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176 Chapter 6 • Software and Vendor Selection

circumstances, mutually beneficial reasons, or unintended mistakes. The discovery of missing
hardware intended to support the vendor’s software is an example of unforeseen circumstances.
The vendor may offer a change to the contract to offer this hardware at a negotiated price so only
the specifications affected by this circumstance are changed in the contract. The use of an inac-
curate count of system users in negotiating the original contract is another example that could af-
fect the contract. It is beneficial here for both parties to readjust the contract price based on the
new accurate user count.
Finally, contract negotiations can take a significant amount of time to finalize, so expecta-
tions management is very important during that time. Senior management and end users have all
been through the process and are anxious about the purchase. Communicating progress—including
the next steps—keeps all involved and will also help to maintain momentum. It is best to over-
communicate during this phase.

IMPLICATIONS FOR MANAGEMENT
Management must play a role in choosing the right system that will meet the company’s needs
and requirements. An open process based on realistic needs in selecting a vendor sets the stage
for the implementation. System needs or requirements can be based on the legacy system, a
business process reengineering analysis, or both. Most companies choose the latter because
ERP systems are such different systems from the majority of legacy systems.
Management must remember that the vendors are very skilled at selling their systems. There
must be enough time allocated to evaluate the system, observe a complete and comprehensive
demonstration, and communicate to references and others using the system. In addition to how
the system currently works, discussions with the vendor about future improvements and direction
must be scheduled. This will allow management to understand how the vendor will be able to address
the growing needs within the company and not feel like they are limited in direction and scope.
Last, if at all possible, it is best to have a couple of vendors that can meet the company
needs for an ERP system. Negotiating with two vendors is time consuming, but it will yield a
better purchase price. If the company has little or no experience in negotiating software
contracts, there are consultants that can help. Remember that vendors have a staff of skilled
negotiators and do this on a regular basis. In the negotiations be sure to address total cost of
ownership. The ERP software is a small percentage of the overall implementation costs. There
will be additional software products, hardware, and implementation support that should be a
part of the overall equation.

Summary

•The majority of ERP systems today are business requirements, requesting information,
purchased. matching requirements to system functions,
•There are a significant number of steps involved request for bids, analyzing vendors, meeting
in purchasing a system that require organization business needs, determining total cost of owner-
and management. In this chapter, you learned ship, and finally, negotiating a contract and
the steps, including vendor research, defining license agreement.