Needs Assessment: A Roadmap to ERP Software Selection

One of the most important parts of the enterprise resource planning (ERP) software selection process is completing an appropriate needs assessment for your organization. Since software is a tool that supports your business processes, it is critical to understand what your company truly needs before actually selecting a solution.

The needs assessment is more than a topical list of processes that ERP software must support. Rather, it should serve as a roadmap for how your organization operates today – and how it will operate in the future. And, unless company stakeholders can “agree to agree” on both the current and future activities that signify business success, new software will deliver a lower return on investment (ROI) compared to the cost to acquire and implement the ERP solution.

Current State
During the needs assessment, documenting how your organization operates today is important because the ERP software must support current operations just after implementation. In addition, the software should actually improve how current processes are executed and provide the foundation for continuous improvement over time.

When assessing the current state of your business processes, functional areas to consider include:

• Customer Relationship Management (CRM) Interface
• Quoting
• Order Entry
• Inventory Management
• Purchasing
• Receiving
• Production Scheduling
• Work Orders (Bills of Material [BOMs] and Routings)
• Shop Floor Reporting
• Production Costing
• Shipping
• Billing/Accounts Receivable/Cash Collections
• Accounts Payable/Cash Disbursements
• General Ledger and Financial Reporting
• Payroll/Human Resources

Future State
To assess your company’s future needs, begin by establishing a future state definition that outlines how you plan to operate over time, and share this plan with those responsible for selecting your new manufacturing software. Your future plan should be mainly directed by your relationship with customers and suppliers rather than what your organization might envision outside these two groups.

Some companies try to shortcut this needs assessment step. However, without concurrence on how the business will operate in the future, identifying the best software to support future activities will be virtually impossible.

The truth is, it’s very risky to select and implement software before determining how your organization plans to operate in the future. Making unplanned, strategic operational changes once new ERP software is in place will probably be fiercely resisted by the organization.

To get you started on your future state definition, here are some issue examples that manufacturers often address in their plan:

Inventory. The need to track inventory for regulatory purposes, including expiration dates (shelf life), lot traceability and any other characteristics that may require your organization to account for and value inventory in non-conventional methodologies.

PLM. Integration of engineering drawings to item master files and BOMs requires the use of product lifecycle management (PLM) functionality to better control the development and modifications of engineering drawings relative to integrating the information with the operating software.

Accessibility. Remote access to information by your employees, vendors and customers deserves consideration. For example, vendors may need secure access to selected inventory items for replenishment planning, while customers may need access to the status of their orders.

Reporting. What advanced reporting needs do you have? Enhancements to management reporting can be accomplished via dashboard visibility of exceptions and transactional activity, and various report writing tools can be used to create customize data views with varying levels of sophistication.

Communicating Your Needs to the Vendors
In addition to identifying what the new ERP software needs to do now and in the future, there are important guidelines for communicating your needs to the software vendor community. Checklists from an independent source aren’t always a good solution for a needs assessment. While these generic checklists tend to cost very little and include many line items, they don’t provide the software vendors with real insight into how you do business. And they don’t highlight the keys to your success.

For optimal communication, your organization should develop a document for vendors that not only describes needed functionality, but also provides an understanding of your company mission and how the software will add value to the business. If the vendors don’t have insight into your operations, such as who runs it and why it has been successful, then their ability to present solutions that “fit” the business is limited. 

Ideally, a vendor should want to know what your organization’s most important needs are and what your budget is for the acquisition and implementation of new software. Understanding your key needs (sometimes known as high level differentiators) is important because they indicate whether a vendor’s solution meets your most critical requirements and, ultimately, whether they have a chance of winning your business.

When communicating your needs to vendors, try and follow a logical order, presenting information in a sequential flow that outlines your standard operational processes. This format directs the vendor to demonstrate what your selection team needs to see based on your business model – rather than simply allowing the vendor to pick and choose what to show your team. This also allows you to more easily compare vendor presentations because you will be comparing ‘apples to apples’ based on your workflow descriptions.

Insightful Due Diligence
While completing a thorough needs assessment is time consuming, it is also an insightful exercise for your software selection team. By performing this due diligence, your team will be prepared to select a solution that will meet your company’s high level requirements, while also providing the day-to-day transactional functionality essential to your operations.

About CTS Guides
This article is presented by CTS Guides, a leading publisher of independent software reviews, ratings and evaluation tools. Since 1983, we have helped over 23,000 companies evaluate and select new software. Get your free Manufacturing Software Selection Kit and Smart Shortlist™ Consult at www.ctsguides.com/manufacturing.asp.

About the Author
Harry F. Landsburg has been helping companies define current state and future state business processes to select software for almost 30 years. He has specialized in manufacturing software solutions (ERP) since 1992. Harry is an inactive CPA, an ISO 9001 Lead Internal Auditor and is Lean Manufacturing Certified by the Delaware Valley Industrial Resource Center in Philadelphia, PA. In his tenure with the DVIRC, Harry has worked with over 350 companies to determine how software will add value to their business. For more information, Harry can be reached at hlandsburg@DVIRC.org.

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