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How to buy ERP software - Step 2, The test pack

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25th Dec 2005
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The first article in this series emphasised that the written word should play little part when buying a new accounts/ERP package. Instead, it explained, you need to sit down at the keyboard and physically test drive the software. The more thorough your test, the better your choice is likely to be, David Carter explains.

If, like most people, you don't test a prospective accounts or ERP package at all, you deserve everything you get. If the public sector organisation that featured as a cautionary example in the introductory article had tested SAP R/3 before buying it, it would have identified the VAT problem that subsequently bedevilled the implementation.

So how do you go about testing an accounts/ERP package? You need to assemble a test pack of typical transactions and get the supplier to enter them into the computer and show you the results on the screen. This may seem daunting because these packages are bewilderingly complex, but the key point to grasp is that all the different modules are integrated in order to process a customer's order through the organisation.

This is where the acronym ERP kicks in. ERP stands for 'Enterprise Resource Planning'. It is a mouthful, but you only really need to pay attention to the first word. A customer order is handled by different departments ' by sales admin and operations in the early stages, and by accounts in the later stages after it has been invoiced. ERP packages have been designed to handle all the stages of an order from order entry to delivery to invoice through to final payment.

An ERP package extends across multiple departments in the enterprise, as opposed to the traditional accounts package, which is designed for only one department. If you intend to buy a new accounts package, you should stop to consider the benefits of an ERP solution that handles both the operational and the accounting sides of the business, from initial receipt of the order through to final payment.

The elements of ERP
The unifying thread within an ERP system is the order cycle. Each piece of work the company does for any customer goes through an order cycle.

A customer places an order on you for certain products that you supply. In order to fulfil that order, you may need in turn to buy some products from outside. For this you will raise purchase orders. If you manufacture your products in-house, you will raise works orders on the production department.

After the invoice has been sent, credit control will then monitor that the customer pays the bill on time. Finally, the accounts department will pull together a summary of all the costs and income over the month and give management a financial report such as Profit and Loss account to determine whether the company has made a profit.

ERP systems come with a multitude of functional modules, some including HR and customer relationship management functions. Not every organisation will require all these modules. For the sake of this brevity, this article concentrates on the financial requirements of a trading company that buys in and sells on items.

Different organisations will have different order cycles dependent on their customers and the products they supply. A service-based organisation such as an engineer or architect working on different projects will have different needs, such as knowing what expenses have been incurred, and where, and what profit was made on each job. For service organisations, the job costing and reporting abilities of a system will be more crucial. The best way to determine whether a package is going to be any good at costing is to examine the purchase invoice entry screen to see if it supports the right level of detail, as most costs are entered via purchase invoices.

Since sales and purchase orders processing are the engine-room of any ERP package (along with works orders in manufacturing organisations) because they work so closely together. So, your test pack needs to be built around orders ' sales orders, purchase orders or both.

Collecting the test pack
In the case of sales orders, you should have on file somewhere all the orders received from your customers in recent months. From this file you need to choose a representative sample of all the orders that the new package will have to handle.

Start with a simple order ' one item ordered, standard pricing. Then find a more complex one ' several items ordered and maybe with special prices or discounts just for this customer. Now find a part-delivery where there were several invoices for the one order. Then maybe an export order in foreign currency. Maybe an order where the goods were supplied direct from the supplier rather than your own warehouse. And make sure you don't forget to include an order with a credit note. Because everything is interconnected, raising credits in an ERP package can be very tricky.

Once you've selected your sample orders, then collect together all the other documents relating to each one ' the delivery note, the sales invoice, any purchase orders, etc. Once this is done, photocopy everything and staple together all the documents relating to each order. If you have selected six orders, at the end you should have six sets of documents, with the customer's order on the top backed by all the related documents.

If you are interested in purchases and costs, go through a similar process with purchase orders. Find half a dozen typical purchase orders and attach any related delivery notes and supplier invoices. Accounts department don't get very much involved on the sales side, but purchases and cost analysis is very much their area, so ask them to include any type of transaction that goes into the accounting system including credit notes, time sheets, cheque receipts, BACS payments etc.

Sample Reports
In addition to the test transaction set, you also need to assemble a set of test reports. Get hold of the reports that people find useful and photocopy them too. There will probably be a mix of reports ' some standard reports from your current package, some put together as spreadsheets in Excel.

Collect them all together, take photocopies, then write the name of the user on them and what they are used for. By the end of this exercise you should have got together your test pack ' a big, thick pile of photocopies. Take them to the software supplier, dump them on the table and say: 'See that lot? I want you to put them through your package and show me what comes out the other end. If I like what I see, maybe I'll buy it.'

Feeling more confident? Now you're definitely in charge, but you are not quite ready yet to start talking to suppliers. There are a couple of other things we have to sort out first, such as choosing the project team to manage the tests and make the final selection. We'll cover those issues in the next article.

Accounts/ERP software implementation guide
This article is the first in a series by David Carter to give you comprehensive advice at every stage of the selection and implementation process. The articles over:
  • Step 1: Defining your requirement
  • Step 2: The Test Pack
  • Step 3: The project team
  • Step 4: Business process re-engineering
  • Step 5: Picking a supplier
  • Step 6: The demo
  • Step 7: The decision
  • Implementing the system.
  • David CarterIT Zone consultant editor David Carter has installed more than 100 accounting systems and always emphasises the need to extract good management information from business software. You can get more advice and help from David on these issues from the following AccountingWEB articles and resources:

  • Accounts/ERP Software Selector
  • Mid-market Software Lab Tests
  • So you want a new desktop accounting package?
  • Choosing the right software reseller
  • Reporting Challenge: Resource planner outgrows Excel
  • Interested in Excel pivot tables? Start here
  • More pivot table tips & tutorials
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