The CEO's 7 Must Do's When Changing Mfg Software
by Sheldon Needle, CEO/Founder of CTSGuides.com
This article identifies 7 key action items that the CEO should pay attention to as he/she takes on the responsibility of replacing the current software.
Select a Software Champion as Manager of the Project
Appoint someone you have confidence in to be the project manager or “Software Champion” who can manage the software selection and implementation. Selecting the right person to manage the project is, perhaps, the single most important factor in the evaluation and selection process. What you need is an Army General who is part technician, motivator, mediator, decision maker, organizer, and delegator.
This project is extremely complex and will make severe demands even on the most capable. A likely candidate for the position would be someone from plant management or financial side of the company. The Software Champion should have the respect of his/her peers for fairness and knowledge of the company’s business processes and operations.
Measure Return on Investment on the Decision to Purchase New Software
You will want to have a solid indication of the return on your ERP investment before starting. Computing an estimated ROI based on benefits and cost is not a trivial undertaking. You may be way off, up or down, on estimated savings and the ultimate cost of the software and necessary hardware upgrades. This includes the hard purchase costs as well as soft costs of staff time displaced during implementation and training.
There are many factors to consider on ROI including: reducing the investment on assets such as inventory and work in process; greater efficiency in manufacturing through lean and theory of constraints; and more current, accessible data for managing the company. All of these factors play into improving the quote to cash cycle.
Here are 3 suggestions to consider:
Familiarize yourself with ROI calculations and what items are particularly relevant to your operation.
Get an expert to study your operation and point out the high impact benefits, as well as hidden costs, of a new ERP system.
Determine the high risk areas of improvement and rank them accordingly for ROI computation.
Understand the Actual Costs of the Software
Vendors often quote low ball numbers early on to keep prospects on the hook. You will want to know if you are playing in the right sandbox and not looking at a vendor who may have great software but is out of your cost range.
Pricing will depend on a number of factors including the number of users (full time or part time), the applications purchased, and special buying discounts based on competition.
After you get a quote on software cost, you must add data conversion, implementation and training. This typically is .75 to 1.50 for middle market software. For example, if you spend 50K for the software, you can expect to pay between $37K to $75k for implementation and training. There are also after purchase costs for custom changes, reports, etc.
In addition, your staff will be spending a good amount of time with the installation so you need to factor in some “soft” costs for their time. Its’ not unusual to spend at least a couple of hundred hours preparing for the change, cleaning and auditing current records, as well data conversion issues before training on the new system can start.
Gain a Sense of Trust Towards the Vendor You Chose
Inherent in the software purchase decision is the vendor you will be working with. The vendor is an important as the software itself and the reason is simple–you are getting married into a long term relationship! This relationship begins with whether the vendor cares as much about having happy, successful customers as they do about making the sale. Sad to say, with the pressure on salespeople to make quotas and sign contracts at any cost, you can sometimes be subjected to some serious misleading information.
Beware of the “FUD Factor – Fear, Uncertainty and Doubt” which is part of the arsenal a vendor might use. It means they will say just about anything about a competitor to win a deal, i.e. how the other vendor doesn’t service his/her customers or has unreliable software that crashes or never improves their system.
Some vendors use a triage approach to selling, i.e. they send their best sales person and technical people for larger prospects, while smaller ones get the least capable and, perhaps, new hires to call on them. And after the sale you can wind up with an inexperienced or incompetent project manager assigned to help with installation. Most of the time you get competent sales or vendor support staff, but you should definitely be asking the right questions about project support.
Here are a few suggestions:
- Check the web for user groups and feedback involving the vendor.
- Take vendor “review” comments from users at software selection sites with a grain of salt. These so called reviews are almost always from customers that the vendor rewards when they post a review.
- Check the background and experience of every vendor employee you interact with to validate the extent of their knowledge.
- Check the history of the vendor. Have they been bought and sold multiple times in the past 10 years?
- Get references of companies who have installed the system within the past 12-18 months.
- If possible pay an onsite visit to the reference and be sure the references are companies similar in size and indusry to yours.
How you ask the questions and probe the responses is an art in itself. For example, it is better to ask what you find to be the best aspects of the system and what you like least than to simply ask if they are happy with the system and why.
Review the Proposed Maintenance Contract
The underlying justification for a maintenance contract is that you will get support questions answered when necessary and that the software will be continuously upgraded. For many vendors the fees they make on maintenance contracts are their entire profit. Imagine if you can charge a customer 18-¬22% annually for software support which is rarely used and software upgrades which might be few and far between, or perhaps cosmetic only.
Furthermore, not all support contracts are equal. You may be offered gold, silver and standard where the difference in guaranteed turnaround time can be from 2 hours to 3 days or more.
Here are a few areas to look at more closely: a) how many significant upgrades the vendor has made over the past 5 years; b) the underlying database which will tell you whether they are investing in keeping up with the latest technology, c) how annual maintenance pricing is done and d)check support responses when you check references.
Understand the Buying Cycle
The buying cycle for purchasing business application software is notoriously long and complex. There are a number of reasons for this.
First, is the simple fact that sorting out and deciding on what software to buy is very complicated. Depending on your size and type of manufacturing, there can be many options.
Second, is the challenge of communication between the prospective buyer and seller, i.e. the objectivity on issues like software cost and company commitment and the prospect’s understanding of the true scope of the project.
Third, is being confident you are making the right decision. You really need and want new software, but as you get closer to committing the company in terms of time and money, you start to back off and find a million excuses for putting the project on hold based more out of fear than objective or rational issues.
Many times companies will undertake a software search project due to a crisis with the current system, or the frustration and anger that management expresses over an operational difficulty. When the crisis passes, so does the seriousness of the software search.
Other obvious impediments are confusion on how to differentiate one system from another. Some systems are, in fact, virtual copies of others. In addition, with Windows being the de facto platform, practically all vendors use similar tools to build their system. The user interfaces and reporting may look the same for all vendors. This naturally results in confusion about real differences between vendor capabilities.
Finally, once a vendor spends time with a prospect, the prospect may feel obligated to keep talking to them just as a matter of courtesy. They continually make up excuses why they cannot make a decision and insist that the vendor call them again at some future date. Of course, it’s a waste of everyone’s time.
Do A Thorough Needs Assessment
The ability to clearly and completely define company requirements for the new system is the most important factor in selecting the right system at the right price. It seems simple for someone to describe his/her information requirements and operations process flow. Yet, when one gets into the details, it becomes a daunting task because of the many factors that have to be covered. Most needs assessments are superficial with functions not fully explained or understood by staff.
The one thing that most needs assessment exercises fail to do is to get different departments talking about their data needs and what they are or are not getting from other departments. Without a thorough understanding of needs of the different departments and someone who can properly explain them to the prospective vendors, it is likely that there will be some major surprises after the system is installed.
Stay Involved in the Process
It’s critical that the CEO stay engaged throughout the process so he/she is well acquainted with the issues when it’s time to select the software. If he/she is left out of the loop, the CEO may not support making a decision.