Whether your company needs a commercially packaged warehouse management system, point of sales system, an inventory control system, a direct-to-customer order management system –or some combination of the aforementioned, selecting of the right system is a major undertaking. No matter what type of new system you’re considering, that purchase is going to be a long-term investment. It has significant ramifications for how you serve your customers, the productivity of your personnel, and the management information it can provide to help you grow your business.
To make an accurate assessment and choose the right system for your company’s needs, we recommend you follow a four-step selection plan. This plan includes:
Organizing the project;
Defining your business needs;
Gaining a complete understanding of vendor’s system and capabilities; and
Examining the expected ROI of the system.
By following these four steps, you can be assured of making a sound decision regarding the new system you select for your business.
Step 1: Organize the project internally
Before you begin reviewing systems, get the project organized within your company. For starters, you may want to appoint a management sponsor—someone such as a vice president of operations, who will represent the interests of the system’s users. This will help elevate the project in terms of perceived importance, and encourage middle management and user departments to participate in the selection process.
It’s also the time to set up a project steering committee, comprised of representatives from all areas that will be affected by the new system. Early on, the steering committee will identify the business functions to be accomplished by the new system. To assist the committee, management should provide the company’s growth plans (for three to five years) and any other anticipated changes in the business’s direction. These include other channels of distribution, new catalogs, additional warehouses, changes in merchandise mix, etc. To further guide the selection process, management also should provide budget guidelines and decide whether the new system should run on existing hardware.
The steering committee will draw up a written plan for evaluating and selecting a vendor, and installing the system. It should then meet at least monthly to review the plan and the progress to date. A project coordinator can help keep the project on schedule and within budget.
Step 2: Define your requirements
Deciding what system functions you want is difficult. But keep in mind that this is critical in order to pick the right “match” for your needs. From our experience, the most effective systems generally have a 70% to 80% fit before modification. More extensive customizations lead to rewriting the system, which is generally expensive, risky, and delays implementation. It’s a good idea to prioritize your functional requirements and divide them by each subsystem (e.g., order-entry, inventory or marketing). Include any unique requirements, key data elements missing from the current system, major screens and reports, and/or data interfaces to other systems.
Here’s where a decision matrix approach can help. You evaluate a system’s specific functions that you require. It’s a handy way to make quick comparisons between system vendors. The following is a sample decision matrix:
Step 3: Evaluate the vendors
In your request for proposal (RFP), make sure you specify that bidders include in writing all of the pricing, guarantees and schedules for the application; the software and hardware to be provided; pre-installation training; modifications required before and after installation; a list of other package systems that have been successfully integrated with; and file conversion and support.
Scripted demonstrations. Now comes the tough part: comparing multiple vendors and their system’s features and functions. Use the RFP responses and scripted demos to work through which system has a better fit for your company. Many companies don’t allow enough time for a complete demo. Often a full two days is needed to review all of the functionality of a complex commercial system. A scripted demo will help you target the functions most important to your business and any potential modifications required. It will require vendors to show functions that you want to see during the demo rather than the functions that the vendor wants to show you.
Reference checks and site visits. It is imperative to check vendor references. Don’t just rely on the list that the vendor supplies to you. Get the entire list of users, and go beyond the requested list of references. Find out as much as you can about the vendor from its users. You should come up with a scripted list of questions for the reference checks. The questions should discuss things like features used and system support. This scripting is done so that you have asked the same questions of each reference check and can make comparisons between them later. Just as important as the reference checks is taking scheduled trips to system users that are similar to your business (e.g., apparel, hardgoods, wholesale, etc.). When making these user site visits, make these trips without the vendor present. This allows the users to be as open and frank about the system as possible.
Vendor support. As you are selecting and evaluating a system package, find out how well the vendor will continue to update and enhance the system and support the system in the future. That is the reason you are buying a commercial system. Does the vendor have a schedule for new releases with new functions, and what is the frequency? Do most enhancements/modifications for individual clients get added into the future enhancements and releases of the system? Also, you need to find out how timely are responses with regard to software bugs and problems. What is the size of the vendor’s support team, and is it a full-time team dedicated to supporting the system and its users?
The age of the system and the system design will determine how well the vendor can support you in the long term. If the system is more than five years old, it has probably been modified extensively. How easy will it be to get the modifications you are requesting, and at what cost? Determine these changes in advance of signing the con-tract. Will the system give you a good base to grow your business? The age of the system may also determine how innovative and user-friendly it is; for example, is it character-based or Windows-based?
During the implementation phase, vendor support will be important in thoroughly testing any modifications you need on the base package. Since running existing and new systems in parallel is usually not affordable for most companies from a time or cost perspective, a full systems test should be accomplished by all users, assuring readiness for implementation.
Finally, as part of the selection process, review the vendors’ approach to training and file conversion. Which files will be converted? How will these be converted, and by whom?
Step 4: Examine the system’s potential ROI
Wouldn’t it be great to be able to measure the ROI of a new business system purchase before you make that major investment? Well, you can—if you take the time to examine all the costs involved in the purchase along with the specific returns you expect to gain from implementing the new system.
Don’t fall into the trap of basing your ROI calculation on the vendor’s canned promotion data—however well intentioned it may be. You need to take the time to run these numbers yourself. To get the most accurate sense of your potential ROI upfront, do the following calculation: Divide the total cost of the system investment by the average annual improvement you hope to gain. The result of this calculation will be the number of years it will take to recoup the investment. In that time period, the gains you will have made will equal your initial investment. Any gains thereafter can be considered true ROI. For a more precise application of this formula, apply the savings on a monthly calendar until you have zeroed out the investment, especially if you have a seasonal business as many consumer catalogers and multichannel marketers do.
Having completed the four-step selection process, by now you should have gathered enough information to make a good purchase decision. But don’t rush into anything: Remember, selecting a new system involves many factors, so conduct a thorough search and allow enough time for each step in the process. A full understanding of your needs and the vendor’s capabilities should ultimately result in a successful installation.
Curt Barry is president of Richmond, VA-based F. Curtis Barry & Co., an operations and fulfillment consultancy for multichannel marketers. For more information, visit www.fcbco.com