ERP Evaluation Criteria: Important Considerations

Growing startups and established enterprises across all industries are increasingly turning to enterprise resource planning (ERP) systems to optimise operations, drive efficiency and fuel growth. But selecting the right ERP solution can be a daunting task, given the myriad options available. To help businesses confidently select an ERP system that will quickly deliver a strong return on investment and support long-term business success, this guide to ERP evaluation outlines the most essential factors to consider.

What Is ERP Evaluation?

ERP evaluation is a bit like deciding which car or computer to buy. Does it have all the features you need? Is it within your budget? Are other customers satisfied with the same choice? Is the manufacturer known to provide outstanding service?

Similarly, choosing an ERP solution requires analysing and comparing different ERP systems to find the best fit for your business. The evaluation process takes several factors into account, including features and functionality, budget, technology and compatibility, and vendor support. By conducting a thorough ERP evaluation, your business will be better able to identify the best system to streamline company operations, enhance overall productivity, and support both short- and long-term growth.

Key Takeaways

• ERP evaluation refers to the process of choosing a system that aligns with a company’s business needs, goals and budget.
• A structured approach that weighs all essential evaluation factors is key to confidently choosing the ERP system best able to provide a substantial return on investment.
• The ideal system should help solve business issues, be easy to implement, enhance productivity, improve decision-making and support growth.
• Additional evaluation factors range from system fit, deployment options and technology compatibility to customisability and vendor reputation.
• When outlining business requirements and before making a final decision, be sure to gather input from executives, managers and staff.

ERP Evaluation Explained

ERP evaluation is a systematic process that helps businesses identify the most suitable ERP system for their specific business needs. As part of the discovery and planning stage of a phased approach to ERP implementation, the first step is to define system requirements and business needs. It’s important to get input from stakeholders from all business departments — leadership, sales, finance, IT, etc. — to map out critical business processes, pain points and desired improvements. Consider setting up an ERP implementation team of key forward-thinking decision-makers, project managers and end users who can come together to paint a clear businesswide picture that frames the evaluation process.

Once requirements are determined, businesses can methodically compare options to pinpoint the ERP system that best aligns with their objectives and growth plans. A well-informed decision will incorporate such considerations as budget limitations, total cost of ownership (TCO), deployment options (cloud-based or on premises), technology requirements, customisability, and vendor support and reputation.

ERP System Evaluation

To compare ERP products and software vendors effectively, businesses should begin by identifying the issues they’re trying to solve. This often goes hand in hand with building an ERP business case — a formal document that details the benefits, costs, opportunities and risks of implementing an ERP system. Next, assess available ERP solutions based on their abilities to address the challenges outlined in the business case. Be sure to ask ERP vendors some high-level questions about system fit, budget, technology requirements and their capabilities. This can help you narrow down your decision to the options that best meet your business needs and goals.

What Issues You’re Trying to Solve

The evaluation process begins with identifying the issues your business is trying to solve. Connect with as many people in your organisation as possible, from senior management to line employees and staff. Where are everyone’s pain points? What issues and inefficiencies can be solved with an ERP? Manual data entry, disjointed systems or a lack of visibility into key business information (financial, sales and inventory data, for instance) are all issues that can be resolved with an ERP system. Clearly and methodically specifying these challenges in a business case enhances a company’s understanding of its unique needs, putting it in a better position to knowledgeably evaluate ERP systems.

What Modules You Need

Once issues have been identified and requirements outlined, decide which ERP modules will meet those needs. ERP systems typically offer a range of modules, including finance, sales, inventory management, warehouse and logistics management, human resources and customer relationship management (CRM). Most, if not all, businesses should consider implementing a financial management module, too, since finances are the backbone of any business. Any other options will depend on the company’s processes and requirements. For example, an ecommerce company that’s experiencing bottlenecks in its order-fulfilment process might benefit from order management and logistics management modules, as well as a CRM system that efficiently manages customer interactions.

Depending on the vendor and the specific ERP system, modules can often be added over time as business needs change and evolve. Some ERP solutions are highly scalable in that way, as well as configurable, so they can truly be tailored to the unique requirements of each individual organisation. Determining which modules may be necessary now, as well as those that might be required in the future, can help businesses zero in on evaluating only the vendors that will provide desired functionality.

What Questions to Ask ERP Vendors

When it’s time to start comparing ERP software vendors, ask questions that will help shape your evaluation process and further differentiate the vendors. Sharpen your vendor selection criteria with questions, such as:

• How does your ERP system address my specific business challenges?
• What modules and features are included in your solution?
• Can modules be added as needed over time?
• How does your pricing structure work? Is there a subscription or one-time fee? Is each user charged individually?
• What is an estimated total cost of ownership? Does pricing include updates, maintenance and security?
• What kind of support and training do you provide during implementation and beyond?
• Does the ERP system integrate with other business software and systems?

How to Compare ERP Products

Now that you have a list of vendors matching your business requirements, it’s time to do a deep dive into available options. For example, consider factors like system functionality, ease of implementation, user experience, scalability, TCO and vendor reputation. Carefully evaluate each potential vendor’s offerings and review how well each aligns with your business’s specific priorities. Also plumb the quality of their ongoing support and whether they can meet your desired implementation timeline. Meticulous comparisons make it more likely that you’ll make the right choice for your business needs, thus reducing the chances of ERP failure and increasing those for long-term success.

ERP Budget

ERP is a big investment. Budget is, therefore, an important factor in the evaluation process: It determines not only how much your business can afford, but whether you’ll be able to justify the cost of the system. First, get a realistic sense of how much the business can reasonably spend on an ERP system. Then, estimate the ERP’s ROI. Together, these numbers can help rationalise the endeavour.

How Much Your Business Can Afford

To determine how much your business can reasonably spend on an ERP system, start by analysing your finances. Review financial statements and ratios — paying particular attention to operating expenses. Monitor cash flow, consult forecasts and track financial key performance indicators (KPIs). This data can reveal valuable insights into revenue, expenses, cash flow patterns and profitability, all of which can be used to support the ERP evaluation process. For example, say a business’s financial analysis reveals a large portion of its operating expenses that can be attributed to repetitive, manual supply chain management processes, which ERP automation will substantially cut, boosting efficiency. As a result, the business decides to prioritise implementing an ERP with a supply chain management module and reallocating workforce development budgets toward training employees on how to use the new ERP system.

Next, consider future growth. An ERP system is a long-term investment, so it’s crucial to choose a solution that will successfully scale and adapt to expanding or changing needs. Analysing future growth will also offer insights into projected return on investment (ROI). Analyse market and industry trends, explore customer and market expansion strategies, and consider prospective strategic partnerships to get a sense of realistic growth targets.

Don’t forget to take into account both up-front costs, like implementation, data migration and training sessions, and ongoing expenses, such as maintenance costs and subscription fees. A thorough implementation project plan with a realistic budget can pave the way for ERP success.

How to Determine Your ERP ROI

Without an ERP system in place, estimating its potential ROI can be challenging. Still, it’s possible to arrive at a reasonable estimate. List the pain points and inefficiencies outlined in the company’s ERP business case and assess how the ERP will resolve them, be it through increased productivity, labour cost reduction, better inventory management, fewer manual errors, better data visibility, improved collaboration, etc. Then, conduct a cost-benefit analysis by weighing operational benefits against the ERP’s TCO, which includes implementation, training, infrastructure, support and licensing costs.

Here’s one formula to calculate ROI:

ROI = [(Total value of investment – TCO) / TCO] x 100

The higher the resulting figure, the higher the ROI.

Ask prospective vendors for a business-specific ROI assessment. They may be able to provide case studies, client references or ROI calculators to help you develop an estimate based on your business’s size, industry, needs and requirements. Regardless of how promising the returns sound, carefully validate that any potential benefits will genuinely align with your company’s actual pain points and goals.

How to Justify the Cost of ERP

Although calculating potential ROI is a crucial element in justifying an ERP system purchase, senior executives are right to dismiss ROI as a meaningless number unless it’s presented within the proper context. To convince skeptical stakeholders, present an in-depth business case that balances the potential value the ERP system can bring to the business against the costs and risks of implementing it. Clearly outline all use cases relevant to your organisation and provide details on how the company will benefit from an ERP and what advantages to expect. Include projected ROI, especially with regard to cost savings, increased productivity and revenue growth. Be specific. For example, calculate the costs associated with manual processes, excessive labour hours and human errors and compare those to potential ERP-fueled cost savings. It might also be worth referencing any case studies or success stories that highlight tangible results achieved by other companies in your industry.

And remember: ERP value isn’t just about direct financial gains. It also includes indirect benefits, like higher customer satisfaction rates, enhanced business agility and market responsiveness — all of which can further support financial gains and business growth in a competitive landscape.

System Fit

Another key ERP evaluation consideration is the degree to which the ERP system aligns with the needs and requirements of the business. System fit assesses how well the ERP’s features, functionalities and capabilities match industry standards, not just the business’s unique processes and workflows. Key factors playing into system fit include scalability and customisation options — notably, available modules, integration capabilities and whether the ERP is best suited to companies within a specific vertical or can be tailored to any company’s needs.

How to Determine ERP Customisation

Few companies can make do with a purely off-the-shelf system that requires zero customisation. At least some degree of customisation is inevitable to best support an organisation’s business processes and requirements. To figure out what your business needs — and whether the ERP vendors you’re evaluating can meet you there — start by evaluating current workflows, processes and systems. What specific ERP functionalities and features support your critical business operations? Which may not be adequately addressed by an off-the-shelf solution? Industry-specific regulations, unique business models and highly specialised processes are all factors to assess.

Prioritise customisation needs based on their impact on business processes and strategic objectives. This can make it easier to determine which customisations are essential, and to what degree, and which ones can be addressed through either process modifications or workarounds that don’t require extensive coding or system changes. Carefully evaluate ERP vendors that offer the degree of flexibility your business needs, not only to succeed but to improve and grow over time. In that vein, it’s wise to assess if vendor offerings can be easily customised to meet specific requirements without compromising future upgrades, compatibility, long-term maintenance or essential third-party business software and partner products.

How to Choose Between Industry-Specific and Horizontal ERP

Industry-specific or “vertical” ERP systems cater to the common needs of a particular industry, such as manufacturing, retail or health care. They come with built-in features tailored to the specific requirements of that industry, such as regulatory compliance obligations. “Horizontal” ERP systems, on the other hand, offer a more general set of capabilities and modules that can apply to businesses across many industries. Here are two guidelines for choosing between an industry-specific and a horizontal ERP:

• Niche processes: Consider whether your business relies on any niche processes, regulatory requirements or significant industry best practices that may be built into an ERP designed for your vertical. An auto manufacturer that needs to adhere to a bevy of regulations might benefit from an ERP designed for the automotive industry, for instance.
• Scalability: Evaluate the scalability of different ERP systems. Industry-specific systems might offer more specialised growth opportunities within an industry, while a horizontal system might provide opportunities to expand to other verticals. For example, a retailer considering adding a manufacturing function or a third-party logistics offering might prefer a horizontal solution that will support those adjacent growth opportunities. Conversely, a hospitality company looking to expand into food service and event facilities might benefit from a vertical system that will seamlessly facilitate upward growth.

Does Your ERP Need a CRM?

Whether your business needs a CRM module as part of its ERP system depends on certain factors, such as customer base, sales process complexity and customer-interaction levels. Businesses that rely heavily on customer engagement with sales teams, for instance, might find that an integrated CRM module helps streamline some processes, such as lead nurturing and conversion tracking. But companies that focus primarily on internal operations or have a limited customer base may do well with a separate CRM system — if one is needed at all.

For companies that do require a CRM to operate optimally, the question becomes whether to opt for a unified ERP and CRM combo or to utilise two discrete systems. To help you decide:

• Assess how important CRM is to the business’s operations and growth strategy. Do you want to seamlessly link sales and revenue data to extract deeper customer insights that will better support targeted marketing campaigns and sales efforts? An ERP with a CRM module could be the better choice.
• Evaluate the efficiency of current CRM processes. Will integrating a CRM module within an ERP system automate any operations or improve customer satisfaction? A unified model helps make sure all data is updated in real time, supporting both efficiency and faster decision-making.
• Consider the complexity and cost of implementing a separate CRM system versus integrating a CRM module within the ERP system. A CRM module from your ERP vendor should be guaranteed to integrate smoothly with little or no need for programming and customisation. Unified ERP and CRM systems also tend to be less expensive than integrating two discrete solutions.

Technology Fit

ERP systems have evolved considerably, with modern offerings leveraging technological advancements, such as cloud deployment and mobile connectivity. Technology fit is, therefore, another key consideration in ERP evaluation, as it determines how well the vendor’s ERP solution will align with the business’s existing hardware, software and network infrastructure.

What Modern ERP Looks Like

Traditional ERP systems were on-premises solutions that required significant hardware infrastructure, IT staff, floor space and ongoing maintenance. They were generally rigid, lacked customisability, had minimal integration capabilities and offered limited means for real-time collaboration. And, given the substantial resources required for on-premises deployment, the cost-saving and productivity-boosting benefits of ERP systems were often reserved for larger enterprises with bigger cash and resource budgets.

Modern, cloud-based ERPs, on the other hand, have become far more flexible, user-friendly and scalable. They enable businesses to take advantage of tremendous computing power with lower up-front costs and faster implementation times. Modern ERPs also facilitate real-time access from mobile devices, at any time, and support seamless integration with other business software and systems. All of this means that modern ERPs tend to be more cost-effective than solutions of the past.

Thanks to their greater flexibility and lower costs, ERP systems have become a viable option for businesses of all sizes, in all growth phases, in any sector. These days, virtually any company can leverage an ERP to refine operations, save money and gain competitive advantages.

What Is Cloud ERP?

Unlike an on-premises ERP system that’s installed and operated within an organisation’s physical infrastructure, a cloud ERP is remotely hosted and accessed through the internet. The ERP software and its data are stored on the vendor’s cloud platform. The vendor handles maintenance, updates and security, and the organisation is free to access its business data from anywhere, at any time, in real time. Compared to on-premises ERP solutions, cloud deployment’s lighter footprint trims up-front costs, offers increased accessibility and scalability, reduces the burden of upkeep and improves disaster recovery capabilities. Yet, on-premises solutions still have their place, offering greater granular control over the system’s infrastructure but at the expense of higher initial investments and ongoing resource requirements.

When choosing between a cloud-based or on-premises ERP, businesses should consider their specific needs, IT capabilities and resources, cost considerations and scalability needs. A large corporation that demands a high degree of physical control over its servers and data infrastructure might prefer an on-premises system, assuming the organisation has the resources to implement and maintain the ERP. But a growing company, with a distributed work environment and a need for a scalable solution, will likely prefer a low-maintenance cloud ERP that encourages mobile collaboration and flexibility.

Does Your System Need to Be Mobile-Ready?

Determining whether your ERP system needs to support mobile access depends on factors like the nature of your business operations, employee mobility expectations and the need for real-time data access, from anywhere, at any time. For instance, distributed workforces or those often on the move — such as remote-first companies, consulting agencies and multinational organisations — need to access important business data from various locations. In such cases, mobile-ready ERP systems are a wise choice, as they’ll provide full functionality on mobile devices like smartphones and tablets. Companies that operate primarily from a fixed location and don’t require mobile data access might fare well without mobile compatibility.

When evaluating ERP systems for mobile capabilities, keep an eye out for whether the software has specifically been designed, developed or adapted to include a user interface that can automatically adjust to different screen resolutions, sizes, shapes and touch-based interactions. Mobile-ready ERPs shouldn’t have bare mobile functionality — they should be mobile-optimised, allowing users to access key features, perform tasks and view data in an intuitive way, without bugs and glitches.

Check References

Even if you’ve found what appears to be the ideal ERP system, checking references is a critical part of the evaluation process. Reach out to existing clients to gain insight into how they’re using their ERP system, what their experiences are like, whether their needs are being met, as well as any challenges faced and how they were resolved. This real-world feedback makes it easier to evaluate vendors’ credibility and their ability to deliver on commitments. It’s also a good way to prepare for implementation. Proactively preparing for potential pitfalls and common challenges — as well as active clients’ tips on how to circumvent or overcome them — can help streamline deployment.

How Companies In Your Industry Use ERP

You might have an idea of how you want to use an ERP system, but it’s also worth looking into the ways other companies in your industry are using these solutions. Seeking out references from businesses in similar industries and situations will not only provide valuable insights into the system’s effectiveness, potential challenges and overall suitability for your organisation, but could clue you into some ways of leveraging an ERP that you hadn’t initially considered. This information can help you make a more informed decision that results in your being able to select an ERP system that truly meets your industry-specific needs.

To find contacts and get a sense of how ERP systems are being used in your industry, attend gatherings that provide opportunities to engage with peers: Industry events, conferences and trade shows are all valuable in-person options. You might also be able to connect with professional networks by joining industry associations and online forums. If finding others is a challenge, request references from the ERP vendors you’re evaluating. Connect with those in your industry and encourage them to discuss their experiences. Case studies and white papers are also useful tools that can provide valuable insights into how other businesses are leveraging ERP systems in your industry.

What Other Companies Think of the ERP Vendor

Naturally, it’s important to find ERP users that have deployed the vendor solutions you’re evaluating. How have real clients responded to the ERP system they’re using? Was the implementation smooth? Are they seeing the expected ROI, or are they facing continual challenges? Have they encountered any limitations? Are they satisfied with the system’s performance and overall value?

Contacting references also provides an opportunity to learn about the quality of vendors’ customer support. Ask present clients about vendor responsiveness, expertise and willingness to address issues and concerns. Ask these questions in the context of initial implementation, as well as ongoing support, to get a sense of whether the vendor will stand by your business for the long haul.

By learning from the experiences of others, you can better assess the vendors’ reliability, responsiveness and commitment to customer success, which are crucial factors in the long-term success of your own ERP implementation.

How to Find an Active User Community

Finding an ERP system’s community of active users can be a great way to garner valuable support, advice and best practices for getting the most out of the system. To find a community of active users, reach out to industry contacts, associations and business groups. A search for industry forums, online discussion forums and social media groups can also turn up useful resources where it’s possible to exchange experiences, seek advice and develop a network of peer encouragement.

Active user communities(opens in a new tab) can provide invaluable insights, best practices and troubleshooting tips that help you maximise the benefits of your ERP system. These communities also indicate a strong and engaged customer base, which is a positive sign for the ERP system’s overall quality and reliability. Active participation can also help a business expand its professional network, influence product development through feedback, and stay informed about the latest trends and updates in the ERP landscape.

Downloadable ERP Evaluation Checklist

NetSuite Is the Next Generation of ERP

NetSuite ERP is a comprehensive solution tailored to growing businesses across various industries. With a global presence spanning countries and territories and serving over customers, NetSuite offers seamless integration and automation of key business functions, including financials, inventory and order management, HR, ecommerce and CRM. By consolidating all modules into a unified system, NetSuite eliminates the complexity of managing multiple software and data integrations and provides users with a consistent interface. Real-time data seamlessly flows to a centralised hub, generating rapid insights that can drive decision-making, boost business agility and enhance customer satisfaction.

As a cloud-based solution, NetSuite is designed to be flexible and scalable, adapting to each business’s evolving needs. It supports the addition of new functionalities as required over time, so that the system grows alongside your organisation. Role-based and individual user access permissions guarantee that employees see only the information relevant to their roles. And with anytime, anywhere access from any connected device, location is no longer a limitation.

With NetSuite, businesses can leverage a powerful and agile ERP platform that promotes growth, automates operations and empowers employees with real-time information at their fingertips.

Selecting the right ERP system is essential to implementation success, achieving the expected ROI and long-term business growth. The key to choosing the right system is a thorough ERP evaluation process: one that involves careful consideration of system fit, budget, technology and vendor capabilities to narrow down the field to the one that aligns best with your company’s unique needs and goals. By involving stakeholders from various departments, assessing total cost of ownership, estimating ROI and checking references from similar companies, businesses can confidently make a well-informed decision that supports success.

ERP Evaluation FAQs

What does ERP stand for?

ERP stands for “enterprise resource planning,” a term introduced by research firm Gartner in the 1990s to describe business management platforms that integrate and streamline various business functions within a centralised system.

How do you evaluate an ERP system?

You can evaluate an ERP system by considering your budget, whether it’s a fit for your business’s requirements, whether it’s compatible with your existing and future technology, and the quality of the vendor’s reputation and support capabilities.

What are the evaluation criteria for ERP products?

Evaluation criteria for ERP products can include system functionality, cloud versus on-premises deployment options, business technology integration capabilities, scalability, ease of use, mobile compatibility, pricing structure, support and training, and vendor reputation.

What is the evolution of ERP?

ERP systems have evolved from rigid, complex, on-premises solutions to adaptable, user-friendly, cloud-based platforms that include advanced features, like real-time data analysis, mobile compatibility and seamless integration with other business software and systems.

How long do ERP implementations take?

ERP implementations can take as little as a month or extend to over a year, depending on various factors, including system complexity, customisation requirements, deployment model, organisation size and business needs.

What are indicators of ERP implementation success?

Indicators of ERP implementation success include streamlined operations, enhanced productivity, better data visibility, high end-user adoption rates, improved customer satisfaction and, above all, a clear return on investment.

How is ERP effectiveness measured?

ERP effectiveness can be assessed by whether productivity has been increased, operational costs have been reduced and decision-making processes have been improved, as well as whether the system successfully addresses the specific business challenges it’s meant to resolve.