The Best Practices in ERP Vendor Selection Many Organizations Ignore
Whether you’re selecting a new ERP platform or conducting a comprehensive re-engineering of business processes, picking a vendor is a big deal. Here’s the good news: The steps in selecting a vendor are well-documented and reasonably consistent. And here’s the bad news: Too many organizations shortchange the best-practice methodology for vendor selection and end up with suboptimal results at the expense of budget, time, employee morale, customer experience, and more.
Let’s take a closer look at the best practices in vendor selection and highlight some of the nuances that are important to heed.
Step 1: Undertake an analysis of and document your relevant business process(es), and then clearly outline what a successful end result looks like for the procurement effort (KPIs).
This critical first step of selecting the best vendor for your organization is the very step that organizations tend to shortchange most. A thorough documentation of the current state of the process is essential, but not sufficient. Don’t just focus on the current state and how to fix a particular problem; you also must know where you’re going and what you want your future state to look like. When mapping out your current state, be honest about current shortfalls, gaps, and frustrations, then map out the future state as well.
As you are having these discussions, make sure that you have top-to-bottom participation, assessing not only what the executive team feels are the gaps and challenges in the current process, but also the reality experienced by the folks that touch the process on a day-to-day basis. A third-party advisor—particularly one with expertise in the relevant processes and business operations—can provide objectivity here, helping you “step outside yourself” to think about these important considerations.
Step 2: Conduct a vendor search, RFI/RFQ/RFP process, and score the responses against a rating system in which your needs are ranked and weighted.
One of the reasons Step 1 is so critical is that it helps you narrow down your search criteria. Without knowing who you are and exactly what you are looking for, you could find yourself swimming in an overwhelming sea of vendors that meet your criteria. It’s particularly important to look a layer or two deeper than Google searches and software evaluation lists of “Top 50” vendors.
One of the biggest mistakes we see organizations make is overbuying: going for the Ferrari when a Kia will do. Don’t make the mistake of limiting your search to the “big-name solutions” because they are not the right solution for everyone. Instead, filter the universe of broad possibilities down to a manageable list of those vendors particularly well-suited to your needs. Specifically, find vendors who have worked with companies that are your size or in the same industry category and have successfully implemented solutions like you’re looking for. To do this well, you’ll need to invest time in reading publications, attending user group meetings, and perhaps engaging consulting firms that publish in-depth vendor/product evaluations.
Another essential aspect of Step 2 is establishing a rating system. This is a bit trickier than you might expect because “water cooler discussions” about your pain points may lead you astray. When ZCom assists in this process, we help organizations translate the anecdotal stories shared in discovery sessions to dollar values by asking, “Okay, we hear you saying how much of a pain in the neck this issue is, but how much does this problem really cost you?” Assigning a dollar figure or ROI to each problem helps the organization prioritize and establish well-reasoned scoring and weighting values.
Step 3: Evaluate the results of this process and make a selection based largely—but not exclusively—on the quantitative scoring process.
After scoring vendors quantitatively, you may find that you have multiple qualified, talented vendors that rank similarly at the top of your list. In these cases, your ultimate choice may come down to a subjective decision based on corporate chemistry and which vendor seems to offer the best relationship fit. Here, again, a third-party advisor may bring value to the “matchmaking” process, because expertise in evaluating intangibles is something you gain through experience. Here are just a few examples of the intangibles ZCom assesses:
- Understanding of the organization’s cultural etiquette
- Commitment to continuity of support (e.g., involving the actual project manager—not just the sales team—in meetings)
- The tempo, responsiveness and integrity of communications
- Documentation provided by the vendor (too little versus too much)
- References and relevant success stories
Another important consideration in the selection process is “the vendors behind the vendor.” Particularly in the case of IT and software solutions, RFPs are rarely submitted by a single, stand-alone vendor. Responding vendors almost always include partners in the solution they offer, and the quality and reliability of those partners’ services and their role in your contract should be carefully considered as well.
Step 4: Engage with the selected vendor — and sometimes, the top two vendors — in a contract negotiation process.
We’ll save the intricacies of contract negotiation for another blog, but suffice it to say that contract negotiation is certainly a specialized skill. A third-party advisor can provide this expertise, as well as the added benefit of navigating difficult conversations on your behalf, leaving you in the “safe, neutral zone,” free to start the engagement with your vendor on the best of terms.
Step 5 (optional): Move forward with a Proof of Concept (POC) to gather more concrete information about the vendor’s ability to execute against critical deliverables.
Typically, a POC may be worthwhile and advisable in the case of a distinct business process improvement challenge. In this case, the problem can be very clearly delineated, and the POC can be executed in a short amount of time. Vendors may be willing to demonstrate the value of their services with a POC in order to earn a larger contract.
Conversely, POCs are typically not a viable option when the project is an ERP installation or something similarly comprehensive and complex to deploy. In these cases, you rarely see a vendor willing to offer try-before-you-buy as a precursor to the full project.
Step 6: Manage the vendor work product against KPIs established during the analysis phase and document/discuss inconsistencies during regular review sessions.
The key performance indicators (KPIs) for evaluating vendor work product should flow out of the analysis conducted in Step 1 and strictly align to the ranking system established in Step 2. The KPIs should be articulated to everyone—all of your internal stakeholders as well as the vendor—at the very beginning, and should remain consistent, with transparent documentation and a set timeframe of periodic feedback.
Ultimately, performance against KPIs tells you if you picked the right vendor. If you’ve followed the best-practices outlined above, you should have a success story to share.
Authored by DeAnn Zufall