In our last post, we overviewed the basic eight-step process that should be followed whenever you embark on acquiring a new piece of enterprise software. In today’s post, we start our deep dive into the process steps, starting with the issue of cross-functional team formation.

1. Form a Cross Functional Team

The starting point is to form a selection team that consists of representative stakeholders from each group that will be using the system, each group that will be paying for the system, and each group that will be supporting the system. This will help fully define your needs and requirements and ultimately insure that no solution is shortlisted that doesn’t meet a basic need of one or more parties (and minimize the chance that you buy a(nother) multi-million dollar “shelfware” product). It’s also necessary to insure you don’t buy a product that one or more intended users will boycott (which could result in your selection being a failure and a money-pit from day one).

In supply management, the following stakeholders will need to be represented in every purchase:

• Buyers
  Buyers, or a subset thereof, will be the primary users of the system.
• Procurement Managers
  Supervisors, Directors, and the CPO will need to track the activity of their buyers, track spending, and, most importantly, track productivity increases and cost avoidance.
• Accounts Payable and/or Accounts Receivable
  Supply management is all about buying and realizing savings, especially those that take the form of discounts, rebates, warranty claims, and returned overpayments. Even if AP and/or AR doesn’t need to use the system directly, they will still need the data from the system.
• IT
  Even if it’s SaaS, IT is still going to have to support the system one way or another. If it’s on-premise, IT will likely be responsible for the installation, maintenance and upgrades. If it’s hosted ASP, IT will need to manage the remote integration with the other systems that need to push data into and pull data from the new system — and, no doubt, run security checks and audits to ensure that the hosted software passes basic security checks. And even if it’s SaaS, IT will still have to support the requisite environment as most software is only certified for specific browser-based environments (such as IE 7 and/or Safari 3 on Win XP SP2+, Vista SP1+, or Mac OS X 10.4+) if it’s thin client, or specific operating system configurations if it’s fat client (such as Win XP SP2+ with Cisco VPN software).

Furthermore, the following departments will be affected by certain types of supply management software acquisition:

• Risk Management
  If your organization has a dedicated risk management function, since every aspect of supply chain involves risk, you’ll need to involve risk management.
• Strategic Planning
  If you have a long-term strategic planning division, and you’re buying software that supports scenario planning, what-if modeling, or (network and/or market) simulations (like strategic sourcing or supply chain network optimization), you’ll likely have to consult with strategic planning.
• Legal
  If you’re buying a contract management system with contract authoring support, for example, legal may end up being a primary user.
• Human Resources
  If you’re buying software to support the procurement of temporary labor, you’ll need a sign-off from HR.
• Regulatory Compliance
  If you’re buying a global trade management system, a carbon emissions tracking system, or a SOX compliance system, you’ll likely need to make your selection under the guidance of regulatory compliance.
• Production
  If you’re buying software that impacts forecasts and production plans, you’ll need to work closely with production.
• R&D / Engineering
  If you’re buying software that impacts or supports PLM (Product Lifecycle Management), you’ll also need to involve R&D and/or Engineering as it will critically impact their operations.

In our next post, we will discuss need identification and documentation.

Buying enterprise software isn’t easy. In fact, it’s just as complicated as global sourcing, if not more so (and that’s why IT professionals make great global sourcing professionals, as noted in this recent article from Global Services). You’re buying something that’s immaterial and, these days, ephemeral, but just as costly once all the “hidden” costs are taken into account.

What’s worse, a mistake can cost you many times the initial purchase price. Accidentally spot buy 10,000 parts incompatible with your current assembly? You sell them at a 10% loss, take a one time hit, learn your lesson, and move on. Move too quickly on that new, on-premise, e-Sourcing platform to take advantage of that limited time “special discount” and lock in a five year term on a platform that is thoroughly incompatible with your ERP? There’s an additional seven to eight figures, up front, of custom integration work plus significant third party maintenance each year to keep the middleware running each time you patch your ERP or your new e-Sourcing platform and “break” the custom middleware.

Thus, when it comes to enterprise software, you need to be prepared. In this 8-part series, I’ll attempt to walk you through each step of the enterprise software buying process, point out what you need to watch out for, and pass on some of the secrets of successful software purchasing.

First of all, let’s outline the basic process.

1. Form a Cross-Functional Team.
2. Document Your Needs.
3. Identify Potential Solutions.
4. Build Your Cost Models.
5. Define Your Objective.
6. Negotiate Professionally.
7. Comb the Contract.
8. Manage Performance.

Sounds simple enough, doesn’t it? Too bad each step is a virtual minefield laden with explosives that can blow up your costs, your project, and your organization’s trust in you. That’s why we’re going to examine each phase in detail.

When you get right down to it, enterprise software is a serious commitment. Even if you are able to divorce yourself from a system (or a vendor) after signing a contract, you can bet that it won’t be before you incur a significant penalty. (Even if the vendor is a “quit anytime you want” SaaS vendor. There’s always a cost, even if it isn’t always paid direct to the vendor.) Plus, you’ll have to move all of your data to a new system, which will likely require custom development work to integrate it with other systems and cause your losses to mount in this double whammy scenario. Of course, you’ll take a productivity loss while your employees are left without a system (and if it’s a supply management system, the disappearance of a key piece of analytics technology could result in uninformed buyers making less-than-optimal, and costly, sourcing decisions). That’s why you have to do everything you can to make sure you select the right system up front.

In our next post, we’ll discuss cross functional team formation.