The demands for Digitalisation and Digital Transformation are omnipresent. The changes in the environment, the competition, the challenges of the supplier industry in the context of the conversion of vehicles with combustion engines to electric or alternative forms of propulsion - this list could easily be continued - inevitably lead to questions of ERP selection in SMEs, because many systems are no longer up to the requirements.
The heterogeneity and variety of products and services that SMEs can offer is on the one hand a great advantage for Germany as a business location, but at the same time also a challenge because the individual requirements for ERP systems in SMEs are naturally growing as a result.
What Defines SMEs and What Needs to be Taken Into Account when Selecting an ERP System for SMEs?
The term "SME" is used to identify companies that exceed a defined turnover size and also do not exceed an upper limit in turnover. The Kreditanstalt für Wiederaufbau KfW defines the upper turnover limit at 500 million euros. In fact, there is no generally applicable definition of the term Mittelstand.
Typical of SMEs is the qualitative view of ownership (owner-managed) and simultaneous entrepreneurial responsibility.
It is precisely this heterogeneity of the business landscape (mostly defined by the entrepreneurs themselves) that makes it so difficult to identify and qualify a standard solution or "the" ERP software in an ERP selection in SMEs.
The heterogeneity of the products, the uniqueness of the solutions used in SMEs - some of which have been developed and grown over the years - are usually accompanied by equally heterogeneous business and process models.
An independent ERP selection consultancy must focus on optimising the process landscape, reducing complexity wherever possible and, if possible, using standard ERP software on the market.
For our clients in the SME sector, here is an excerpt of key figures that can be used for benchmarking. We ourselves work even more with key figures in the context of investment intentions in new technologies, budgets for further training, focal points of optimisation approaches and ideas for digitalisation.
Our customers belong to the 19% of medium-sized companies with more than 5 employees.
Sector-specific ERP systems can be a first approach to meet individual requirements more easily. Unfortunately, there is no guarantee. It is all the more crucial that the description of the process landscape is an important part of an ERP specification. All important business processes must be reflected and mapped in it.
Necessary standards, approvals, supplier qualifications and much more can play a major role and must also be mapped in the ERP specifications. In many medium-sized companies, we experience requirements on the ERP system in the context of documentation certificates, certificates of origin, technical documentation and much more, which are retrieved from document management systems (DMS) at many points in the value creation process. These are to be linked to the product as an electronic or analogue document (label). This is a small example of interfaces and different requirements in small and medium-sized businesses and at many hidden champions.
It is enormously important to find industry know-how on the part of the ERP system providers. Experienced ERP consultants are often the key to successful ERP projects in implementation.
Why is ERP Selection in the SME Sector so difficult?
Most of the time, staffing is focused on adding value to the customer process and service. This is where most of the specialists work. In the organisational departments, the available capacities are usually lower. The strong specialisation on customer needs with sometimes small quantities often leads to individual processes. Own solutions, extra or individually programmed software solutions are often found. A heterogeneous organisational concept oriented towards the customer or the product makes it difficult for standard ERP software to map every process requirement with standards from ERP.
IT. departments usually already suffer from capacity bottlenecks in the normal course of operations. The I.T. staff's attention is usually focused on the operation of the ERP solution and user support. ERP selection and ERP project management are usually not commonplace. Thus, there is a knowledge and capacity deficit.
We have found during ERP selection projects in SMEs that there are some significant features that should be taken into account in ERP selection in SMEs. We would like to draw your attention not only to the high financial outlay for the purchase of ERP software, but also to the expenses for implementation and project management. This also applies to the costs in operation, which should be presented in a resilient investment calculation with an ROI. Initially, it does not matter whether an ERP cloud solution or an on premise solution is planned or selected.
ERP Selection in SMEs - 4 Points You Should Consider:
Innovative medium-sized companies often require the identical or, as we have found, an extended range of functions of ERP software systems as demanded by international groups. It is not uncommon for medium-sized companies to be internationally oriented and extremely specialised in their segment. The functions provided by the ERP software and, above all, the possibilities of mapping the company processes are usually paid for dearly by the ERP providers. Therefore, in the context of strategic orientation, it is important that the following points find their way into the ERP selection for SMEs:
1. Simplicity, especially for the users of the software:
In the course of their development and their presence on the market, many ERP systems have repeatedly been extended by functions. Mostly this has been done on the basis of an architecture that was current at the beginning of the first lines of code. There are still enough systems on the market today that this past can be recognised as soon as the system is switched on. Modern interfaces, modern graphic design and an operation adapted to today's possibilities are requirements that are enormously important for users. What user wants to work on a system with a user interface or a user concept that dates from the last century, when in the private environment experience can be gained with the most modern user interfaces on a mobile phone or on one's own laptop?In systems where there is no consistency of user guidance and in ERP systems where searching for information cannot be done quickly and easily, the time needed to use the system is longer than in optimised user design systems. This means that the costs of inefficiency (longer working time for operation) are also higher than in optimised ERP software. The resulting possible conflicts, up to and including rejection of the ERP software by users, and the time needed to resolve conflicts and higher training costs for use are not yet taken into account in this approach. Reconciling these interests makes ERP selection in SMEs with their heterogeneity very challenging.
2. System Architecture in the Cloud and Use of an Architecture for Mobile ERP Deployment:
Opportunities arising from the use of cloud and internet architectures in the ERP selection of SMEs must be taken into account in an ERP system. This usually requires deep intervention and consideration in the ERP software solutions that are directly related to their architecture. A flanged or extended solution can never match the performance of an architecture designed and written for the web. These limitations are also often seen in the functionalities on the desktop and mobile devices. It is also important to consider the interfaces to other, third party software solutions in order to integrate complementary solutions. These issues arise again and again in the context of CRM, financial management, supply chain, logistics, QM and document management systems, where they must be evaluated for their impact and documented in the specifications. These requirements are extended in the context of employees who work on the move and may need to have access to the system across time zones. This automatically brings requirements for a digital workflow or digital processes that must be taken into account and supported. Especially if no internet access is possible externally.
3. On Which Platform Should the ERP Software be Installed?
It can make sense to look at the offers of ERP providers in the context of requirements management to see on which platforms their software can be installed. This should be done at a strategic level. In this way, possible consequential costs can be kept within limits in the event of a change of the supporting software house. It can always happen that changes occur on the provider side in the course of a cooperation that make it necessary to change the software maintainer. If you then work on a platform that corresponds to an industry standard, it is easier for a medium-sized company to find another partner for the support of the standard software than with individual solutions. This of course applies to all operating systems as well as database management and connection or integration to e-mail solutions. The issues to be considered in connection with Office 365, which is used on a cloud basis, and an installation of the ERP software on one's own local servers, is another important point, how the interfaces, data security, the issues of the basic data protection regulation DSGVO can and must be designed and complied with.
4. Scalability of the ERP SME Software:
ERP selection in SMEs is always a challenge when the big names and the big solutions come into play. Often, big solutions blow up any available budget. They have functions that are not needed but are part of the solution. On the other hand, medium and small ERP solutions quickly reach their limits in terms of functionality and architecture for use in medium-sized or larger companies. An important point to consider is always the planned data throughput on the ERP system. It does matter whether the article master contains only 10,000 articles or is 2 or 3 powers larger. In the administration of transaction data, this is a source of permanent complaints and dissatisfaction for the user, especially due to the waiting time on the screen. It is certainly not a mistake to make a realistic assessment here and to reckon with constantly growing data volumes (connection of machines and devices - keyword Industry 4.0). An ERP system must prove this performance, because the number of users usually increases with it. Does the planned system have upper limits for the number of licences to be used?
Supporting Entrepreneurial Flexibility
In a competitive environment, business models can change or expand rapidly. This is, among other things, also a characteristic of SMEs to quickly adapt to new challenges and immediately adjust the organisational model. Acquisitions or mergers of companies or value chains are requirements that must be included in an ERP specification and in the requirement engineering, if they apply. Above all, the procedure models for the roll-out and the transfer of master data and transaction data from IT systems of other companies must be examined. The effort for boarding, i.e. the time and costs for training new employees in the ERP system to be selected, should be considered in order to be able to estimate the follow-up costs at least roughly. How does the ERP software and its installation behave during upgrades and updates? How is quality assurance for the maintenance of the system carried out on the part of the software partner?
ERP Selection in SMEs - Summary:
ERP Selection in SMEs is not a project for the sidelines, the decision for an Enterprise Resource Planning ERP system is a challenge for every company - regardless of size.
This decision will shape the company for years to come and will influence greatly their profitability and ultimately upon their existence.
Therefore, it is crucial to create clarity about:
1. The simplicity, architecture and structure of the new ERP SME solution.
2. The system architecture in which the solution will be embedded or implemented as a stand-alone solution.
3. The platform on which the mid-market IT solution will be built, operated and maintained
4. The ability to scale and support new future requirements
5. The support for competitiveness and the flexibility needed to support business decision makers
A Project Team that addresses these important ERP Selection criteria is on the right track to reducing the risks of an ERP selection for SMEs.
It should not be underestimated that these are only a few points of a much larger catalogue of requirements to be examined. Nevertheless, this is a first step towards quality assurance in the ERP selection process.