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ERP or best-of-breed procurement software? Five questions to ask

Deciding between ERP and best-of-breed procurement software can be a tough challenge for manufacturers. Asking the right questions can make things easier, according to experts.

Manufacturers trying to decide whether to go with their ERP vendor or a provider of best-of-breed procurement software should base their decisions on a range of issues, according to analysts, including the level of connectivity they want with their suppliers, as well as back-end integration and ease of use. A few well-framed questions can make the decision a lot easier.   

1. What kind of supplier network do we need?

Before deciding how to connect with trading partners, manufacturers should consider whether they need features such as e-catalogs, supplier performance scorecards or information management tools that require data to travel through a network of 10 or 20 suppliers, said Deborah Wilson, an analyst with Stamford, Conn.-based Gartner Inc.

“That would generally favor a best-of-breed solution over an ERP because virtually all ERPs are architected for internal process support,” she said. “When they do support suppliers or other third parties, it’s usually through a portal that is delivered as a feature of the application, or it is through some sort of an EDI [electronic data interchange] translator,” Wilson said.

The problem with portals, Wilson said, is they require suppliers to log on to a company’s ERP system to do business with it. “That’s not a very scalable proposition,” she said. “If you’re a really large company like Wal-Mart, [and] you tell your suppliers, ‘you’re all going to log into my supplier,’ they’re going to say, ‘how high do I jump?’ That doesn’t work as well for smaller companies, which typically don’t have that kind of buying power.”

In those cases, Wilson said, “it’s not practical to ask your suppliers to jump just because you wanted to get more efficient.” 

2. Does our ERP vendor even have the right ERP procurement tools? 

One of the most basic -- but essential -- questions a manufacturer should ask is whether the ERP vendor even has a solution that meets its needs. For at least one top-tier vendor, that’s often the case, Wilson said. “They really try to cover the full gamut of an application. But most of the other ERP vendors do not.”

Spend analysis is one function that’s frequently not included in ERP procurement suites, she said. “[I’m not talking about a] reporting or analytics tool, but a solution that gives you data cleansing and enhancement. Those are very rarely offered by an ERP vendor.”

Spend analysis is something that is frequently covered by best-of-breed vendors, she said. “There are some specialists that do just spend analysis, and there are others that will include it in a suite.” 

3. Do we have multiple ERP back ends to service? 

If this is the case, companies should look for a system that can work on multiple ERP platforms, Wilson said. That also favors best-of-breed vendors, she said.

“There are [best-of-breed options] for multiple back-end systems. Most ERP solutions are not architected that way.  It’s a one-to-one thing.”

 4. Which approach will have the fastest adoption?

Which application or suite will have the best user adoption is a major factor companies must consider, according to Duncan Jones, a U.K.-based analyst with Cambridge, Mass.-based Forrester Research Inc. It could be the ERP product if that’s what everyone’s used to, perhaps because they’re already familiar with the user interface.

“On the other hand, you might decide the best-of-breed product has a more usable front end and is more configurable to what individuals are going to need,” Jones said. “In catalog-based procurement, I don’t really look at, ‘does it make life easier for the catalog managers and the buyers?’ I look at ‘does it make life easier for the individual requisitioners?’ They’re the ones that will make or break the project.  If they don’t like using the tool because the front end is lousy, then the project will fail.”

That also applies to adoption by suppliers, Jones said, echoing some of the same issues Wilson raised about approaches such as ERP portals, which may require extra effort by suppliers to get their purchase orders.

“[In those cases], the order may not get into their system quickly, which means that people are not going to get their stuff on time, which means they’re going to stop using the tool because it doesn’t give them what they need,” Jones said.

5. Does it get us 95% of what we need? 

Sometimes close is good enough, according to Simon Ellis, practice director for supply chain strategies at IDC Manufacturing Insights, based in Framingham, Mass.

“Does the ERP platform provider give them 95% of the functionality that they need? And do the integration capabilities offset the last little bit of functionality that they don’t get?” Ellis asked. “Or are they in a specialized enough of a market where it really makes sense to go with a best of breed?”

If the company is in a market where, for example, it is buying a lot of commodity goods  or worrying about commodity price fluctuations in energy markets, then a niche, best-of-breed application may be the way to go.  

And what about that last 5%? 

“It depends on what it is,” Ellis said. “You kind of have to define the must-haves versus the nice-to-haves.”

Take the emotion out of the decision

Companies should try to take the emotion out of whatever decision they eventually make, Jones said.

“Generally, with any organization, there will be people who will be the provider, maybe the IT folks who have ABAP [SAP programming] skills, or maybe they’re Oracle zealots and they want the business to pick their product,” Jones said. At the same time, he added, there might be some who have used some “shiny and new and innovative” product  -- maybe a cloud-based one -- and have been sold on that particular technology.

“You have to get the emotion out of it [and ask] why do you think this is the better option? Is it because of the brand or the financial stability? Or you think integration will be easier? Or is it because customization will be easier?” 

Take the questions, translate them into subjective factors and give each factor a weighting, Jones said. That approach can lead to a more substantive discussion based on the merits.

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