If you work in fulfillment, shipping products, or producing services, you’re going to have to ask yourself: which ERP system should I choose? I’ve written recently about what an ERP is, so if you’re still unfamiliar with what exactly an ERP is, you can read my article here. But whether you’re a seasoned vet or a newbie, you should take comfort – choosing an ERP is not an easy task. So how exactly do you go about making this decision?
Functional vs. Technical Requirements
I like to think about this question in two ways. When looking for an ERP system, there are functional requirements and there are technical requirements. Typically, I encourage my clients to first consider their functional requirements.
Functional Requirements meet Business Rules
But what are functional requirements? While many requirements can be generalized, the ones that may be most important in your business may be exactly what you should focus on as this can help you distinguish different solutions. Functional requirements for an ERP system tend to change based on the industry they serve. What this means is that someone who is working as a talent agent in the entertainment industry is going to have very different requirements than someone working in the consumer packaged goods industry.
Talent Agency Industry Example
Let’s look at the example of a talent agency. There are many aspects of this business that are common with all businesses – such as accounts payable, the general ledger, etc. But the accounting system does differ in that the agency holds client money in a trust relationship – and that leads to trust accounting which is not at all common in most businesses.
Here is another difference example. When a talent agency talks about a client, the client is usually an actor, artist, performer, etc. Now, when a “client” record normally enters into a normal ERP system, they are perceived as a customer to generate revenues and receivables. But given this unique talent industry relationship, the client, in our example, represents an accounting system liability — which is normally associated with a vendor, not a customer. In a talent agency, monies earned with their clients are liabilities to the agency. The Agency’s client (the artist) doesn’t pay anything; the production studio who hired the client (artist) pays for their services. Indeed, agencies earn money with talent but as they do, they owe money received from the production studio to hold in trust to appropriately pay the talent. If you are following this line of thinking, then you appreciate that it can be confusing talking to software vendors about your business problem where they offer quality general purpose ERP systems that are not specific to the talent industry.
Functional Requirements Drive Candidate Qualified ERP Solutions
What’s clear here is this: it is very important to understand your functional requirements so you can make good assessments of which ERP software solution can indeed satisfy your demands. The consequences of making a poor software selection will lead to a major drain of scarce company resources which likely will lead to a employment termination.
Most times, it is valuable to enumerate your functional requirements into a concise list — That way, you can then send prospective ERP vendors your concerns and ask them to determine if their software can meet your requirements. By sending the same list to all the vendors, you are effectively lowering your cost to educate candidate ERP sales organizations on what you care about so they can respond intelligently to your requests. Ideally, after you receive written responses to your request for information, you can then produce a short list of ERP software vendors that deserve closer inspection.
While the process may be relatively simple, I find that for most people, it is easy to get overwhelmed and confused by selecting an ERP system. In my experience, software vendors would rather “razzle-dazzle” you with a demo and talk about all their success with other customers than carefully respond to your questionnaire. Without your functional requirements to anchor your thinking, you can be easily confused and lose your focus.
Where do Technical Requirements Come In?
Another dimension to your selection is technical requirements. This means learning about the computer architecture. These days, I advocate heavily for cloud-based architectures as well as full systems integration. I also seek platforms that allow for innovation. Today, NetSuite is the leader for cloud-based fully integrated ERP, CRM, and eCommerce. It is one of the few cloud-platforms that allows for rich customization without all the version lock-in that plagued older platforms.
I suggest technical requirements be secondary to functional requirements. However, many times, you can use the technical requirements to narrow your candidate software packages dramatically upfront. Filtering the solutions upfront can be a good course of action if you find there are too many good offers available and you are having trouble distinguishing the best system. Other times, there are few packages that can meet your most important requirements. As such, it may make sense to get the business functions you need but then assess the operational impacts of the technical architecture. For example, it is possible to run your business systems on a mini-computer architecture, but then know that you will have to deal with “green screens” user interfaces, special connectivity software, and other limitations in printing and sharing data. Getting the technical requirements out of the way early on may be worth it when you factor in the overall upfront and ongoing care investment.
Make the ERP Selection Decision
The final ERP selection decision should rest on non-requirement based criteria. Here are a few to think about:
- Licensing investment
- Access to implementation and support skills
- Product roadmap
- Contract terms
This one really helps me in understanding the difference btw functional and technical requirements…thanks for sharing