A manufacturing software system (ERP) is the conduit used to run processes, push data, supply data packets, dictate line sequencing, and interfaces with other modules in the business software environment to collect revenues, create purchase orders, schedule agreements, track maintenance and handle a myriad of chores that are not even listed here.

ERP System

Purchasing an ERP Manufacturing Software System

The importance of manufacturing software system in an organization cannot be overstated.  While purchasing a manufacturing software system is not a simple task, it need not be overwhelming.  A team is usually formed, research done, recommendations made and software package chosen.  Assuming that the choice has been made, the actual purchase of the manufacturing software system is now at hand.

Manufacturing software systems are highly customizable and are often comprised of individual modules and add-ons that will give the manufacturing company the software package and functionality that it requires.  The formula for what is needed to produce the appropriate software must be clearly defined. The shopping list must be very specific.   

Depending upon the company size and budgetary parameters, this purchase can be made a number of different ways. A manufacturing software system is almost always a large ticket item so finance must determine whether if and/or how much of this will be a capital purchase as manufacturing or ERP software is usually considered a company asset.  Maintenance can be rolled in to the purchase price but that is a finance strategy best left to financing brass.

Various suppliers should be considered and a formal request for quote (RFQ) sent to potential vendors. All should be sent the same specs with a bid submittal deadline and decision date. When the bids come in, consider the proposals and invite the most promising bidders to give a BAFO (best and final offer) presentation in person on a specific date.   Maintenance, service and licensing agreements should all be presented at this time.

After the BAFO, the field should have been narrowed to a couple of vendors. NOW the actual negotiations begin. The agreement for the ERP or manufacturing software system itself locks in the price of additional licenses for the term of the agreement.  Similarly, a great negotiation will result in an additional year on the life of the agreement.  “Value-adds” such as consulting and training services should have replaced deep discounts in negotiating strategy.

Maintenance agreements are HUGE and should be considered a major factor in the purchase award.  There was a time when the target number for the maintenance was 15% of the original purchase price but that is no longer realistic.  It is reasonable for sights to be set on a figure of 20-25% of the purchase price for 3 years.  Great negotiations can lock in the agreement for an additional year.

In addition to price and agreement terms the bidding process offers the company an excellent opportunity to get to know the vendors and evaluate what a potential working relationship might look like down the road.  Support and service is often as, if not more important than purchase price in awarding the contract. At the end of the day, the whole package must be considered in making the final decision.

Written by :

Don Cooper