servi processes to conform to the ERP application. Consequently, MIRO ces for the specific software application. a company should try to select and implement an ERP system that models its unique competitive strengths, while helping Trade-off is the replacementRaw mat of one GR/IR item, idea, or concept Post invoice to overcome competitive weaknesses (Oden, Langenwalter, & for another of more or less equalDB value, CR particularly to affect a Lucier, 1993407 compromise.