How Midsize Companies Are Buying ERP

Deciding which enterprise resource planning software is right for your company. Although major vendors have been selling enterprise resource planning (ERP) software to billion-dollar companies for quite some time, the selection of products that work well for midsize companies has begun to blossom only recently. (See glossary, page 47, for definitions of italicized terms.) But from the midsize company's perspective, the choices can be mind-boggling: what to buy, who to buy it from, how to make it work and how to keep it up-to-date. Off-the-shelf solutions seldom fit perfectly. Therefore, most executives need guidance to help them choose an off-the-shelf ERP package, alter it and oversee the changes. CPAs and financial managers can start by learning from the experiences of other companies. Whether carrying the flag for the corporate accounting department, serving on a cross-functional implementation team or serving as a consultant, CPAs and other financial executives can use these guidelines to help midsize businesses make wise choices when buying and implementing ERP. WHAT ERP IS Companies use ERP software to facilitate the exchange of information throughout an organization. Vendors usually sell it in suites containing modules such as audit trail, payroll, purchasing, point of sale, manufacturing, inventory, job costing and bill of materials. For example, when Belvedere Co.'s order-entry clerks couldn't keep up with constantly changing product lines and couldn't get reliable real-time data on product availability, the company's profits suffered. Customers complained about not getting what they ordered or not getting their orders when they were supposed to. Unhappy customers returned shipments. To solve the fulfillment problems, Mark Waldron, CFO and CIO for the $30 million manufacturer and distributor of beauty salon furnishings, went shopping for ERP. After the ERP system was installed, Belvedere could process 15% more orders on a typical day--without additional staff. Furthermore, the company was able to reduce inventory by 30%. It began to fill and ship customer orders within 48 hours, down from five days. Customer complaints dropped. When it works well, ERP can speed up business processes, reduce costs, increase selling opportunities, improve quality and customer satisfaction and measure results continuously. When it doesn't work well, it can be a very expensive way to gum up the works. Accordingly, CPAs and other financial executives selecting ERP are participating in a make-or-break decision for their companies. Here's what they need to know. WHOM TO BUY FROM Usually, midsize companies buy ERP in one of two ways: directly, from a software vendor, or indirectly, through a value-added reseller (VAR). The exhibit on page 47 lists the top 10 ERP vendors to midsize and smaller companies. The figures are based on licensing revenue and include sales through VARs. Whether you purchase directly or through a VAR depends on what products you're looking for and what support you need. The largest vendors--SAP, Baan, Oracle--have a large share of the market for ERP sold to midsize companies. But many midsize companies see advantages to buying from the vendors in the next tier down--the midmarket vendors such as Great Plains (number 10 on the list) or Solomon--which didn't make the top 10 list. Midmarket vendors often understand and respond well to a midsize company's needs, budget and culture. Their sales staffs cater to such companies. Software vendors recruit and train VARs, but some have closer relationships and more rigorous demands than others. The software vendors also may restrict the distribution channels and geographical areas available to the VARs that work with them or may have VARs compete with other distribution channels such as direct sales. Vendors expect the VARs they work with to invest capital--sometimes large sums--in technical staff, training facilities, offices and software purchases. …