Purchasing an enterprise resource planning (ERP) system is a significant investment for an organization. In addition to the monetary investment, ERP implementations draw on personnel time and can disrupt normal business operations for years. For this reason, it is important to select the right ERP system — one robust enough to meet functional needs yet simple enough to streamline processes.
Baker Tilly recently published a whitepaper with the American Public Power Association (APPA) which provides a roadmap for ERP system selection from an introduction of ERP systems and an overview of the marketplace to best practices for conducting an ERP needs assessment, developing system requirements, issuing a request for proposal (RFP), conducting vendor demonstrations and negotiating the contract.
A utility company should take the following key steps to guide its ERP selection process:
- Gather the right people. Establish a project manager and steering committee comprised of subject matter experts and core users that can identify end user needs at various levels.
- Conduct an ERP needs assessment. Broadly identify your utility’s functional needs to make a business case. Conduct group interviews focused on specific functional areas (e.g. utility billing, accounts receivable) to document operational needs and identify all systems currently used. Synthesized this information to make the case for purchasing a new system and replacing the other systems.
- Develop and document system requirements. Where the needs assessment documents broad business needs, the system requirements drill down detailing functional needs for each minute task. For an ERP system that will house finance, human resources, payroll and procurement functions, an organization is likely to have around 3,000 requirements. When building requirements, remember to include system security requirements and any integration needs with other systems you plan to retain.
- RFP issuance, proposal evaluation and vendor demonstrations. The RFP should include the system requirements and require vendors to indicate if their system can provide the functionality. In addition, make sure to require that vendors reply in a standard format to facilitate comparison of the proposals. When evaluating proposals, document any requirements for which the vendor failed to respond and follow up on the omissions during system demonstrations. Limit vendor demonstrations to two or three vendors; viewing systems takes approximately three days per vendor, which can be challenging to schedule on top of normal business operations.
- Contract negotiation. The negotiation phase formally begins what will likely be an at least 10-year relationship with the vendor. As such, it is important to establish satisfactory terms for both parties. All contracts should include a cooperation clause, early termination terms and clearly defined parameters with resulting consequences if the parameters are not met. In addition, your utility may be able to negotiate miscellaneous costs, a statement of work, the total cost of ownership and the payment structure. Contracts should always be reviewed by the organization’s legal team and preferably by counsel familiar with ERP system contracts.
As your utility looks to upgrade legacy systems, following a structured approach through the full ERP procurement process will help ensure the new system meets current and future business operation needs.
For more information on this topic, or to learn how Baker Tilly state and local government consulting specialists can help, contact our team.