Shrestha Dash is passionate about uncovering actionable insights and exploring the ever-evolving landscape of technology and digital transformation. With a strong analytical foundation, she delves into topics such as ERP, enterprise software, and digital ecosystems, offering in-depth research and thoughtful analysis. Currently working as an Industry Research Analyst at ElevatIQ, she combines her expertise in research with a flair for storytelling, helping businesses navigate complex industry trends and make informed decisions.
What Is NetSuite ERP? NetSuite ERP is a powerful cloud-based ERP solution that empowers small to mid-sized businesses looking for a diverse cloud-native option particularly relying on add-ons for deep operational capabilities. Offering core ERP capabilities relevant to many industries, NetSuite ERP especially caters to modules spanning financial management, distribution, CRM, and supply chain management.
With the data model being friendly it is uniquely strong for industries especially hospitality, retail, and commerce-centric industries. In comparison with other cloud-native solutions that might be either weaker in their deep operational or broader capabilities, NetSuite ERP provides the best of both worlds for diverse organizations seeking a scalable solution that could scale with their business model and global growth.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
NetSuite ERP has a robust capability to handle operations across 200 subsidiaries. Thus, proves to be a testament to its prowess in global expansion. The platform provides centralized control, enabling businesses to efficiently manage operations in various countries or subsidiaries in one database. NetSuite’s multi-entity support ensures that businesses can manage diverse entities with distinct financial structures seamlessly. Companies with multiple subsidiaries find value in the centralized control offered by NetSuite ERP especially fostering efficiency in managing operations across borders.
2. Deep Finance Capabilities
NetSuite ERP solution incorporates vital functionalities, particularly record-to-report (R2R), procure-to-pay (P2P), order-to-cash (OTC), fixed asset management (FAM), and services resource planning (SRP). Thus, providing the basic ERP capabilities for most industries, which need to be augmented by the add-ons provided through third-party add-ons. R2R ensures accuracy in financial reporting, P2P optimizes procurement processes, OTC manages the entire sales cycle, FAM efficiently handles fixed assets, and SRP enhances service-oriented businesses.
3. Best for Audit-ready SMBs
Role access control is a pivotal aspect of NetSuite ERP, offering companies the ability to define and manage user roles for audit-ready SMBs. The audit layers might not be as intuitive as larger ERP systems that might provide visual transactional maps but NetSuite ERP provides enough details for SMBs with the log of changes with each business object for easier traceability.
4. Scalable Solution for SMBs
Due to its diversified support for most business models that could also be augmented through the marketplace, it might take a while before SMBs outgrow NetSuite. The solutions that target specific business models or processes struggle with businesses that might be growing faster or might be active with M&A cycles.
5. eCommerce Friendly
NetSuite ERP demonstrates suitability for retail companies, with the marketplace options prevalent with eCommerce-centric operations and data models aligned for these companies, especially when it comes to integration options with many different channels and omnichannel architecture. However, cautionary notes arise for medical device companies, where user experiences highlight potential limitations in meeting specific industry needs. Industry-specific recommendations emphasize the importance of considering NetSuite ERP based on the unique requirements of each business.
6. Strong CRM Capabilities
Businesses benefit from a seamless CRM integration, especially if they are not planning to use a third-party best-of-breed solution, for which the integration might be cost-prohibitive. The Netsuite CRM can support several advanced capabilities, such as territory planning sales comp for complex channels, capabilities commonly found in mature CRM systems.
7. Vibrant Marketplace
NetSuite ERP has perhaps the most vibrant marketplace across the ecosystems, especially friendly for their core industries. Most cloud-native ISVs, such as vendor collaboration, WMS, or TMS software that might not be available with other ERP ecosystems, are available with NetSuite. This is a huge plus for businesses with diversified business models or companies that might have expectations to diversify in the near future as part of their growth.
8. Weaker for Industrial Companies
NetSuite’s manufacturing functionality comes under scrutiny, with user feedback expressing concerns about perceived depth. User concerns have shed light on potential limitations, prompting considerations for businesses with manufacturing needs. Businesses with manufacturing requirements need to carefully evaluate NetSuite ERP’s capabilities to ensure they align with the depth and complexity demanded by their operations.
Sourcing and Procurement: It has a centralized supply portal that ensures compliance in the purchasing process. It also includes forecasting abilities that can recalculate predictions based on actual fluctuations.
Warehouse Management: It streamlines warehouse operations, decreasing overhead and cycle times. This feature also enhances on-time delivery rates, improving customer retention and boosting revenue.
Production Management: This feature has basic production management capabilities, ideal for assembly-centric operations. It can be augmented by more mature solutions through third-party add-ons for richer industrial capabilities.
Accounting: It has comprehensive accounting features, covering invoicing, forecasting, and aiding in tax calculations based on factors like location and revenue.
Pros and Cons of NetSuite ERP
Pros
Cons
1. Ideal for SMBs operating in many countries.
1. Not fit for companies operating only in a few countries. Also, those looking for deeper operational capabilities provided as part of the suite and owned by OEM.
2. Cloud-native technology provides richer cloud capabilities, such as enterprise search and mobile capabilities, that might be weaker than other solutions.
2. Not the best fit for companies for which operational capabilities might be a bigger critical success factor than cloud-native features.
3. Ideal for publicly traded and audit-ready companies because of the built-in SOX compliance capabilities.
3. Not ideal for startups with simpler operating models. They might find audit-centric and deep financial capabilities over-bloated.
4. Ideal for service-centric SMBs because of the integrated PSA, HCM processes, and subscription billing.
4. Not fit for industrial companies looking for deep operational capabilities built as part of the core solution.
5. Ideal for eCommerce-centric SMBs because the pre-integrated add-ons and data models are friendlier for these industries.
5. Not fit for companies deep into B2B workflows because the pricing, discounting, and product models are not scalable.
6. Ideal for holding and private equity companies looking to host diverse business models on one solution.
6. Not fit for companies without expected changes in the business model in the near future.
7. Ideal for companies looking for talent available in most countries.
7. The experience with support might vary depending on the vendors involved with the engagement.
8. Ideal for companies looking to find best-of-breed tools and can’t replace edge solutions mandated by the OEM.
8. Not fit for companies seeking OEM-owned integration with core operational systems such as CAD or PLM.
Conclusion
In summary, NetSuite ERP stands as a robust and versatile cloud-based ERP solution. It provides businesses with the automation and centralization needed for efficient operations. Offering a comprehensive suite of functionalities, from financial management to distribution and CRM, NetSuite ERP proves flexible and adaptable.
However, careful consideration is crucial, particularly for businesses with complex operational needs. NetSuite’s strengths in global expansion, core functionalities, CRM capabilities, third-party integrations and add-ons make it an excellent choice for SMB businesses. Especially in the retail, hospitality, and service-centric industries. Yet, users must navigate potential pitfalls, such as limited operational capabilities, reliance on third-party add-ons, and challenges for smaller implementations. In evaluating NetSuite ERP, understanding its key features, pros, and cons becomes imperative. This ensures alignment with the unique operational requirements of each business. This NetSuite ERP independent review intends to provide you with unbiased insights for further discussion with your independent ERP consultants.
+
ERP Implementation Failure Recovery
Learn how Frederick Wildman struggled with Microsoft Dynamics 365 ERP implementation failure even after spending over $5M and what options they had for recovery.
How does NetSuite ERP support businesses in achieving global expansion, and what advantages does it offer?
NetSuite ERP is instrumental in facilitating global expansion by efficiently handling operations across 200 subsidiaries. This capability provides centralized control, fostering efficiency for businesses managing operations in various countries or subsidiaries.
What factors contribute to NetSuite ERP being scalable for SMBs?
Due to its diversified support for most business models that could also be augmented through the marketplace, it might take a while before SMBs outgrow NetSuite. The solutions that target specific business models or processes struggle with businesses that might be growing faster or might be active with M&A cycles.
What makes NetSuite ERP a powerful solution for businesses?
NetSuite ERP is a robust cloud-based solution automating processes across diverse industries. With comprehensive functionalities spanning financial management, distribution, CRM, and supply chain management, it offers flexibility, adaptability, and a relatively low cost of ownership.
ERP pricing implementation is not as easy. It brings forth many challenges. Some of them include managing and integrating vast amounts of pricing data, ensuring pricing consistency across various platforms, keeping pricing information up-to-date in real time, staying compliant with industry regulations, and so on. The list goes on. When it comes to pricing, ERP systems have several business rules at various levels. And understanding the nuances of these layers is crucial for pricing to work as your expectations.
When we talk about ERP pricing implementation, it helps in supporting complex pricing structures and provides the users with the most accurate experiences. It creates a seamless experience between operations and customer experiences. Enabling ERP pricing implementation means customers are receiving the most accurate pricing data that helps them with their purchase decisions. Businesses also gain the freedom to tier their pricing and discounts catered to certain customers and manage their sales. This blog delves into the top 10 ERP pricing implementation considerations.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
While ERP pricing implementation, one of the critical factors that can significantly impact the integration is the intricacy of your product portfolio. For example, a company will face multiple challenges if it has a diverse product range. The need for multiple pricing tiers arises when dealing with various products, especially customizable ones. In this case, the company will have to publish the pricing in the market configure pricing in the ERP system, and e-commerce pricing. The result will be a complex web of pricing structures, leading to confusion in customer-facing situations.
The customer’s ordering experience will become a puzzle. This is because pricing depends on the channel through which the opportunity flows into the system. This will create challenges in managing repeat orders and introduce manual processes, making consistency a rare commodity. The lesson learned here is clear. When navigating the ERP pricing implementation, it’s crucial to streamline and simplify your product portfolio.
Strategies to Simplify Product Portfolios
Assess the performance of each product, identify the top-performing products, and consider phasing out those that contribute minimally to revenue.
Concentrate on your core products that align with your brand identity and meet the primary needs of your target audience.
Identify and eliminate redundant or overlapping products that serve similar purposes.
Listen to customer feedback and analyze demand patterns. Use this information to prioritize products that are in high demand.
Regularly review the lifecycle of each product. Consider discontinuing products that are at the end of their lifecycle and invest in innovation for new ones.
Create bundled offerings or packages that group related products together. This not only simplifies the purchasing decision for customers but also helps in promoting specific product combinations.
2. Pricing Dynamics
When we talk about pricing dynamics, several factors come into play, each influencing the cost structure and strategies employed by distributors and manufacturers. Understanding and navigating these diverse pricing dynamics are crucial during ERP pricing implementation. This understanding enables effective configuration of the ERP systems to accommodate different pricing structures. It also helps align them with the specific needs of the business. It also ensures pricing data accuracy and consistency within the ERP system. Businesses can adopt more customer-centric pricing strategies when they understand the pricing dynamics properly. They stay adaptable to market changes or shifts in demands and competition.
Key Dimensions in the Pricing Equation
Base Pricing. The foundation of any pricing strategy is the base pricing set by the distributor or manufacturer. This serves as the initial benchmark for products, reflecting their inherent value and influencing subsequent pricing adjustments.
Warehouse-Based Pricing. Introducing another layer of complexity, warehouse-based pricing depends on the geographical location of a warehouse. The same product may be priced differently based on the region or country where the warehouse is situated. This dynamic is driven by logistical considerations, regional cost variations, and market demands specific to each location.
Customer-Based Pricing. Adopting a customer-based approach, products are priced differently depending on the target audience. For retail customers, prices factor in elements like demand, competition, and perceived value for end consumers. Distribution customers, purchasing in bulk, face a different pricing structure. Manufacturers or distributors need to consider providing margins to accommodate the larger volumes bought by distributors, aligning pricing strategies with the distinct needs and purchasing behaviors of various customer segments.
Seasonal or Event-Based Pricing. Introducing a temporal dimension to the pricing equation, seasonal or event-based pricing strategies mean products may be priced differently during specific seasons, festivals, or events. This reflects the fluctuating demand and market dynamics tied to these timeframes.
3. Forms of Discounting
Discounting serves as a strategic layer atop the pricing structure, offering businesses a nuanced approach to adjust product costs and respond to various market dynamics. The ways that different forms of discounting affect the ERP pricing implementation are similar to how the pricing dynamics affect it. But there are some additions to it. Understanding this concept also helps businesses optimize costs in response to regional market demands. It helps in customer segmentation for more personalized and effective pricing.
Key Dimensions in the Discounting Framework
Base Discount. Applying a percentage reduction to the foundational base pricing, the base discount serves as a dynamic tool. It allows businesses to maintain a clear baseline for product values while introducing flexibility and responsiveness to market conditions, ensuring competitiveness without compromising perceived product value.
Location-Based Discounts. Providing an additional dimension to the discounting framework, location-based discounts optimize costs in response to regional market demands. These discounts tailor pricing strategies to specific warehouse locations, addressing pricing variations influenced by logistical, operational, or market-specific considerations.
Customer-Based Discounts. Extending adaptability to different customer segments, customer-based discounts cater to the unique needs of retail and distribution customers. This approach allows businesses to foster stronger relationships, enhance market penetration, and customize pricing for individual and bulk purchases.
Event-Based Discounts. Tied to seasons, festivals, or specific occasions, event-based discounts introduce a time-sensitive element. This dynamic enables businesses to align pricing strategies with the pulse of the market during specific periods, providing the agility to respond effectively to changing market dynamics.
4. Distribution Channels
Industries operating through multiple distribution channels, involving layers like manufacturers, distributors, and retailers, face unique challenges in devising pricing strategies. Each channel requires tailored pricing structures to address the distinct needs of intermediaries and end customers. This complexity is heightened without a unified pricing management system, making navigating and managing diverse pricing models effectively challenging. This disparity necessitates centralized control for effective management, especially considering the underlying thread of inventory that ties everything together.
5. Regulatory Challenges
Companies in sectors like healthcare, finance, or pharmaceuticals are bound by stringent regulations that significantly influence pricing strategies. Regulatory requirements may demand transparency in pricing, impose controls on pricing structures, or mandate compliance with specific pricing guidelines. Navigating these regulatory intricacies while maintaining competitive pricing adds complexity for businesses. As businesses strive for a unified and consistent pricing approach, navigating the regulatory landscape becomes critical to successful ERP pricing implementation.
6. Source of Truth
Ensuring a seamless ERP pricing implementation hinges on having a single, authoritative source of truth for pricing data. The ERP system emerges as this bedrock, embodying the most current and accurate pricing information. An architectural approach is often advocated that minimizes manual touches and ensures the fewest number of interactions. The crux lies in understanding the internal implications and how the architecture aligns with customer needs.
Despite potential organizational resistance, establishing the ERP as the unambiguous source of truth is the key to internal and external satisfaction. The critical role of the ERP system in pricing integration is magnified, particularly in contrast to the pitfalls of relying on third-party systems or maintaining pricing information in disparate locations. This narrative reinforces the need for a centralized control mechanism, emphasizing the ERP as the linchpin for consistent and accurate pricing across diverse channels.
7. Data Silos
A critical factor demanding attention is the emergence of data silos when utilizing pricing software or external tools, especially in contexts involving dynamic pricing or intricate formulas. A centralized source of truth is of utmost importance to prevent the potential pitfalls of neglecting consistent auditing within the ERP. The pricing information residing in various channels such as published pricing in the market, ERP-configured pricing, and e-commerce pricing, introduces challenges in maintaining consistency and accuracy, particularly when dealing with repeat orders from different channels.
8. Complexity of CPQ
Integrating CPQ systems requires extensive product details, customer information, and pricing data. Notably, sales and marketing teams resist direct engagement with ERP systems for quoting, further complicating the integration process. The inherent complexity of CPQ systems demands meticulous integration work, creating two-way loops within the ERP architecture. This further underscores the critical importance of addressing the challenges posed by CPQ integration to ensure a streamlined and efficient ERP implementation.
Some of these complexities involve data inconsistencies, the need to handle things externally, and the importance of having a structured pricing process. While there may be differences in opinions regarding the integration’s feasibility, the consensus is that maintaining a clear master-slave relationship, with the ERP system being the master, can help ensure successful ERP pricing implementation.
9. Two-way Integration
The criticality of seamless connectivity between CPQ systems and ERP involves a sophisticated two-way data flow mechanism where pricing details undergo dynamic changes based on evolving product configurations and customer requirements. Failure to consistently audit and manually check the ERP system introduces a cascade of problems, with a specific example illustrating challenges related to published pricing, ERP-configured pricing, and e-commerce pricing. The complexity arises when determining how to price an order, depending on the channel through which the opportunity is initiated. This manual process can lead to discrepancies, especially in repeat orders, creating a compelling argument for centralizing data within the ERP system.
10. Purchase Price
Navigating the landscape of ERP pricing implementation involves not only addressing pricing complexities on the sales side but also delving into the often-overlooked realm of the purchase price. The interconnected nature of the buying and selling sides of the business is often emphasized, stressing the importance of aligning these aspects to ensure overall consistency and efficiency. This advocates for a centralized control system within the ERP, despite potential challenges in getting the entire organization on the same page. It argues that treating the ERP as the source of truth for pricing data, even when residing in different channels, leads to better internal and external service in the long run.
+
ERP Implementation Failure Recovery
Learn how Frederick Wildman struggled with Microsoft Dynamics 365 ERP implementation failure even after spending over $5M and what options they had for recovery.
In conclusion, the blog stresses the need for businesses to address the challenges of ERP pricing implementation and advocates for centralized pricing data to mitigate these challenges. It emphasizes the impact of discounting forms, the intricacies of managing distribution channels, and the influence of regulatory requirements on pricing strategies. The central theme revolves around establishing the ERP system as the authoritative source of truth for pricing data. Despite potential resistance, the blog asserts that making the ERP the linchpin for consistent and accurate pricing across diverse channels is vital for internal and external satisfaction. It advocates for a centralized control mechanism within the ERP, underscoring its critical role in successful pricing integration.
Moreover, if you are contemplating ERP pricing implementation, it is essential to consider the factors that may impact your outcomes in the future. Understanding the dynamics of pricing and discounting adds another layer of insight to inform this decision-making process. Armed with this knowledge, you’ll be better equipped to engage in a meaningful and informed discussion with independent ERP consultants who serve as subject matter experts in this field. Collaborating with experienced ERP consultants becomes a strategic step in optimizing your pricing strategies and fostering a streamlined integration that stands the test of time.
FAQs
Why is it crucial to streamline and simplify the product portfolio during pricing integration with ERP systems?
Managing a diverse product range introduces complexities in pricing structures, potentially leading to confusion for customers. Streamlining the product portfolio simplifies pricing, enhances customer experience, and ensures consistency across channels.
How does understanding pricing dynamics contribute to effective pricing integration with ERP systems?
Pricing dynamics, including base pricing, warehouse-based pricing, customer-based pricing, and event-based pricing, influence the cost structure and strategies employed by businesses. Understanding these dynamics enables businesses to configure ERP systems effectively, ensuring accurate and consistent pricing data.
Why is the ERP system emphasized as the ‘source of truth’ for pricing data during integration, and how does it enhance internal and external satisfaction?
The ERP system serves as the authoritative source of pricing data, minimizing manual touches and ensuring consistency. Centralizing data within the ERP promotes accuracy, efficiency, and overall satisfaction internally and externally, aligning diverse channels and facilitating a streamlined integration process.
There are a lot of different ways of implementing pricing and discounting in ERP. But there’s always a debate in terms of which is the right system to implement. When we look at pricing, there are always going to be layers and layers of pricing rules. When we look across the industry, some people implement static pricing, which refers to setting prices periodically. It is often based on cost movements.
Secondly, there’s dynamic pricing, which means that prices can change frequently, sometimes even daily. It is to maximize profit or competitiveness like in e-commerce businesses. Lastly, there’s commodity-based pricing, which industries use where the cost of materials or goods fluctuates. Most of the time, the pricing is based on standard costs, which are generally planned costs that can be updated at periodic intervals.
This ignites the debate on where pricing should be managed—within the ERP system or externally. Businesses that lack control and consistency in their pricing strategies often face challenges such as maintaining complex distribution channels, tracking discounts and promotions, and handling overtime maintenance. These challenges call for centralized control over pricing offered by an ERP system.
Using an ERP system also eliminates the need for manual pricing decisions. It automates pricing calculations based on predefined rules, reducing errors and saving time. Many industries still resist adopting pricing and discounting processes, despite the advantages that ERP brings to the table. In this blog, we will discuss the top 10 best practices for ERP pricing and discounting processes that will help overcome this resistance.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
When dealing with resistance from team members or departments, it’s crucial to ask fundamental questions about the complexity of the existing pricing model. The first question is whether the complexity is truly necessary or if it has evolved without clear justification. Complex pricing models can lead to numerous challenges, such as incorrect order bookings, increased potential for human errors, and data entry discrepancies. Misaligned data between the teams responsible for pricing and those responsible for order entry can have significant consequences. It can also impact margins, financial reporting, and overall revenue accuracy.
Simplifying the pricing model leads to a more streamlined and manageable pricing structure, which not only reduces the chances of errors but also enhances overall efficiency. One way to achieve simplification is by categorizing customers, products, or pricing levels and starting with a broader, more straightforward structure. Then, refinements and adjustments can be made as needed.
2. Prevent Human Errors
When different teams are responsible for pricing and discounting data entry, it increases the risk of mistakes and inconsistencies in the pricing process. These errors can have far-reaching consequences, including incorrect pricing, impacting the organization’s profitability and customer satisfaction. Managing pricing and discounting within the ERP system significantly reduces the likelihood of such errors and discrepancies.
Human errors, such as typographical mistakes, miscalculations, or misinterpretations of pricing rules, can result in incorrect pricing on sales orders or invoices. These discrepancies not only impact the immediate transaction but can have a cascading effect, affecting the company’s financial statements and reporting. Maintaining pricing and discounting within the ERP system can mitigate these risks by providing a centralized platform where pricing data can be controlled, validated, and consistently applied. Additionally, automation and validation rules can help catch and prevent errors, ensuring that pricing remains accurate.
3. Tackle Data Entry Challenges
Managing pricing and discounting outside the ERP system presents significant challenges in terms of data entry accuracy and consistency. It’s often difficult to convince organizations to maintain pricing and discounting within the ERP system, and this reluctance can lead to various implications, especially when different teams are involved in the process. Discrepancies may emerge due to the lack of a centralized control mechanism. Various teams may have their interpretations and ways of entering pricing data, leading to inconsistencies and errors.
These discrepancies can not only affect day-to-day operations but can also have broader implications, impacting an organization’s financial statements, profitability, and customer satisfaction. The risk of data entry errors looms large, as any disconnect between those responsible for setting pricing and those managing data entry leaves room for mistakes, leading to many issues. Ultimately, the integrity and accuracy of data become challenging to maintain.
4. Maintain Consistency in Financial Data
When pricing and discounting are managed outside the ERP system, several challenges occur. Incorrect pricing, whether due to complexity or siloed departments, can have a far-reaching impact on a business. Even minor pricing errors can accumulate over time, resulting in inaccuracies in financial statements. A pricing structure that is too complex or fragmented can lead to errors in booking orders, creating discrepancies that accumulate over time.
These discrepancies ultimately affect an organization’s profit margins, financial reporting, and the general ledger. Maintaining pricing within the ERP system is the solution to mitigate these challenges. By doing so, organizations can ensure that their financial data remains consistent and accurate. This approach reduces the chances of human errors and ensures that data integrity is maintained throughout the organization.
5. Encourage a Step Back
Reconsider your pricing strategy and its complexity. Also, discuss the benefits of broad pricing rules that can later be refined. Embracing an ERP system for pricing can be challenging, but it’s essential to understand the implications of your pricing strategy and the advantages of a more flexible approach. By asking questions like, “Does it need to be this complex?” and “Why is it so complicated?” organizations can prompt a critical evaluation of their pricing practices. This questioning can lead to a realization that simplification is possible and can result in more straightforward, manageable pricing structures.
6. Automation and Integration
One compelling argument for maintaining pricing and discounting within the ERP is the automation and integration benefits it offers. When pricing rules are established within the ERP system, it can automatically compute prices based on various parameters such as customer, product, quantity, and more. This high level of automation saves both time and effort while also significantly reducing the risk of manual errors. ERP systems are also well-suited for seamless integration with other business processes, guaranteeing the consistent and accurate dissemination of pricing data throughout the organization. This means that prices are calculated consistently, from sales orders to invoices and across various touchpoints within the organization, ensuring that everyone works with the same pricing data.
7. Integration Requirements
When businesses opt for pricing and discounting outside of their ERP systems, it often necessitates developing complex data flows and integrations to ensure that pricing data is transferred accurately between various systems and departments. This is because pricing is closely tied to other processes, such as order booking and financial reporting, and ensuring consistency and accuracy in data flows becomes crucial. Without proper integration, data discrepancies can arise, leading to errors in pricing and resulting in financial and operational complications.
Furthermore, maintaining data accuracy for pricing is essential, irrespective of whether pricing and discounting is managed within or outside the ERP. Accurate pricing data is the foundation of fair transactions and profit margins. Inaccuracies can lead to errors in customer orders and invoicing, which can erode customer trust and impact financial performance. By emphasizing the need for data accuracy, it becomes evident that pricing data integrity is vital, and this can best be achieved by keeping pricing within the ERP system.
8. ERP User Interface Simplification
Customizing the user interface of an ERP system can be a powerful solution for making it more accessible to marketers. By customizing the user interface, it is possible to streamline and simplify the user experience. It makes it more user-friendly. This customization can involve creating simplified screens, reducing the number of fields, and focusing on the essential information required for pricing decisions. By doing so, marketers and other users can interact with the ERP system more comfortably. The ERP interface can be tailored to their specific needs and preferences.
9. Encourage Collaboration
To address the reluctance of some departments and promote collaboration, organizations should encourage a cross-functional approach to pricing. This emphasizes shared responsibility for data accuracy. In this context, it’s vital to establish common ground and understanding of the pricing process across departments. Instead of viewing pricing management as the sole responsibility of one department, organizations should highlight that pricing impacts multiple aspects of the business. This may including sales, finance, and marketing.
By fostering collaboration, various teams can contribute their expertise and insights to create more effective and well-rounded pricing strategies. Additionally, collaboration helps streamline the flow of information and communication. When multiple departments collaborate, it becomes easier to maintain data accuracy and ensure pricing decisions are based on up-to-date and consistent information.
10. Workflow and Approval Improvements
In the context of streamlining pricing and discounting changes, improving workflow and approval processes within the ERP is critical. Addressing resistance by educating stakeholders on the ERP’s architecture, data flows, and integration challenges, making it clear that maintaining pricing in the ERP is not as daunting as it may seem is important. By improving workflow and approval processes, organizations can create efficient systems for managing pricing changes. This can significantly reduce the complexities associated with pricing management while ensuring data accuracy and streamlined processes within the ERP.
+
ERP Implementation Failure Recovery
Learn how Frederick Wildman struggled with Microsoft Dynamics 365 ERP implementation failure even after spending over $5M and what options they had for recovery.
In conclusion, the blog dives into the details of best practices for pricing and discounting in ERP. Mainly highlighting the ongoing debate regarding where these critical processes should be managed – within an ERP system or externally. It emphasizes that pricing complexity often leads to multiple layers of rules. The blog discusses three primary pricing approaches: static pricing, dynamic pricing, and commodity-based pricing. While acknowledging the diversity of preferences, it emphasizes the importance of centralizing control over pricing within an ERP system.
The blog also talks about simplifying pricing models, preventing human errors and discrepancies, and tackling data entry challenges. All of which can adversely impact profit margins and financial reporting when pricing is managed externally. It further encourages a step back to rethink pricing strategies and adopt broader rules that can later be refined. Automation, integration, and improving the ERP user interface are identified as crucial aspects that can help businesses create a compelling case for pricing within the ERP system. The blog also highlights the importance of encouraging department collaboration and making workflow and approval processes more efficient. It also outlines a set of best practices to overcome resistance and successfully manage pricing and discounting processes within an ERP system. This list aims to offer potential options for your further evaluation with independent ERP consultants.
FAQs
How can organizations encourage departments to collaborate for effective pricing?
To promote collaboration among departments for pricing, organizations should emphasize shared responsibility for data accuracy and establish a common understanding of the pricing process across different teams. Instead of viewing pricing management as the sole responsibility of one department, organizations should highlight that pricing impacts various aspects of the business, including sales, finance, and marketing. Collaboration streamlines information flow and communication, making it easier to maintain data accuracy and ensure pricing decisions are based on up-to-date and consistent information.
Why does centralizing pricing within an ERP system is always recommended, and what are the advantages?
There are a few benefits of centralizing pricing within an ERP system, like it eliminates the need for manual pricing decisions, automates pricing calculations based on predefined rules, reduces errors, and saves time. This centralization provides a single, consistent platform for pricing control, validation, and application. It mitigates the risks of human errors and discrepancies, improves data integrity, and enhances overall efficiency in pricing and discounting processes.
What are the different pricing approaches, and how do they impact business processes?
There are generally three primary pricing approaches: static pricing, dynamic pricing, and commodity-based pricing. Static pricing involves setting prices periodically, often based on cost movements. Dynamic pricing allows prices to change frequently, sometimes daily, to maximize profit or competitiveness, especially in e-commerce businesses. Commodity-based pricing links product prices directly to the price of key commodities like copper. These approaches have various implications for business processes, and the choice between them can significantly affect pricing strategies.
Requiring substantial expertise to understand their implications, ERP contract are cryptic. While legal expertise might help negotiate and comprehend the language, you won’t understand the true implications unless you have expertise with many software packages, enterprise architecture, and licensing arrangements. Also, the ERP contract terms change as vendors update their pricing and configuration, more frequently than you would expect.
Also, the challenge is not just the complexity of ERP contracts. It’s also the refined negotiation skills of ERP salespeople. With proprietary knowledge to their advantage, they are trained negotiators. Unless you have access to the same proprietary knowledge to be at the same level, you can never beat them. And having this knowledge is only possible when you have someone with a similar skillset on your side. This is why ERP selection consultants and ERP sales reps make a good offense and defense combination.
Finally, most buyers are so biased in seeking discounts and the cheapest quote, with a limited attention span to identify and understand the risks buried with ERP contracts. The risks could be as severe as data loss or not understanding the ownership of components packaged with the software. The ERP contract terms outlined below will help you identify the risks buried with the ERP contracts and avoid any surprises after signing one.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
Understanding editions and modules and how they map to each SKU in ERP contracts is essential to avoid financial surprises post signing. Not familiar with editions and modules and how they work? Software vendors commonly price their products based on editions and modules. The main challenge with editions and modules is their overlap and configuration bundles, which means different bundling arrangements might have the exact same outcome but very different price points and risk profiles. So you need to make sure that you have the complete grasp of the fine lines around editions and modules.
To get the maximum discount, experiment with different configurations of editions and modules. But, don’t forget to understand their limitations. This requires a deep probing of how these editions and modules are structured and function, which may go beyond what the sales representatives can provide.
Once the contract is signed, scaling up the number of seats or expanding the scope of your ERP system is generally straightforward as this leads to additional revenue for them. But scaling down is a revenue loss for them, so they are likely to make it as difficult as possible. In most cases, prorated adjustments to your ERP contract terms might not be possible, unless the agreement explicitly articulates this provision.
3. User Access and User Types
Each ERP system and vendor is likely to have very different user access tiers and types. Even among different versions of the same product, the user access and types might vary. The user access and types could have several variables such as limited access vs full access users. Concurrent vs named users. Devices licenses vs application users. They each have implications on what users will do with the application and might drive the total contract value substantially.
Unless you have gone through rounds of due diligence, which is rare for most companies due to the amount of effort and investment required in the selection phase. Also, the perceived limited value of the due diligence might trigger companies to short-circuit the due diligence process, and because of this architecture might not be fully developed, limiting the visibility into access types required. You might also not have complete visibility into users’ workflow and how they will be using the software.
These issues collectively might drive changes to user access and types, leading to substantial financial surprises after signing the contract, which even the initially offered discounts might not be able to make up for. Therefore, it’s essential to perform the due diligence to an extent where you have relative confidence in the total contract value. And you are not being myopic with discounts. The ERP selection consultants can help you plan the user access and types better with limited financial surprises.
4. Reseller Tiers
Generally dictated by ERP publishers, each reseller is generally at a specific tier, which drives their discount and pricing, as well as the price and discounts they can offer you. The OEM typically determines these tiers based on various factors, such as the reseller’s sales performance, expertise, and commitment to selling the OEM’s products, including ERP (Enterprise Resource Planning) software and services.
OEMs often provide more generous discounts to new resellers to their partnership program. This is a strategic move to encourage newer partners to sell the ERP software and services actively, essentially helping the OEM build their customer base and expand their market presence. But wait, this might only be applicable for the first few deals, after that they are likely to lose this privilege as they will need to match the performance with their larger peers to be able to receive the same discounts.
Understanding their tier would be especially critical while switching resellers. The discount ERP contract terms and the overall agreement may not be the same with a new reseller as with the previous one. Therefore, it’s essential to carefully analyze the implications and terms of such a change to ensure it aligns with the company’s objectives and budget.
5. Discounts
Each vendors have their own discounting strategy, some keep their list pricing higher and discount heavily. The others, on the other hand, are likely to offer much lower discounts. The discounts could be up to 50-60% off the original list price, but they might also vary per line item. This is especially true with implementation and support line items. They might not offer as deep discounts. Some discounts might be available only in certain regions or with certain types of resellers, depending upon the strategic priority of the OEM.
Some discounts could also be timely. The discounts are likely to be higher in Q4 as ERP vendors might be trying to meet their numbers for the year and might offer much heavier discount. While planning your ERP implementation around discounts is a great idea, don’t make your decisions purely based on discounts. This is especially true while signing the ERP contracts. Don’t rush to sign an ERP contract just because the discounts might expire. Generally, ERP vendors match up the offer if the decision is likely to be purely based on price especially if they might not have a true differentiator.
The discounting might vary per rep as well, just because ERP vendors carry hundreds of SKUs and several different pricing and discounting strategies. Depending upon the skillset of the rep, you might not the best discount just because they might not understand all permutations and combinations. This is where ERP selection consultants can help. They have access to thousands of their previous quotes and can compare the discount at the line level, ensuring maximum discounts, without assuming unnecessary risk that might lead to financial surprises.
6. Price Lock
The decision about how long to sign the ERP contract might be tricky. If you sign up for a longer term and if the software doesn’t work to your expectations, you might be locked in the contract even if you are not able to use the software. But the shorter the term, the lower the discount. In the case of implementation issues, most ERP vendors might offer suggestions such as changing resellers or another round of implementation methodology but if there are serious implementation challenges due to the design of the software, you may end up losing even more. This would be true even after paying for the full term of the contract, without getting any value from the software.
So depending upon the risk profile of the project, you need to assess the right length of the contract. Don’t sign for longer term contracts purely because of discounts. Make an informed decision based on the risk profile of your implementation.
7. More Users/Feature Discount Guarantee
This clause addresses the situation where an organization plans to expand its usage of the ERP system by adding more users or activating additional features beyond what was initially agreed upon in the ERP contract. In such cases, the software vendor might have mechanisms to negotiate the pricing for these additional users or features.
Instead of guaranteeing the cheapest initial quote, some ERP vendors provide a different kind of assurance – a discount guarantee for future purchases or modifications. This means that if you decide to scale up your ERP usage by adding more users or enabling new features, the vendor commits to providing you with the same discounted rate, ensuring that you don’t pay the expensive list price.
By including this clause, you ensure that the favorable pricing and discounts you negotiated during the initial contract negotiation phase will still be applicable even when you make changes to the ERP system. This can help avoid unexpected expenses, accommodating your to-be state as you learn more about your needs in the implementation phase.
8. License Price Increase
Most ERP vendors understand that customers are not likely to switch from their ERP system once they are settled on it. Also, winning an ERP deal is extremely challenging because of the same issue. For these reasons, ERP vendors offer substantial discounts in the initial years. But the increase is likely to be steep with renewal.
Sometimes the increase might be so steep that smaller companies might struggle to afford it. That’s why negotiating a license price increase is essential. Some vendors are fair and they might not increase more than 5% and will be willing to include that provision. The other vendors might be tricky to work with and might discount the pricing so much in the initial years that a 5% increase or including such provision might not be feasible. Have a clause for the license increase baked in as part of the contract, even if you sign a shorter term contract.
Also, coverage of all items as part of the license price increase clause is critical. In some cases, if several third-party add-ons are included as part of the solution, the ERP vendor might not be able to guarantee the license price increase on those line items. In fact, changes in add-ons might also drive architectural changes and as a result, licensing, which might not be covered by the license price increase clause. Perform a risk analysis of each line item and assess if there might be any charges that might not be covered by the license price increase clause.
9. License Fee Waived Off First Year
When a vendor offers to “waive off” the license fee for the first year, it means they are willing to provide the ERP software to the customer for the initial year without charging the regular annual licensing fee. This offer is often made to ensure that customers only pay when they use the software in production. During the test phase, the cost for the ERP vendor is relatively low as the test infrastructure or the cloud instance is likely to be on inferior infrastructure and some vendors are willing to do that to ensure that the customers are not paying twice as they are likely to still pay for their old software while they implement and test the new one.
However, it’s crucial to understand that while waiving the license fee for the first year can be financially beneficial in the short term, it may impact the overall cost of the ERP solution over the long term. To evaluate the true cost-effectiveness of this arrangement, it is advisable to create a comprehensive cost schedule that takes into account all costs associated with the ERP implementation over a more extended period, such as 5 to 10 years.
10. Financing Options
Many ERP vendors may collaborate with third-party financial institutions to offer this option to their clients. However, it’s crucial to understand that ERP vendors often use this financing option as a negotiation tool to gain leverage on other ERP contract terms. They might expect concessions in other areas, such as customization, support, or pricing, in exchange for offering financing. Therefore, businesses should carefully assess whether this financing option aligns with their needs and objectives.
Suppose the financing option is not directly relevant to your situation, or you have access to other external funding sources. In that case, it may be wiser to concentrate on the contractual clauses likely to impact your overall cost structure significantly. Ultimately, the decision to utilize the financing option should be based on a thorough evaluation of your financial circumstances and the specific conditions outlined in the ERP contract. By doing so, you can ensure that you make informed choices that are in the best interest of your organization’s ERP implementation project.
+
ERP Implementation Failure Recovery
Learn how Frederick Wildman struggled with Microsoft Dynamics 365 ERP implementation failure even after spending over $5M and what options they had for recovery.
Your current edition and version may restrict the number of users that you can have on that version. If you outgrow that, then you need to switch to the next version, which might be more expensive than the smaller version. It’s crucial to understand your current version and edition to determine how this will impact your future pricing. Additionally, ensure that the price lock remains applicable if you switch versions or editions.
12. Transaction Restrictions
Similar to user limits, your current edition may also have transaction restrictions. Upon reaching these limits, you may be required to upgrade to a higher, more costly tier. It’s worth noting that the nature of transactions can vary substantially across industries. For industries with low-value transactions, such as retail, these restrictions can be particularly important during contract negotiations. Be sure to assess the implications of transaction limits.
13. Infrastructure Price Changes
Similar to third-party add-ons, ERP vendors may have limited control over the underlying infrastructure. Furthermore, claims of unlimited users may come with unexpressed restrictions. It’s essential to comprehend any imposed limitations to enable an unlimited model fully. These limits could pertain to storage, bandwidth, speed, infrastructure, and additional charges for add-ons. In some cases, these charges might surpass the licensing costs.
14. Application User Pricing
Pricing for application users or connectors may deviate from the pricing structure for named users. Familiarize yourself with the pricing variables, such as the number of transactions, API calls, queue messages, and other factors. Typically, these users need higher technical expertise to estimate transaction volumes accurately.
15. Third-Party Products and Warranties
ERP contracts are similar to complex bills of materials involving various dependencies, white-labeled add-ons, and products owned by third parties. Scrutinize the contracts and request the vendor to clearly specify the software products where warranty coverage may depend on their relationships with the vendors. Identify all the connections between the software providers and their vendors and how these relationships are established. Assess the potential consequences of losing these relationships and understand the warranties, especially in the context of pass-through warranties.
16. Ownership of Custom Code and Intellectual Property
Resellers or Independent Software Vendors (ISVs) may customize the software for you but might not grant access to the code, limiting your ability to seek support in the future. If a reseller or ISV plans to utilize any intellectual property (IP), ensure the contract includes provisions specifying ownership.
17. Data Ownership
Each ERP vendor may have distinct policies regarding data ownership. Thoroughly review the contract provisions to understand the format in which data will be provided and the duration for data access or deletion in the event of contract termination.
Conclusion
In conclusion, ERP contracts require expertise to uncover financial risks that might not be as obvious to a layperson. By understanding these ERP contract terms, you will be empowered to negotiate and minimize financial risks. Remember, ERP selection is only the beginning; managing change and ensuring the terms of your contract align with your business goals are ongoing processes. Having a knowledgeable ally by your side, one who keeps abreast of industry developments can be invaluable. So, as you embark on your ERP journey, don’t take ERP contracts lightly as they might fire back in ways you wouldn’t expect. This list aims to offer potential options for your further evaluation with independent ERP consultants.
FAQs
Why is it important to consider the potential escalation of software license costs in ERP contracts?
Considering the potential escalation of software license costs is vital because ERP vendors may significantly raise licensing fees upon renewal. Without a License Price Increase clause, organizations can be caught off guard by unexpected financial burdens. This clause safeguards against such scenarios, specifying the terms and conditions under which the ERP vendor can increase license fees upon renewal.
Why is the consideration of financing options significant in ERP contracts, and what factors should organizations keep in mind when evaluating these options?
Financing options can be a valuable way to manage the costs of ERP implementation, but organizations must assess their relevance. ERP vendors may use financing as a negotiation tool, so it’s crucial to weigh potential concessions in other contract areas. When evaluating financing options, consider whether they align with your organization’s needs and objectives, accounting for the specific conditions outlined in the ERP contract to make informed decisions.
What is the significance of understanding editions and modules in ERP contracts?
Understanding editions and modules in ERP contracts is crucial because they affect pricing and discounts offered by software vendors. ERP software often comes in different editions with slight variations or additional features, and these can impact the cost. It’s essential to assess these variations to access the best discounts and ensure that your chosen edition aligns with your business needs.
In today’s evolving business landscape, ERP systems play an important role in streamlining operations, enhancing efficiency, and providing real-time insights to support decision-making. When it comes to ERP implementation, businesses often face a crucial decision: choosing between cloud ERP vs on-premise ERP. Each option has its unique advantages and drawbacks, and the choice largely depends on your organization’s specific needs and objectives. Therefore, here are six criteria that might help you choose between the two:
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
One of the fundamental differences when choosing between cloud ERP vs on-premise ERP lies in their contractual models. Cloud ERP typically operates under a subscription services agreement, often referred to as software as a service (SaaS). This means that when you opt for a cloud ERP solution, you essentially enter into a recurring fee arrangement. Much like a monthly or annual subscription, you pay for access to the software for a predetermined period. This subscription-based model offers businesses a pay-as-you-go approach, allowing them to access the ERP system without needing a substantial upfront investment.
On the other hand, the contractual model for on-premise ERP follows a different path. It involves a one-time license fee for purchasing the software. In addition to the upfront licensing cost, businesses need to budget for periodic maintenance and support fees to ensure the software remains updated and well-supported. Unlike the cloud ERP’s subscription-based approach, on-premise ERP necessitates a significant initial investment in the license fee. This cost model often results in higher upfront expenses, making it crucial for organizations to weigh the benefits of perpetual ownership against the immediate financial implications. Therefore, the choice between these two contractual models represents a fundamental decision point in ERP selection, heavily influenced by the organization’s financial capacity, long-term strategy, and budgeting preferences.
2. Fee Structure
When it comes to cloud ERP, businesses must pay a periodic subscription fee. This fee grants them access to the ERP software for a specific duration, much like a monthly or annual subscription to an online service. This subscription model provides a high degree of flexibility and scalability, making it a compelling option for organizations seeking to effectively manage their expenditures while maintaining the capacity to adapt to evolving business requirements. Cloud ERP’s subscription-based fee structure offers the advantage of pay-as-you-go, allowing businesses to pay for what they use and adjust their subscription as their needs change. This financial agility is particularly appealing to smaller enterprises and those operating in dynamic environments where the ability to scale resources up or down is a critical requirement.
In contrast, the fee structure for on-premise ERP significantly diverges from cloud-based counterparts. When opting for an on-premise ERP system, an organization must make a one-time payment as a license fee to acquire the software. This initial license fee can be a substantial upfront investment. However, this is not the end of the financial commitment. Ongoing maintenance and support fees are obligatory to ensure the software remains up-to-date, well-supported, and compliant with changing regulations and business requirements. These fees are recurrent and necessary to keep the software functioning optimally. While the up-front license fee grants perpetual ownership of the software, these additional recurring costs are crucial for maintaining the efficiency, security, and functionality of the on-premise ERP system.
This fee structure reflects a different approach to financial investment, emphasizing a one-time capital outlay followed by recurring operational expenses. This approach might be more suitable for larger enterprises with the capacity to invest significantly upfront and maintain dedicated IT staff to manage the system.
3. Rights
Cloud ERP operates under a subscription model, meaning that your organization essentially rents the software for the subscription period. This arrangement offers flexibility, allowing businesses to scale their usage up or down as needed, and it provides a sense of agility. However, it’s crucial to understand that your right to access and use the software is contingent on the continuation of your subscription. Once the subscription period ends, so does your access. This can be a double-edged sword, as it provides adaptability but also means ongoing costs.
On the other hand, on-premise ERP takes a different approach by offering a perpetual license. This means that, upon purchase, your organization secures the right to use the software indefinitely. This can particularly appeal to businesses looking for a long-term, one-time investment. It essentially grants you ownership of the software, providing a sense of control and independence. However, it’s important to note that this perpetual license doesn’t necessarily cover ongoing support and maintenance, which typically come with additional costs. The choice between these models hinges on your organization’s specific needs and long-term objectives. Cloud ERP’s subscription model suits those seeking flexibility and scalability, while on-premise ERP’s perpetual license is favored by those aiming for a lasting investment with full control over the software.
4. Hosting Model
The hosting model in the cloud ERP versus on-premise ERP comparison defines the ownership and management of the enterprise architecture where your ERP system resides. In the case of cloud ERP, the hosting responsibility falls squarely on the shoulders of the ERP vendor. This means the vendor sets up, maintains, and manages the servers and the underlying infrastructure required for the ERP system to function. They are also responsible for ensuring the system runs smoothly and any technical issues or updates are addressed promptly. This hands-off approach can appeal to businesses as it relieves them of the burden of managing IT infrastructure, which can be resource-intensive.
In contrast, on-premise ERP shifts the hosting responsibility to the customer. When an organization opts for an on-premise solution, they need to invest in and maintain their own servers and IT infrastructure to house the ERP system. This entails purchasing the necessary hardware, setting up data centers or server rooms, and having IT personnel oversee the ongoing enterprise architecture maintenance and support. While this approach provides greater control and privacy over data, it also requires a significant upfront investment and ongoing operational costs. It’s important to carefully assess your organization’s IT capabilities and resources when considering the hosting model, as it can substantially impact the long-term management of your ERP system.
+
ERP Implementation Failure Recovery
Learn how Frederick Wildman struggled with Microsoft Dynamics 365 ERP implementation failure even after spending over $5M and what options they had for recovery.
Data backup and redundancy are fundamental to any robust ERP system, ensuring business continuity and data integrity. When it comes to cloud ERP, these aspects are typically handled by the vendor, relieving the user’s burden. The vendor implements automated data backup processes, regularly copying and storing your data in secure, off-site locations. This meticulous approach minimizes the risk of data loss in case of unexpected events, such as hardware failures, natural disasters, or cyberattacks. In essence, your data is well-protected and can be swiftly restored, reducing downtime and potential financial losses.
Conversely, with on-premise ERP, your organization is responsible for application backup and redundancy. This entails investing in backup solutions, establishing comprehensive project recovery plans, and maintaining the necessary infrastructure to safeguard your data. While this approach grants you greater control over your data’s security and recovery processes, it requires substantial resources, including IT expertise and budget allocation. Failing to adequately address these aspects can result in prolonged system downtime and potential data loss, making it critical for on-premise ERP users to proactively manage their data backup and redundancy solutions to maintain business continuity.
6. Software Source Code Modifications
Customization significantly tailors an ERP system to align with a business’s specific needs and processes. The customization differs significantly in the context of cloud ERP vs on-premise ERP. Cloud ERP solutions typically limit the extent of customization permitted by the vendor. While you may have some flexibility to configure settings, make minor adjustments, and personalize certain aspects of the system, extensive modifications to the software’s source code are generally restricted in cloud-based systems. This limitation is mainly in place to maintain system stability and ensure that customizations don’t interfere with the software’s core functionality. Cloud ERP providers aim to provide standardized, easily maintainable solutions that cater to a broad range of businesses, so they often limit deep-level source code alterations.
Conversely, on-premise ERP software offers a more significant degree of flexibility when it comes to software source code modifications. Businesses can often negotiate with the ERP vendor to make changes customizations, or fine-tune the source code to align more closely with their highly specialized or unique requirements. This extensive customization ability is a major advantage for businesses with intricate processes or specific industry demands. With on-premise ERP, you have greater control over the software’s underlying code, allowing you to create a more tailored solution. However, it’s essential to recognize that this level of customization may require a skilled IT team and lead to higher ERP implementation and maintenance costs, as well as the need for more significant oversight to ensure that the system remains stable and secure.
+
Digital Transformation Change And Project Management
Learn how Big Country Raw managed the change and transformation despite their limited budget for ERP implementation and eCommerce integration.
In conclusion, the choice between cloud ERP vs on-premise ERP depends on your organization’s specific needs, budget, and IT infrastructure capabilities. Cloud ERP offers flexibility, scalability, and hands-off management, making it suitable for businesses looking to streamline operations quickly. On the other hand, on-premise ERP provides a long-term investment with greater control over customization and data management.
Carefully assessing your business requirements and considering the factors mentioned above will help you make an informed decision and choose the ERP solution that aligns with your objectives and growth plans. Ultimately, both options have their strengths, and the right choice is the one that best serves your unique business needs. This list aims to offer potential options for your further evaluation with independent ERP consultants.
FAQs
What is the fundamental difference between cloud ERP and on-premise ERP regarding their contractual models?
The fundamental difference is in their contractual models. Cloud ERP operates under a subscription agreement, where you pay recurring fees for access. This subscription model is akin to a monthly or annual fee, providing flexibility and scalability. On the other hand, on-premise ERP involves a one-time license fee for software purchases, with additional periodic maintenance and support fees. It’s a substantial upfront investment, and this model might be more suitable for organizations with a long-term outlook and financial capacity.
What advantages does the fee structure of cloud ERP offer to businesses?
Cloud ERP uses a periodic subscription fee structure, which provides businesses with flexibility and scalability. They can pay for what they use and adapt their subscriptions to changing needs. This model suits smaller enterprises and dynamic environments where the ability to scale resources up or down is essential. It’s a pay-as-you-go approach that helps manage costs effectively.
How does the hosting model differ between cloud ERP and on-premise ERP?
Cloud ERP places the hosting responsibility on the vendor, meaning they manage the infrastructure and servers. On the contrary, on-premise ERP shifts the hosting responsibility to the customer. Organizations opting for on-premise solutions must invest in and maintain their own IT infrastructure. While this provides greater control, it requires a significant upfront investment and ongoing operational costs. The choice depends on your IT capabilities and resources.
If you can build the consensus as part of your ERP projects, your ERP implementation will likely be successful. Building consensus is always the first challenge. Since ERP implementations involve various teams and stakeholders, the challenges associated with it are multifaceted if everybody is not on the same page. What consensus does not usually represent is when decision-making in the organization is very centralized and is not spread across the departments.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
If a broad consensus does not exist among the leadership team, the management team, and even the process owners, it can make the ERP project fall apart if the controller walks out of it in the middle of the project. It can be a nightmare. Therefore, in this blog, we will explore the top 10 strategies to build consensus among ERP teams.
1. Establishing Clear Goals and Objectives
The ERP implementation process should always begin with setting crystal-clear objectives and goals. Keeping the goals straightforward and comprehensive cannot be stressed enough. For example, if your existing ERP system is outdated and you wish to upgrade to the latest technology, this simple and high-level goal can be the guiding light for the entire team. These goals act as a foundation upon which the strategies and actions are built, ensuring that everyone is moving in the same direction.
A balanced approach, in this case, always works to establish clear goals and objectives. Simply asking team members, “What do you want to do?” might lead to uncertainty and vague responses. Therefore, providing a framework or structure for these goals, and then seeking input and feedback from team members, can be highly effective. By offering guidelines and allowing team members to have their say within a defined framework, you strike a balance between giving them a sense of involvement and providing a structured direction.
2. Leadership Commitment and Engagement
Effective ERP implementation requires leadership that leads by example. When leaders are actively engaged and committed to the project, their enthusiasm becomes contagious. Their involvement sets the tone for the entire team, demonstrating the importance of the ERP project. In essence, they act as cheerleaders, rallying the troops and showing that they believe in the project’s potential. Leadership commitment is essential not only to encourage the team but also to convey the message that this ERP implementation is a top priority for the organization. When team members see that leaders are dedicated, they are more likely to follow suit, building consensus around the project’s significance.
3. Effective Communication and Transparency
Open and transparent communication is the lifeblood of any successful ERP project. Clear communication channels ensure team members are on the same page and aware of project developments. Transparency fosters trust, as team members feel informed and included in the decision-making process. It also helps in addressing concerns early, preventing any misalignments or misunderstandings from derailing the project.
Effective communication generally includes regular team meetings, progress updates, and a willingness to listen to team members’ feedback and concerns. Moreover, providing straightforward answers to questions and being candid about potential challenges and roadblocks will further enhance the team’s understanding and willingness to support the project.
4. Inclusive Team Collaboration
ERP implementations often involve various teams and departments within an organization. To build consensus, it’s essential to foster inclusive team collaboration. This means breaking down silos and encouraging different functional teams to work together. By involving all relevant departments, you can ensure that no critical perspectives or needs are overlooked. Cross-functional collaboration also instills a sense of ownership within the team as they collectively contribute to shaping the ERP system.
In practice, you can create interdisciplinary teams that consist of members from different departments who work together to understand and address the unique requirements of their respective functions. This approach encourages a collaborative spirit and ensures that all voices are heard. When everyone has a say in how the ERP system will work for their department, it paves the way for stronger consensus and alignment across the organization.
+
ERP Implementation Failure Recovery
Learn how Frederick Wildman struggled with Microsoft Dynamics 365 ERP implementation failure even after spending over $5M and what options they had for recovery.
5. Identifying and Addressing Stakeholder Concerns
ERP implementations can be a source of uncertainty and apprehension for many stakeholders. It’s crucial to identify and address their concerns proactively. The hesitation to embrace change is a common issue, and it’s vital to understand these concerns. Open dialogue is the key to resolving these doubts and gaining consensus.
Stakeholder concerns can vary widely, from fears of job displacement to worries about workflow disruption. A crucial step is to engage with stakeholders directly, listen to their worries, and provide clear and honest responses. When their concerns are acknowledged and addressed, it can go a long way in building their trust and consensus in the ERP project. In addition to formal channels, informal conversations and feedback mechanisms should be established, ensuring that no issue remains unaddressed. By recognizing and dealing with these concerns, the ERP team can create a supportive environment that facilitates consensus-building.
6. Early User Involvement
End-users are the backbone of any ERP system. Their involvement should start from the project’s inception. It’s common for teams to claim that they understand the ERP system’s implications and are ready for implementation, but the actual testing reveals otherwise. To avoid such situations, engage end-users from the beginning.
Incorporating end-users in the initial stages allows them to take ownership of the project. Their hands-on insights are invaluable for tailoring the ERP system to meet their specific needs. Additionally, early involvement helps prevent surprises during testing and rollout, as issues are identified and resolved beforehand. When end-users have a say in shaping the system that will impact their daily work, they are more likely to embrace it enthusiastically.
+
Digital Transformation Change And Project Management
Learn how Big Country Raw managed the change and transformation despite their limited budget for ERP implementation and eCommerce integration.
An ERP system is only as effective as the team using it. Providing comprehensive training and skill development programs is crucial for team members to navigate the system with confidence. Training should be an ongoing process, adapting to the evolving needs of the team and the ERP system itself.
Training ensures that team members are not only capable of using the ERP system but are also proficient in doing so. Proper training results in a smoother transition during system adoption and reduces the likelihood of errors or inefficiencies. Additionally, ongoing skill development keeps the team updated on new features and functionalities, maximizing the system’s potential and ensuring long-term consensus.
8. Change Management
Change is a natural part of any ERP implementation. Effective change management involves guiding teams through this transition period. The lack of change management can lead to confusion and resistance, which can hinder consensus.
A structured change management approach helps the team adapt to new processes and procedures with minimal disruption. It includes communicating the reasons for the changes, addressing concerns, and involving team members in the change process. Successful change management not only aids in building consensus but also streamlines the ERP implementation journey.
9. Recognizing And Addressing Red Flags
The ability to recognize early warning signs of resistance or misalignment within the ERP team is critical. The failure to identify and address red flags can lead to project delays and increased costs.
These red flags may include resistance to change, disputes over system functionalities, or a lack of engagement during team meetings. The key is to remain vigilant and address these issues promptly. Whether it’s by offering additional support, clarifying project goals, or revisiting training sessions, early intervention is crucial for maintaining consensus and ensuring a successful ERP implementation.
10. Building Consensus With Executives
While building consensus among team members is essential, it’s equally crucial to gain the support and alignment of executives. Some executives may not fully comprehend the operational intricacies of ERP implementations. Therefore, strategies are needed to ensure that executives are well-informed and engaged in the project.
Building consensus with executives involves providing them with a clear understanding of the project’s objectives, benefits, and potential challenges. It also entails keeping them actively involved in decision-making and ensuring that their expectations align with the project’s realities. When executives and team members share a common understanding and commitment to the ERP project, consensus is more likely to be achieved.
Conclusion
In conclusion, building consensus among ERP teams is a multifaceted process that involves clear objectives, strong leadership, transparent communication, and inclusive collaboration. Identifying and addressing stakeholder concerns, early user involvement, and comprehensive training are essential components of this journey. Effective change management and the ability to recognize red flags ensure that consensus is maintained throughout the project.
Building consensus with executives adds another layer of alignment. By implementing these strategies, ERP teams can navigate the challenges and complexities of ERP projects while achieving successful outcomes. Consensus within the team paves the way for a seamless ERP implementation and empowers organizations to leverage their systems effectively.
FAQs
Why is it essential to establish clear goals and objectives for ERP implementation?
Clear goals and objectives serve as the foundation for any successful ERP implementation. These goals provide a shared vision that guides the entire team, ensuring everyone is moving in the same direction. With straightforward and comprehensive objectives, team members understand the purpose of the ERP project, which is crucial for building consensus. It’s like setting a course for a successful voyage – without it, the team may drift off course and face challenges in achieving their desired outcomes.
How does involving end-users from the beginning help in building consensus?
Involving end-users at an early stage of the ERP project is critical for multiple reasons. When end-users take part from the project’s inception, they develop a sense of ownership, leading to a higher level of commitment. Their hands-on insights and feedback are invaluable in tailoring the ERP system to meet their specific needs. Furthermore, early user involvement helps prevent surprises during testing and rollout by identifying and addressing issues beforehand.
Why is recognizing and addressing red flags essential during an ERP implementation?
Recognizing and addressing red flags is crucial because it helps prevent project delays and increased costs. These red flags, such as resistance to change or disputes over system functionalities, can hinder consensus within the ERP team. Early identification allows for prompt intervention, whether through additional support, clarification of project goals, or revisiting training sessions. By addressing these issues promptly, consensus is maintained, and the ERP project is more likely to succeed.
ERP contracts are not as straightforward. Depending upon the engagement structure (and different parties involved), the arrangements could vary, with serious implications on the outcome. These agreements include various elements, such as relationships and obligations of different parties involved, including licensing, pricing, implementation, support, and maintenance. They set the tone for your ERP initiatives.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
Misunderstandings start with the misalignment in expectations. Even if different parties claim to be aligned, they might still arise because of the language used. The same keyword could mean different things in different contexts. For example, customers might expect ERP vendors to do the heavy lifting. However, vendors might expect their role to be just advisory due to the limited budget. Even if contracts might include detailed RACI charts, there might still be layers that might cause confusion and disagreements.
Moreover, customers struggle with ERP contracts due to their myopic focus on hourly rates, pricing, and discounts, and because of this, they lose sight of details. The problems with contracts are very similar to any complex project, especially with scheduling. Because customers underestimate the complexity and expertise required to read between the lines. This article will explore the top five types of ERP contracts, discussing their nuances, benefits, and potential drawbacks.
ERP Selection: The Ultimate Guide
This is an in-depth guide with over 80 pages and covers every topic as it pertains to ERP selection in sufficient detail to help you make an informed decision.
1. Software License, Implementation, and Support on OEM Papers
In this ERP contract arrangement, you enter into multiple contracts directly with the software OEMs. In the ERP industry, the OEM would be software publishers such as SAP, Oracle, or Microsoft. The software OEMs would not only provide the software and product support, but they would also use their professional services to help with implementation. These contracts are usually segregated into software, service, and support agreements, each serving a distinct purpose and carrying different legal obligations.
The software agreement encompasses an End User Licensing Agreement (EULA), which defines the terms and conditions for utilizing the ERP software and the accompanying IP rights. On the other hand, the services agreement focuses on the services related to implementing the ERP software. This typically includes information about the skills required, the methodology for implementing the software, project timelines, and the roles and responsibilities of both parties involved.
The support agreement specifies the support services provided for the ERP system. It often categorizes support into different tiers based on the severity of issues, sets timelines for issue resolution, and may define billing rates for additional services not covered by the initial support agreement. This agreement may also contain provisions related to warranties.
Key points to remember: OEMs are generally cautious in their consulting and support recommendations. The caution arises because any help or recommendations they provide in areas not explicitly defined in the contract may affect their obligations under the software agreement. By assuming too much risk in these areas, the software company may potentially jeopardize its software contract so they may be conservative in their approach.
2. Software Licenses on OEM Papers; Engagement with a Reseller
In this arrangement, the software contract is still with an OEM, but your primary engagement will likely be with a reseller. These resellers typically have access to the OEM’s quoting software and can provide a quote on official OEM documents.
In this arrangement, the OEM works in the background. They may not actively engage with the customer unless specific issues arise that may require their involvement, particularly if the customer’s relationship with the reseller becomes problematic. In such cases, the OEMs generally take over the reseller and might suggest switching to another reseller. In this arrangement, there are potential issues to consider:
Discounts and Costs: The discounts and costs associated with the ERP software may change based on new resellers’ tier status.
Reseller Commissions: Switching to a different reseller might affect the commission structure, potentially leading to a loss of existing discounts or benefits.
Support Costs: If the company decides to switch back to the OEM for support, this may be more expensive than receiving support from the reseller.
Key points to remember: The support for the ERP software in this arrangement can vary. Sometimes, the software OEM may still provide support directly, or the reseller might handle the first level of support. The reseller will collaborate with the OEM if more advanced support is required. Implementation contracts with resellers are usually easier to switch unless the reseller has used proprietary intellectual property (IP) in the implementation. In such cases, changing resellers can be more challenging, as the new reseller or the OEM may not possess the specific industry-specific IP needed for the system to be useful for the customer.
3. Software Licenses on Reseller’s Papers
In this arrangement, the software vendor (OEM) transfers the legal responsibility for the software to the reseller. This means that the reseller becomes primarily accountable for the software sales, support, and any legal issues that may arise. The relationship between the OEM and the reseller remains transactional, meaning the OEM would still transact with the reseller for each transaction rather than buying in bulk. The reseller earns a commission for each sale it makes.
However, the OEM does not control (at least not directly) the final selling price the reseller offers to customers. The OEM provides the software to resellers at a wholesale price. This wholesale price is typically lower than what end customers pay. In this arrangement, the reseller can determine the final selling price to customers.
Key points to remember: The legal responsibility for the software product is entirely shifted to the reseller. In other words, if any legal issues or disputes arise related to the software, the reseller is held accountable. The reseller is also responsible for providing customer support for the software. Customers may contact the reseller for assistance, and the reseller is expected to resolve any issues. Additionally, the reseller may be able to customize the software to meet industry-specific needs. It’s common for resellers in this arrangement, especially those dealing with horizontal software platforms such as SAP, Oracle, NetSuite, or Microsoft, to have their own Intellectual Property (IP) that enhances the core software. This IP may provide industry-specific functionalities that cater to the unique needs of specific business sectors or verticals.
+
ERP Implementation Failure Recovery
Learn how Frederick Wildman struggled with Microsoft Dynamics 365 ERP implementation failure even after spending over $5M and what options they had for recovery.
4. Software Licenses Sold in an OEM Relationship by Software OEMs
This is a special arrangement with resellers and might be reserved only for certain territories/geographies or for very large resellers. In this arrangement, the resellers acquire licenses from their software publishers (or software OEMs) in an OEM arrangement. This agreement might be based on a volume purchase, which means the reseller commits to buying a large number of software licenses.
In this scenario, the reseller could substantially change the software’s code, including selling under a completely new brand in a white-label arrangement. This can include customizing the software to meet specific needs, adding new features, or altering the software’s appearance.
Key points to remember: In this situation, the reseller OEM primarily acts as the software platform provider. They focus on creating and maintaining the core software product. You might have limited or no direct interaction with the software OEM as a customer. Instead, your dealings would be mainly with the reseller OEM. Since you’re primarily dealing with the reseller OEM, you may not have access to the software OEM’s support and resources. If you encounter issues or need assistance, you typically contact the reseller OEM. If the reseller chooses to white-label the software, they may establish support and implementation services. This means they’ll provide customer support and help with the software’s deployment independently of the software OEM. They might have their dedicated support team and resources to assist you.
5. Software Licenses Sold in a Master Distributor Relationship
In this arrangement, the software OEMs may have several layers of master distributors with their respective channels to distribute the licenses. This arrangement is similar to the reseller OEM relationship in #4, where the software OEM will likely be least involved with the licensing and support. And for the most part, you are likely to deal with a master distributor.
Key points to remember: This arrangement is especially common with companies selling hardware, but software vendors like Microsoft will likely have similar relationships even for their ERP channel. Due to the nesting of relationships and contractual dependencies, this is perhaps the most convoluted arrangement where understanding the roles and responsibilities of each party might be harder, even for ERP experts.
+
ECommerce Supply Chain Transformation
Learn how LockNLube transformed its inventory and supply chain challenges by consolidating over 20 systems.
Understanding the legal obligations of each party involved is essential for the project’s success. Otherwise, get ready to face the financial and legal surprises. These relationships and arrangements can challenge even the professionals tracking the space daily. So, don’t underestimate the expertise required to understand these contracts. Hire the advisors at least for negotiation before creating a million-dollar disaster by not fully understanding what you are signing up for.
ERP Selection Requirements Template
This resource provides the template that you need to capture the requirements of different functional areas, processes, and teams.
How do ERP contracts assist in risk management during an ERP implementation?
By clearly delineating responsibilities, timelines, and obligations, these contracts safeguard against unforeseen setbacks and disputes that may arise during your ERP project. They provide a structured framework for managing the complexities of ERP implementation.
What are the primary elements covered in ERP contracts, and why are they crucial for ERP projects?
ERP contracts typically encompass licensing, pricing, implementation, support, and maintenance. Understanding these elements is vital because they define the relationship between your organization and the ERP vendor, ensuring a successful project.
What factors should organizations consider when choosing between different types of ERP contracts, such as those involving OEMs or resellers?
Organizations should evaluate factors like the level of vendor involvement, support mechanisms, pricing flexibility, and legal responsibilities when deciding on the most suitable ERP contract type for their specific needs.
The list of ERP business processes is endless and can seem overwhelming. However, not all these processes hold equal importance and can vary significantly depending on their interaction with the ERP system. While core processes tend to be consistent across most solutions, non-core ERP business processes vary considerably.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
Various factors influence whether a business process qualifies as core or non-core. Typically, core processes are hosted within the ERP system, while non-core ERP business processes may often reside in external systems. For instance, the order-to-cash process is a classic example of a core ERP cross-function business process commonly integrated into the ERP system. Other processes like Dispatch-to-deliver and Issue-to-resolution demonstrate high levels of integration with ERP systems but may vary based on business models.
Cross-functional business processes can also undergo significant transformations depending on the industry they serve. For instance, the order-to-cash process for a manufacturing company can differ substantially from that of a transportation company, with the latter possibly residing in a Transportation Management System (TMS) rather than the ERP. Understanding these non-core ERP business processes is essential for making informed decisions about system selection and architecture, as the line between integrating them into the ERP or opting for a best-of-breed solution can be quite thin.
ERP Selection: The Ultimate Guide
This is an in-depth guide with over 80 pages and covers every topic as it pertains to ERP selection in sufficient detail to help you make an informed decision.
The dispatch-to-deliver business process initiates when a shipment is ready to dispatch from the facility. It involves several steps, like planning and coordinating various stages in the supply chain. It is to ultimately deliver goods to the customer and obtain their signature as proof of receipt. This business process primarily falls under the responsibility of the supply chain execution function.
Typically, ERP systems do not include the dispatch-to-deliver process as an integral part of their functionalities. Instead, specialized systems like WMS(Warehouse Management System) or TMS(Transportation Management System) generally facilitate this process.
However, some systems available in the market offer an embedded experience for the entire dispatch-to-deliver process. Therefore, when deciding how to manage the dispatch-to-deliver process within your organization, you should consider transaction volume and architectural requirements. Depending on your specific needs, you can incorporate this process within your ERP system or introduce a dedicated WMS or TMS system into your architecture.
2. Hire-to-retire
The HR department primarily manages the hire-to-retire process. It begins with the recruitment of candidates, their onboarding, training, and monitoring of their job performance, and concludes with the necessary procedures when the company either terminates them or they leave voluntarily.
In most cases, an HCM system facilitates this process. Generally, ERP systems do not have the functionality to host this process. However, there are instances when the hire-to-retire process interacts with ERP systems in industries where specific skills and certifications are integral to the operational processes.
In such cases, ERP systems tailored for these industries may incorporate certain elements of the hire-to-retire process. This integration ensures that HR-related data, like employee skills and certifications, is seamlessly integrated into the broader ERP system, enabling better workforce management within the company’s overall operations.
3. Issue-to-resolution
The issue-to-resolution process is a fundamental customer service procedure that companies follow to address customer concerns and ensure the smooth functioning of their products or services. It typically commences when customers reach out with specific issues related to their equipment or services. Upon receiving the customer’s call or inquiry, service teams assess whether the equipment or service is still under warranty coverage as the first step. This can significantly impact the resolution process.
If the warranty covers the equipment or service, the service team provides the necessary services to rectify the issue. In cases where the warranty has expired or does not apply, the service team may initiate the process of issuing a purchase order for any required replacement parts or services. This process may sometimes involve physical visits to the customer’s location, especially if there is a need for on-site repairs or inspections.
Managing this process is essential for customer satisfaction and operational effectiveness for companies. They often host this process inside CRM or a best-of-breed field service system. Depending on their specific needs and preferences, some companies integrate this process with their ERP systems, initiating the flow with a service order or a GL entry.
4. Lead-to-quote
The lead-to-quote process is integral to pre-sales and marketing automation workflows, primarily hosted within CRM systems. It commences by creating leads, which are potential customers, through various channels such as physical marketing campaigns or digital initiatives.
These leads then move through the funnel using a series of interactions, which involves estimating the required services, if necessary, engaging in engineering activities to tailor offerings to the customer’s needs, and, finally, releasing the quote.
It’s important to note that in most cases, this process remains within the confines of the CRM system and does not typically involve an ERP system. However, exceptions exist, particularly when engineering processes require access to product data or when configuring complex product quotations (CPQ), necessitating a connection to the ERP system.
5. Campaign-to-lead
The campaign-to-lead process is a fundamental aspect of marketing and sales operations within a business. It is a crucial precursor to the lead-to-quote process or can function as a subset.
This process begins with the initial design of marketing campaigns, which can be either physical, such as print advertisements or billboards, or digital, including online ads and social media promotions. After campaign planning, the next step involves executing these marketing initiatives. Subsequently, it necessitates the measurement of campaign results to gauge their effectiveness.
A key component of the campaign-to-lead process is capturing potential customers’ interest and guiding them through the sales funnel until they convert into leads. It’s important to note that, in most cases, this process operates independently of the company’s ERP system. ERP systems typically come into play much later in the customer journey, mainly when leads are qualified and have the potential to translate into financial opportunities for the company.
+
ERP Optimization And Integration Architecture Development
Learn how Work Sharp fixed their broken ERP implementation that caused customer service issues and improved Supply Chain planning.
Companies involved in multiple enrollment campaigns commonly use the contact-to-enroll business process, particularly for subscription-based services like educational courses or paid events. This process guides potential participants from initial contact to successful enrollment.
It begins with identifying specific programs or offerings the organization wants to promote. Once they identify the programs, the next step involves crafting targeted marketing campaigns to generate interest among potential participants. The process also involves nurturing these prospects through a sales or enrollment funnel. This may include various stages, such as providing information, addressing queries, and guiding them to the enrollment step.
These programs may be paid or unpaid depending on the organization’s objectives. It’s important to note that unless there is a specific requirement for integrating financial aspects into the organization’s ERP system, this contact-to-enroll process typically operates independently from the ERP, focusing solely on the enrollment journey of potential participants.
7. Expense-to-pay
Expense-to-pay is a crucial component within an organization’s time and expense workflow. In this process, an employee initiates the workflow by reporting expenses incurred during client visits, projects, or events. These expenses may include a wide range of items, such as travel costs, accommodation, meals, and other related expenditures.
The primary goal is to accurately document, validate, and eventually pay or bill these expenses, depending on the specific circumstances. Depending on company policies, some expenses may need to be billed to clients for reimbursement, while others may be eligible for direct reimbursement to the employee. Additionally, organizations often need to oversee and control budgets associated with employee expenses, ensuring that expenditures remain within predefined limits.
Employees who have received company credit cards to facilitate expense transactions manage these cards, including monitoring transactions and ensuring timely payments. Companies may host this complex process within a specialized T&E software or utilize the T&E module within their ERP system.
8. Recruit-to-hire
Recruit-to-hire is a fundamental process that lays the foundation for an organization’s workforce. It is a precursor to the hire-to-retire process. First, it all starts with creating job descriptions that outline the roles and responsibilities expected from potential candidates. Once these descriptions are in place, the process shifts towards identifying the most suitable channels for sourcing potential candidates. This could involve posting job listings on websites, utilizing recruitment agencies, or leveraging social networks.
Following candidate sourcing, a critical aspect of recruit-to-hire is conducting evaluations and interviews. This entails assessing candidates’ qualifications, skills, and cultural fit within the organization. Organizations often perform background checks to ensure the correctness of a candidate’s claims and protect the company’s interests.
Finally, once a candidate is selected, the recruit-to-hire process culminates with signing offer letters, solidifying the employment agreement. While it rarely touches ERP, companies often use various systems like Applicant Tracking Systems (ATS) or Human Capital Management (HCM) software to streamline and manage these tasks efficiently.
9. Return-to-refund
The return-to-refund process is an integral component of the overall return procedure within a company. This process typically begins with the initiation of a return request by the customer. Once initiated, the company handles various steps, including processing the return, providing appropriate packaging and labels, and receiving the returned inventory.
They perform a crucial quality check at this stage to ensure the returned items meet the necessary standards. Subsequently, the respective vendors might receive the inventory back, and they may manage the warranty process if applicable. Finally, the company issues the refund to the customer, thus concluding the transaction.
To host the return-to-refund process, companies commonly integrate software systems, such as eCommerce platforms, POS systems, or ERP software. Moreover, the return process frequently interfaces with other essential systems, including WMS, OMS, and CRM tools. Within an ERP workflow, the process can start by directly capturing the return request within the ERP system or by interacting with it to process the necessary General Ledger (GL) entries.
+
ECommerce Supply Chain Transformation
Learn how LockNLube transformed its inventory and supply chain challenges by consolidating over 20 systems.
Market-to-order is a comprehensive business process that serves as a superset of lead-to-quote and the precursor of order-to-cash. The process begins with formulating and maintaining a well-thought-out marketing plan, which includes strategies and tactics to reach the target audience effectively. Once the plan is in place, the next step is the design and execution of marketing campaigns, aligning them with the established budget.
Throughout the marketing campaigns, monitoring their performance and effectiveness is crucial, ensuring that they yield the desired results. As part of this process, leads are generated and captured. Managing these leads involves guiding them through the sales funnel, where they are nurtured and engaged until they reach the point of conversion into actual orders. This conversion marks a critical transition from marketing to the subsequent stages of the business cycle.
In most cases, Market-to-order operates independently of an ERP system. However, in some situations where quoting, estimation, and engineering processes are tightly integrated into the company’s operations, they might be hosted within the ERP system. Alternatively, if the quoting and estimation functions are part of the ERP, the integration may occur even earlier in the business cycle.
Conclusion
In conclusion, distinguishing between the core and non-core ERP business processes is necessary to navigate different business processes smoothly. The nuances of ERP systems and diverse industry requirements often complicate this task. While core processes are consistent and typically integrated within the ERP, non-core processes can exhibit a broader spectrum of possibilities, including integration with best-of-breed solutions or residing in external systems. Recognizing the distinctions and dependencies among these non-core processes is crucial for making informed decisions about system selection and architecture.
FAQs
What are ERP business processes, and why are they important?
ERP business processes refer to the various tasks and activities that organizations undertake to manage their operations effectively using Enterprise Resource Planning (ERP) software. These processes play a crucial role in streamlining and optimizing different aspects of business operations, such as finance, human resources, supply chain management, and customer relations. They are usually categorized into two types: core and non-core ERP business processes.
What distinguishes core ERP processes from non-core ones?
Core ERP processes are fundamental functions that are typically integrated within the ERP system itself. They are consistent across most ERP solutions and include tasks like order-to-cash, procure-to-pay, record-to-report, etc. Non-core ERP processes, on the other hand, vary widely and may not be hosted within the ERP system. They often involve cross-functional activities like dispatch-to-deliver, hire-to-retire, issue-to-resolution, etc. The distinction lies in their level of integration with the ERP and their specific relevance to the organization’s industry and operations.
Can non-core ERP processes be integrated into the ERP system?
Yes, non-core ERP processes can be integrated into the ERP system depending on the organization’s needs and preferences. Integration decisions should consider factors like transaction volume, architectural requirements, and the level of interaction between the process and other ERP functions.
ERP systems play an important role in streamlining the operations of a business. At the heart of these systems lie the core cross-functional business processes. Also, catering to the needs of different departments, these business processes are like building blocks for the organization to work smoothly. They include sequential activities across different departments to complete a financial or operational workflow. However, unlike ERP modules that you can choose individually, these core tightly integrated business processes rely on each other. In other words, implementing one process also entails addressing its underlying dependencies on other ERP business processes and modules.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
Yet, the challenge many businesses face is understanding the significance of these core ERP processes. Without this essential knowledge, companies often encounter operational roadblocks and inefficiencies. Departments might function in isolation, lacking the interconnectedness needed for streamlined operations. This is why understanding these core cross-functional business processes is very important.
In this blog, we will talk about the top 10 core cross-functional business processes that bind different departments together.
ERP Selection: The Ultimate Guide
This is an in-depth guide with over 80 pages and covers every topic as it pertains to ERP selection in sufficient detail to help you make an informed decision.
The order-to-cash process is a complex business operation that includes various departments within an organization, such as sales, operations, and finance. From its initiation to the collection of payment, this process involves the entire lifecycle of a customer order. When a customer places an order, the process begins. Sales teams are responsible for capturing the order details, including product or service specifications, quantity, pricing, and customer information.
Upon capturing an order and validating it, it moves to the operations department for processing. Operations personnel check inventory levels, product availability, and service delivery schedules if applicable. To fulfill the customer’s requirements, they also create picking lists, work orders, or service orders. This step in some industries, such as manufacturing or service-based businesses, ensures that the products or services meet the order specifications. After order fulfillment, the finance department generates an invoice based on the order details. Upon issuing the invoice, the finance team tracks and manages payments from the customer.
Depending on the organization’s architectural boundaries, some companies host this process on one or multiple. Sometimes, the boundary of an ERP system may start from an invoice or GL. In other cases, the whole process happens within the ERP system. Therefore, when you choose an ERP system, define how much order-to-cash you would host inside the ERP. This will also help you find the right ERP system aligned with your business needs.
2. Procure-to-pay
Managed within an ERP system, the procure-to-pay process is among significant cross-functional ERP business processes. Generally, this process encompasses several stages and involves different departments within an organization, including procurement, warehouse management, finance, and accounting. The process begins with the procurement department capturing a purchase order.
Upon capturing the purchase order, the warehouse receives the inventory. After this, the finance department receives the vendor’s invoice, which includes the billing details for the delivered goods or services. Then, they would match an invoice against the corresponding purchase order and receipt information in the ERP system to ensure accuracy. The finance department initiates the payment process after the invoice is verified and approved.
The degree of integration with the P2P process into a single ERP system can vary among organizations. Some may handle the entire process within the ERP, starting from the purchase order, while others might use additional specialized systems for certain steps, like procurement software for purchase order management.
3. Plan-to-produce/Plan-to-inventory
The plan-to-produce/plan-to-inventory business process is particularly relevant for industries that require accurate forecasting and planning of inventory before production. Commonly seen in consumer-centric and commoditized industries, the process begins with S&OP analyzing historical sales data, market trends, customer demand, and other relevant factors to forecast the demand for their products.
After forecasting demand, the next step is supply planning. In this phase, companies determine how they will meet the anticipated demand. It involves assessing the available resources, production capacity, and procurement capabilities. Once the supply plan is in place, the procurement department comes into play. Their role is to source the necessary materials, components, and resources required for production. This might involve negotiating with suppliers, placing orders, and managing the procurement process efficiently to ensure that materials are available when needed for production. With the materials procured and the supply plan in hand, the production and manufacturing teams swing into action. To produce the goods in line with the forecasted demand, they use the production schedule generated during supply planning.
Some companies might host the entire P2P process within their ERP system. In such cases, the ERP system handles everything from forecasting and planning to procurement and inventory management. However, others may use a separate S&OP system for initial demand forecasting and supply planning. In the latter case, the S&OP system feeds planned forecasts and supply plans into the ERP system to execute the production and inventory management processes.
4. Record-to-report
Primarily managed by the finance department within an organization, the record-to-report process is a critical business process. Its main purpose is to handle non-operational transactions accurately. In many organizations, ERP systems play a central role in managing financial data. However, ERPs may not offer automated recording of all financial transactions as some are non-operational and might require manual recording. The process begins with the finance department recording financial transactions.
After recording transactions, finance professionals reconcile accounts. This step is crucial for ensuring that the recorded data is accurate and that there are no discrepancies or errors. Reconciliation involves comparing various financial records and ensuring they match. While the core of the record-to-report process resides within the finance department, it might require multiple systems to manage it. For example, they might use the ERP system to capture and initial transaction reconciliation. Still, they may transfer GL data to a separate FP&A software system. Before generating final financial reports, finance teams might sometimes consolidate data in the FP&A software. This step is essential for producing accurate reports, especially for larger organizations with multiple subsidiaries or divisions.
The ultimate goal of the record-to-report process is to create financial reports. These reports provide a snapshot of an organization’s financial health and performance over a specific period, such as a month, quarter, or year. Before finalizing and distributing financial reports, finance professionals often analyze the data to identify trends, anomalies, and insights. The record-to-report process also plays a significant role in ensuring compliance with financial regulations and standards. Organizations may be subject to internal and external audits to verify the accuracy and legality of their financial statements.
5. Source-to-pay
The source-to-pay business process is one of the workflows within an ERP system that encompasses activities related to sourcing and procurement. Organizations follow a series of steps to effectively manage their procurement cycle, from identifying and building consensus on the need to identifying qualified vendors and finalizing payments. The process usually starts with identifying the organization’s need for certain goods or services.
Post that, it often requires consensus-building within the organization among various stakeholders. This step ensures the procurement aligns with the organization’s goals and budgets. After obtaining internal consensus, the next step is to identify potential vendors or suppliers who can fulfill the requirements. Upon identifying potential vendors, the organization conducts a thorough vetting process to assess their capabilities, financial stability, and adherence to legal and ethical standards. This step helps in ensuring that selected vendors are trustworthy and capable. After vetting the vendors, the organization awards a contract to the selected vendor(s). This contract outlines the terms and conditions of the procurement, including pricing, delivery schedules, and quality standards. This step formalizes the relationship between the organization and the vendor.
With the contract in place, the process proceeds with all the steps of the P2P process. Depending on the complexity of the sourcing phase, there might be several systems, and the ERP flow might start with a purchase order. The other companies might host RFQ comparisons, etc., inside the ERP.
The idea-to-offering business process is essential to new product development within a company. This process involves multiple stages and activities, from marketing to operations, figuring out go-to-market fit before a product is ready for production. The process starts with extensive market research and analysis to understand the potential demand for the product. This includes studying customer needs, preferences, and market trends to refine the concept and make it more customer-centric.
After gaining insights from customer research, the company begins the engineering phase. This involves designing and developing prototypes or mock-ups of the product to test its feasibility and functionality. In parallel with engineering, the company starts the procurement process. This involves sourcing the necessary materials, components, and resources for the product. Procurement also includes negotiations with suppliers for pricing and terms. The company works closely with its suppliers and partners during the design and sampling phase to ensure efficient manufacturing of products and meet quality standards. Simultaneously, the operations team strategizes the go-to-market plan. This involves deciding on pricing, distribution channels, marketing campaigns, and other factors essential for successfully launching the product.
At this point, some companies may host this process in different systems. For instance, They might use a PLM system for program and idea management, CAD/PDM tools for engineering, and P2P systems for vendor collaboration. When all preparations are in place, the ERP system takes over. With the product now in the ERP system, production can begin. Some companies may host the entire idea-to-offering process within their ERP system, consolidating all stages and data into a single integrated platform for more streamlined management and control.
+
Digital Transformation Change And Project Management
Learn how Big Country Raw managed the change and transformation despite their limited budget for ERP implementation and eCommerce integration.
The count-to-reconcile among ERP business processes is an integral part of managing inventory within an ERP system if it is the main source of truth for inventory. It’s a systematic procedure that usually begins with the planning phase for inventory reconciliation. This involves deciding how often inventory counts will occur (e.g., daily, weekly, monthly) and which inventory items, warehouses, or locations will be included in the counting process. To prioritize inventory counting efforts, items are often categorized into different classes based on their value, criticality, or other relevant factors. The ABC classification system typically consists of: A-Class: High-value or critical items, B-Class: Moderately valuable items, and C-Class: Low-value or less critical items.
Once the items are categorized, specific items, warehouses, or locations are identified for counting based on the inventory reconciliation plan. A pick list is generated to guide the counting process. Depending on the organization’s technology and preferences, the counting can be done using handheld devices. Discrepancies between the physical count and the ERP records are inevitable. If found, adjustments are made. Once all items have been counted, adjustments are posted. It reconciles any discrepancies identified during the counting process.
Depending on the organization’s technology landscape, inventory and location information might be stored in various systems like WMS, eCommerce platforms, or OMS. In many cases, the ERP system is the central source of truth for inventory management. This means that all inventory-related information and adjustments are primarily handled within the ERP. Therefore, the Count-to-Reconcile process plays a critical role in maintaining the accuracy of inventory data within the ERP system.
8. Forecast-to-monitor
The forecast-to-monitor business process plays a significant role in the budgeting and financial management of an organization. It involves a series of steps designed to ensure that an organization effectively plans, tracks, and manages the budget of each account and department. The process begins with planning various financial scenarios.
Once done, historical trends for each account are analyzed to create accurate budgets. This involves looking at past financial data, such as revenue growth, cost patterns, and other relevant financial metrics. The key aspect of this business process is collaboration. Teams from various departments within the organization need to work together to develop a comprehensive budget. Each department will have its budgetary requirements and contributions to the overall budget. Collaboration ensures that all stakeholders’ input is considered in the budgeting process. After considering different scenarios, analyzing historical trends, and collaborating with teams, the organization sets its budget for the upcoming year. Once the budget is set, it’s crucial to monitor and manage it throughout the year continuously.
Depending on the complexity of the budgeting process and the data requirements, organizations may choose to manage this process within their FP&A department or directly inside their ERP system. If they opt to use the ERP, it typically involves entering budgeted numbers into the ERP system to track yearly performance.
9. Inspect-to-comply
The inspect-to-comply business process is part of the quality management process. The workflow usually begins with the creation of a detailed test plan. This plan outlines the specific quality criteria and standards that need to be met for the product or material being tested. It specifies what aspects will be inspected, which tests will be conducted, and the testing methods to be used.
Once the plan is in place, the next step is to identify the test cases. Test cases are specific scenarios or conditions that are designed to evaluate the quality of the product or material. These test cases are based on the requirements outlined in the test plan. After identifying the test cases, the next step involves identifying and selecting inventory items that need to go through the quality inspection process. Once the inventory items are identified, the next step is to execute the test steps according to the predefined test cases. During the execution of test steps, all relevant data and test results are recorded and documented. In some cases, materials may not meet the quality standards initially. When this happens, a material review process is initiated.
Finally, the process involves preparing all necessary documentation to ensure compliance with quality standards and regulations. This documentation may include test reports, certificates of compliance, and other records that demonstrate that the items have met the required quality criteria. Depending on the organization’s setup, the quality management processes can be integrated into their ERP system, typically in a dedicated quality module. Alternatively, some organizations may use external quality management software that works in conjunction with their ERP system to handle these ERP business processes efficiently.
10. Cradle-to-grave/Acquire-to-retire
The cradle-to-grave/acquire-to-retire process is a significant approach to managing an organization’s entire lifecycle of assets. This process includes several stages, from the initial acquisition of assets to their eventual retirement. It usually begins with the acquisition of new assets within an organization. During acquisition, the organization typically creates purchase orders, negotiates contracts, and records the financial transactions related to the asset procurement.
After acquisition, the assets are integrated into the organization’s financial system, often within an ERP system. The financial process among ERP business processes includes recording the asset’s value, computing the depreciation lifecycle, and accounting for related expenses such as maintenance, insurance, or licensing fees. This often leads to the steps of generating reports and retirement of assets. Reporting is crucial to monitor asset performance, maintenance costs, and compliance with accounting standards. As assets reach the end of their useful life or become obsolete, they are retired from active use.
Depending on the organization’s industry and the complexity of asset management, the entire process may be handled within a single ERP system. Alternatively, some companies may use a combination of systems, with the ERP managing financial aspects and Enterprise Asset Management (EAM) or Manufacturing Execution Systems (MES) handling maintenance and operational aspects.
+
ECommerce Supply Chain Transformation
Learn how LockNLube transformed its inventory and supply chain challenges by consolidating over 20 systems.
To summarize, the top 10 core cross-functional ERP business processes are essential components that help organizations operate efficiently. These processes connect different departments of a company and are vital for various tasks, from managing customer orders to handling procurement, forecasting demand, maintaining financial records, sourcing, and developing new products.
Understanding and improving these ERP business processes is not optional; it’s perhaps the first step for organizational integration and finding synergies across departments. These processes align departments in how they will be processing transactions and what will be their roles and responsibilities in facilitating that. Whether fully integrated into ERP systems or supported by other software, these processes are fundamental to improving efficiency and effectiveness in diverse industries.
FAQs
What are core cross-functional ERP business processes?
Core cross-functional ERP business processes are fundamental activities that help different departments in a company work together efficiently. They include tasks like managing customer orders, procurement, financial records, forecasting, and product development.
How are these processes different from individual ERP modules?
Unlike individual ERP modules that you can choose separately, these core processes are tightly integrated and rely on each other. They work together to complete complex workflows. Impacting various business processes. Defining goals, objectives, and business requirements before implementing an ERP system is vital.
Are these processes relevant to specific industries only?
While some processes are more common in certain industries, these core processes have widespread applicability across various sectors to enhance operational efficiency.
One misunderstanding that is prevalent among business owners is a simplified view of business transformation: choose a technology and implement it. How hard could it be? Well, as long as you know which technology will produce tangible business results. Most importantly, how to get there. But let’s not get too far, as most companies struggle to agree on the definition of ERP. They might not appreciate the value of organizational readiness for ERP implementation.
Let’s look at it from another perspective. Most people talk about ERP implementation failure, but they rarely have a good handle on the root cause. It’s most certainly not what they think it is, as projects fail before they even start. They fail because of the misalignment in the expectations. The misalignment could stem right inside executives’ heads. They might have different expectations from the system, completely off from the ground reality. They might struggle to articulate their thoughts to the extent that they might feel overwhelmed and confused. This is where a well-defined roadmap and blueprint could streamline the thought process and build consensus among teams.
The 2025 Digital Transformation Report
Thinking of embarking on a ERP journey and looking for a digital transformation report? Want to learn the best practices of digital transformation? Then, you have come to the right place.
Yet another perspective is related to everyone’s estimation of their own capabilities. Let’s face it. Most of us like to overclaim our capabilities because we have a tendency to figure things out given enough time. Unfortunately, this tendency leads to a snowball effect with the consequences as severe as the ERP project not even being recoverable. Going through the formal processes aligns expectations and removes these barriers, helping them understand why they need to think through their decisions. Organizational readiness is very similar to therapy sessions for the entire team and comprises the following six fundamental components:
1. Strategic and Executive Alignment
The problem starts at the top. Most business transformation initiatives, such as ERP implementation, require business model changes. Unfortunately, these business model changes are not as simple as moving a warehouse from one location to another. Instead, they are like performing heart surgery for the business. The issues are especially challenging as the business model changes would be nearly impossible with the amount of disruption they may cause. For this reason, most executives end up choosing the path of solving them technically just because they can’t visualize the technical implications as well as they do the consequences with physical processes.
Getting everyone on the same page about how the transformation initiative will change the business is significant. It should start with your leadership crafting a goal statement that may include the business value of the transformation initiative and forecasting potential changes required to make the initiative successful. You might want to ask questions such as:
Does your organization have clear expectations on the outcome of business transformation?
What objections are you likely to get in making business process and model changes?
Does the executive team have the necessary skills and experience to be able to foresee financial and technical risks because of these initiatives?
How is your current compensation structure, and how might that influence political forces among different functions and business units?
Communicating these strategies is a big part of aligning with the organization’s business model. Just like therapy, you need to have different strategies depending upon the needs of each stakeholder, with several tools and workshops tailored to their needs until they internalize the process and feel mentally conditioned to go through such a rigorous routine.
2. Operational Readiness
Mental conditioning is just the start. Operational readiness is like a physical sketch of your entire journey, where you are today and where you are headed. The process starts with getting the mental models on a piece of paper. So they can see where everyone’s heads are. It also requires developing a common language for every term that is likely to throw off the model. It’s almost like developing a language, or their mental state is likely to be far off from the ground reality.
Once you have the common language built, it’s much easier for everyone to visualize the to-be state and why the changes requested are pivotal for the success of the program. The concept of operational readiness revolves around preparing specific functions and business processes for the change. It aims to answer questions that pinpoint the practical aspects of readiness. You might ask questions such as:
Does your team understand the current processes? Do they understand it well enough to draw them on a piece of paper?
Do your stakeholders have different versions of the same process in their heads?
Which business processes would require re-engineering that would streamline the technical implementation?
Can business processes be re-engineered without causing major disruptions to the core operations?
How would the changed business processes be rolled out?
The physical sketches substantiate the mental models and help build consensus on the operational state both today as well as in the future. Bringing technology earlier in the conversations generally leads to biased conversations about technology and stakeholders jumping to conclusions without fully understanding the consequences.
ERP Selection: The Ultimate Guide
This is an in-depth guide with over 80 pages and covers every topic as it pertains to ERP selection in sufficient detail to help you make an informed decision.
One factor among organizational readiness components often overlooked is data readiness. In general, the role of data in the context of systems is to take a piece of connected information from one step to the next. However, not many people realize how data and ERP work together. The absence of data readiness can drive process over-engineering and, in turn, can lead to system bloatedness.
There are several reasons why companies delay this step to the point where it’s too late. First, while most business consultants might understand process state, data issues require deep implementation experience. Also, during the selection and strategy phase, it’s much harder to visualize the data hierarchy without access to a system to be able to see and feel the changes. So, the data issues tend to get postponed to the implementation phase. But once the contract is signed and if the data model is too off, it can throw off the entire implementation. The questions you should ask related to data re-engineering are as follows:
How is your current master data modeled? Have you done any customizations to your processes because of data issues?
Have you had multiple disconnected instances of master data records in the system?
Do you have data governance issues where the model does not seem to follow any logical structure?
An information model is very similar to a mental model, with the only exception that this state lives in your system’s head. If you overcomplicate the way you register information or don’t simplify, your system might not only experience “brain farts, ” but it might overcomplicate everything else that touches it.
4. People Readiness
Wherever there are people, there will be problems. Several factors drive people-related issues. It could be behaviors influenced by your current compensation structure or power struggle. These behaviors lead to “passive-aggressive” responses to issues without being explicit about them. People readiness among organizational readiness components requires a deep understanding of current behaviors and how that may impact their willingness to change business models or business processes critical for the success of business transformation initiatives. This can be even more challenging if the teams don’t have the right skills. Even small data and process changes might require corporate alignment and intervention from influential stakeholders.
The biggest challenge with these initiatives is that they are harder to visualize, with the implications challenging to internalize unless you’ve been through these cycles multiple times before. Most people find it easier to trust complex concepts that they’ve seen work firsthand. The questions around people readiness you should be asking are as follows:
Are you currently experiencing a power struggle in the organization, and if so, do you deeply understand what may be influencing that?
What does decision-making feel like for cross-functional issues? Do you feel tension with conversations and that people are not willing to open up for underlying issues?
Do you feel that specific executives have a need for control and that other executives might not open up as easily when they might be around?
People issues are very similar to a board of a company. And unless you have a team that works together really well and trusts others around them to be able to share their feelings, you might require help with people readiness before you undertake your business transformation initiatives.
5. Technical Readiness
While businesses overemphasize the importance of business and process re-engineering, technical readiness is just as important. It’s an alignment of business users’ and technical teams’ mental models. Both of these teams care for different things, and their heads are wired differently. So, this alignment is even more critical. The technical teams must understand the business vision and must be involved in making critical implementation and change decisions. With them running in trenches, they can see potential financial and technical risks that businesses might ignore. They might code and configure things not aligned with the business vision.
Most companies take exactly the opposite approach with technical teams. They don’t involve them during the decision-making process, and then when things go south, they are the first ones to get blamed. Technical issues will always require business model changes, and if their voices are not incorporated in the decision-making, there will always be issues, especially if the business teams have a limited technical background. Also, even business executives who might claim to be technical experts rely on technical teams to make decisions for them. Here are the questions you should ask related to technical readiness:
How are your technical teams? Do they seem to overstate their capabilities?
Do they seem to always solve problems through programming?
Do you have any proprietary systems? How about documented architecture along with process and information models?
Do you have access to enterprise-wide master data governance and reconciliation flows?
To guide this process, having a detailed technical plan is very helpful. This plan helps the technical teams code and configure things aligned with the business vision.
6. Project Governance and Planning
After you have the state of your initiatives defined from all perspectives, the next step is to plan how to execute them. System integrators and OEMs generally expect their clients to do 90% of the heavy lifting. There are several factors that drive this behavior. First, the client has unreasonable expectations but limited budgets. So, they leave vendors with no choice but to commit only to a fraction of the work. Second, their software might get blamed because of their involvement or recommendations with data or processes. Finally, the OEMs mandate prescriptive methodologies to their clients and resellers. Equally challenging is managing schedules with ERP projects because of the unavailability of key resources, especially part-time ones.
Project planning involves more than just digital processes. It also means figuring out how physical processes will change and how you’ll communicate these changes to everyone inside and outside your organization. This plan should include a roll-out strategy for introducing these changes in a way that makes sense technically and financially. It should also have KPIs that can help you stay on track.
It’s not just about making schedules; it’s about organizing resources, communicating well, and ensuring your plan matches what’s happening. As you get ready for this big change, remember that careful planning and smart management are the keys to making your ERP system work well for you.
Conclusion
Each of these perspectives is equally critical. They’re like puzzle pieces that fit together to create a complete picture. Giving too much importance to the technology part and ignoring the people and process parts can cause problems. The technology might not work well with how your team works, making it hard for them to use it properly.
On the other hand, if you don’t pay enough attention to the technical side, you might face technical issues, and the system might not work as it should. Neglecting the organizational readiness and cultural side can result in resistance to changes and difficulty managing the transition.
Success comes from finding the right balance between these different viewpoints. Remember that all six components are important when assessing organizational readiness for ERP implementation. By understanding and considering each part properly, you’ll be on the right track to making your ERP project successful.
FAQs
What do you mean by organizational readiness for ERP implementation?
Organizational readiness for ERP implementation refers to the preparedness an organization needs to achieve before implementing an ERP system. It encompasses various aspects, including aligning business strategies, assessing operational processes, ensuring data accuracy, preparing employees for change, evaluating technical infrastructure, and establishing effective project governance.
Why is strategic alignment important for organizational readiness?
Strategic alignment ensures that top leaders understand the scope of the ERP system for the business. It’s not just a technological change but a business change impacting various business processes. Defining goals, objectives, and business requirements before implementing an ERP system is vital.
Can one component compensate for the lack of another?
No, all components are equally important. Relying solely on one component won’t address the complexities of ERP readiness. For instance, having data readiness won’t overcome resistance to change if people readiness is lacking.
FREE RESOURCE
2025 Digital Transformation Report
This digital transformation report summarizes our annual research on ERP and digital transformation trends and forecasts for the year 2025.