5 ERP vendor selection mistakes to avoid

ERP adopters should develop effective vendor selection workflows that facilitate project success.

Vendor selection is perhaps the most consequential step in the enterprise resource planning implementation journey. Here, businesses must find collaborators whose solutions and services can stand the test of time and yield optimal return on investment. Unfortunately, many never connect with such capable partners. In fact, an estimated 50 percent of the organizations that kicked off ERP projects last year reported being either dissatisfied or very dissatisfied with vendors, according to research from Panorama Consulting Solutions. A mere 26 percent attested to being pleased with solutions providers.

Why are so many enterprises having these negative experiences? Problematic vendor evaluation and selection practices. In many cases, the project team hastily forms a partnership with an incompatible software provider that cannot offer the necessary technology and support. This foundational discordance grows more pronounced as implementation progresses until finally, the business goes live with an ERP platform doomed to failure.

Of course, prospective ERP adopters can avoid this fate by learning from the mistakes of past implementers and developing effective vendor selection workflows that facilitate project success. Here are some of those common mistakes:

Lack of pre-selection planning
With the prospect of ERP implementation on the horizon, many organizations jump right into the software selection process with the belief that viewing the available options will shape their approaches. This methodology often leads to failure, as these overexcited enterprises invest in ERP systems without fully understanding how they fit within the operation or knowing if they further overarching business goals, according to Admiral Consulting Group. 

The alternative is obvious here – enterprises must develop shopping lists before they test the market. This requires evaluating existing operational workflows and information technology infrastructure to see where opportunities for improvement lie. Using this data and production targets, project teams can formulate accurate lists of must-have features and enter the marketplace with a complete understanding of what they actually need. Ideally, this pre-planning should include stakeholders from all departments, as ERP solutions affect anyone and everyone within the business. This cross-functional approach not only ensures that the end product works for all divisions but also paves the way for successful user adoption, as employees can shape the system so it addresses their specific needs.

An overly wide evaluation net
The market for ERP technology is expected to surpass the $41 billion mark within the next three years, according to data from Allied Market Research. The potential for profit is increasing, meaning more software providers set to enter the market. With this level of variety in the ERP realm, many adopters strive to look into as many vendors as possible, assuming they can find the one solution maker with the perfect combination of software and services to meet their needs. However, this rarely pans out. Instead, most end up burning out under the pressure of numerous demonstrations, proposals and sales calls, ERP Focus reported.

Companies are better off abandoning the quest for perfection, as market trends dictate that ERP providers offer similar benefits to remain competitive. Developing a shortlist of roughly three or four possible partners is the best option, as scouring the market into perpetuity will not yield a workable system.

Businesses should carefully consider possible ERP vendors.
Businesses should carefully consider possible ERP vendors.

Ineffective vetting techniques
When it comes time to actually take a deep dive into vendor offerings, project teams often embrace an expedited approach, leaning on marketing materials and product demonstrations to quickly assess the legitimacy of software providers, according to CIO. While this strategy certainly speeds things up, it lays the groundwork for disappointment and, in some cases, complete project failure. How? In many cases, organizations invest in ERP platforms that look good on paper or on screen but simply do not hold up in the real world.

This misstep is entirely avoidable with the proper software vetting techniques. The first and most important evaluation practice is reference gathering. Businesses should always ask prospective vendors for at least three industry-specific client references. These companies should be able to provide details on how the vendor rolled out their respective solutions, discuss the efficacy of these systems and offer insight into essential support services. Adopters should avoid software providers that cannot offer up such references.

In addition to confirming the workability of key system features and ensuring service level quality, enterprises on the road to ERP adoption must also perform deep financial analysis to see if vendor-submitted cost projections are likely to unfold as planned. More than 70 percent of ERP adopters with projects in 2016 experience cost overruns, Panorama Consulting Solutions found. This essential practice can prevent such budgetary mishaps, ensuring the vendors completely understand and adhere to existing budgetary requirements.    

Poor understanding of vendor outreach
Enterprises often assume shopping for an ERP vendor involves simply reaching out and scheduling demonstrations. Of course, most solution providers will jump at the opportunity to take part in such unstructured interactions, as sales are on the line. However, this strategy offers few benefits for prospective adopters and leads many down the pathway toward client-vendor dysfunction.

Organizations should instead develop formalized procurement processes, according to ERP Focus. Company spokespeople should spearhead this effort by first reaching out to possible vendors and establishing official lines of communication. With these channels in place, project teams can put out requests for information to which software providers can respond. The average RFI includes questions on how potential vendors might address specific system requirements, along with more general inquiries pertaining to company history or operations. After project teams have received RFI responses and narrowed down the pool of possible vendors, they can then issue requests for proposals, which follow in the same vein as RFIs but include more detailed questions and require vendors to develop customized solution frameworks.

After reviewing RFPs, prospective adopters can further narrow down the candidates and put out requests for quotes. It is at this point that one or two contenders submit project cost projections. With this information and product demonstration notes, businesses can make an informed selection. Plus, the development of proper communication channels can ease the actual implementation process, as vendors know whom to connect with when product roll outs begin in earnest.

Contractual assumptions
By the a time project team has eventually landed on an ideal software provider, many conversations have unfolded. Internal IT specialists have discussed core system architecture and integration requirements with vendor implementation specialists. Business leaders have worked with sales personnel to hash out key features and services. Dozens of small tweaks have been batted back and forth. With the contract in hand, project leaders may assume the content of these conversations is included within and sign away, only to find out later down the line that this was not the case.

This kind of scenario can lead to major issues, some of which can derail ERP implementation altogether. This is why it is essential that project teams document all of the small changes proposed during the initial stages of the vendor selection process and work them into final contracts, ERP Software Blog reported. Such attention to detail reduces the likelihood of client-vendor dysfunction, cost overruns and ERP failure.

Organizations of all sizes make the mistakes mentioned above when evaluating ERP vendors. It is important that prospective adopters learn from these errors and avoid establishing relationships with software providers that could result in the complete breakdown of the ERP implementation and deployment process.