Correctly determine the functional scope of the ERP system

The optimal range of functions is one of the most important factors when it comes to selecting an ERP system. However, it is not so easy to determine it correctly. Many decision-makers underestimate this task and thus jeopardize the success of the project. This, in turn, can cost the company dearly.
In this article, you can find out which stumbling blocks can also cause you to falter. Above all, however, we will tell you how to determine the functional requirements of an ERP system in a targeted manner – with valuable tips from decades of project experience.

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The ERP functional scope is crucial to success

When companies introduce an ERP solution, this always has a major impact on business processes. Processes from all areas of the company are redesigned, standardized and in some cases automated. Existing workflows often have to be adapted, which also changes day-to-day work.

The implementation of an ERP system therefore always takes place across departments and processes. At the very beginning of the project, each department roughly determines the required scope of functions. The results are then defined in detail together with the stakeholders in the specifications together with the stakeholders.

As companies commit to ERP software for at least 10 years on average, careful selection of the functional scope is essential for the success of the project. The system will only create the desired added value in the long term if it can keep pace with the company’s development and requirements.

The focus is on the following questions:

• Which functions are necessary?
• How do you find the right size?
• Where does the company stand today and where will it be in 5 years?

You should avoid these pitfalls

You can fall into two traps when determining the functional requirements. Two extremes that have a negative impact on the project: too many and too few functions.

Risks of an excessive range of functions

Some decision-makers consider all ERP functions to be necessary without exception. At first glance, this approach may make sense: The broader the functional scope of the system, the lower the chance that a feature will end up missing. In this way, the company would be prepared for all eventualities.

However, the disadvantages of this approach are more serious:

• Too many ERP functions bloat the project. This increase the coststhe resources required and the implementation time. In the worst case, the misjudgement leads to the project being abandoned.
• If you overestimate the functional requirements, you create the wrong selection criteria. As a result, you remove ERP providers from your shortlist that meet your true requirements but not your additional ones. As a result, you may choose the wrong provider.
• With too many functions, you create unnecessarily complex processes. This in turn increases the risk of users feeling overwhelmed later on. As a result, training costs increase while acceptance decreases.

Risks of too small a range of functions

Some companies do not want to rush headlong into an ERP project. Instead, they decide to start small. In this case, the project managers prefer a limited system that initially only maps individual processes and not the entire value creation process. The positive side: the costs and implementation time are kept within limits.

However, the negative aspects also outweigh this approach:

• Too few functions do not create real efficiency, so the ERP system cannot develop its true potential.
• Insufficient coverage of business processes forces your company to use subsystems outside the ERP software. This results in isolated solutions that make data exchange more difficult, cause media disruptions and create sources of error.
• It is often necessary to expand the ERP solution at a later date. This can be costly.

3 steps to the optimum range of functions

So how do you determine the ideal functional scope of an ERP system? It’s simple: with the help of planning and analysis. Think carefully about the direction in which you want to develop in the foreseeable future and how the ERP system can help you achieve this. Make it clear which functions the software must provide and which are only optional.

1. analyze the current business processes

During the analysis, evaluate past and current company activities. Consider which projects have been completed in the last ten years and document their processes. The aim is to understand exactly where problems occur. For example, find out where time is being lost or where there is potential for errors.

It is helpful to conduct interviews with employees, graphically depict process flows and evaluate key figures. Investigate how orders are processed, invoices created and stock levels managed. This inventory serves as the basis for a precise definition of requirements for the new ERP system.

2. define clear project goals

Think about what goals you want to achieve with the introduction of an ERP solution. The more concretely you formulate these, the better. Because only if you have clearly defined your goals can you manage the project precisely and measure its success. Bear in mind that your company is constantly evolving and that the ERP functional scope must also be aligned with your future corporate strategies.

Specific objectives can be formulated, for example:

• The throughput time for customer orders should be reduced by 25% within six months of the ERP implementation.
• Inventories are to be reduced by 15% within a year thanks to optimized ordering processes.
• The error rate in invoicing should be reduced by 30% within six months of the system being introduced.

Also think about the steps you want to take to achieve your goals and where there is a particular need for action. Are there certain processes that are causing major difficulties? Or do you currently lack an overview because certain analyses are not possible?

3. prioritize the required functions

Once you have evaluated the current processes, weak points and goals, you can collect and prioritize the required functions. Ask yourself which aspects you cannot do without under any circumstances and which features offer added value but are not absolutely necessary to achieve your goals.

The prioritization of functions could be structured as follows:

6 professional tips from the field

1. expect growth

Don’t choose an ERP system that only meets your current needs – the solution must also meet future requirements. For example, if your company opens new locations, introduces new products or acquires more customers at some point, you should be technologically prepared for this. Introducing a new system after just a few years would be far too complex and expensive.

In any case, make sure that the software is easily scalable and can be easily expanded with additional modules. If you want to expand abroad in two years’ time, for example, you can simply add functions for foreign currencies and multilingualism at a later date.

2. involve all relevant stakeholders

Each stakeholder has their own expectations of the new system. If only a small group makes decisions, there is a risk of overlooking important requirements or setting one-sided priorities. This can later lead to acceptance problems, expensive adjustments or inefficient processes.

By involving important stakeholders from different areas, you ensure that the requirements are assessed as objectively as possible. This results in a realistic and practical range of functions that reflects actual needs and at the same time increases employee identification with the ERP project.

3. give stakeholders the time they need

If stakeholders are too involved in day-to-day business, they may make decisions inaccurately, incompletely or prematurely. This later leads to gaps in the functional scope, costly improvements and delays.

Carefully reconciling different interests requires time and capacity. Therefore, make sure to release important stakeholders from other projects, at least on an hourly basis. This allows them to concentrate fully on the ERP implementation.

4. proceed step by step

Our experience with ERP implementation shows: work out the scope of functions step by step. This is the only way to achieve a realistic definition of the functional scope. Keep the big vision in mind, but break it down into concrete goals and requirements. Otherwise, you will quickly lose the overview and may overlook important correlations.

5. choose the golden mean

As mentioned above, neither too many nor too few functions are promising. The ideal solution lies somewhere in between: At best, the system should offer exactly what your company really needs today and in the coming years.

The ERP system will only pay off for your company if the functions are tailored to your business processes and strategic goals. It not only supports your daily work, but also contributes to your long-term competitiveness.

6. observe industry-specific requirements

Not every ERP system is suitable for every industry. Special processes or legal requirements sometimes require functions that are precisely tailored to industry-specific processes. This could be, for example, variant configuration in mechanical engineering or store management in retail.

It is therefore best to research your own industry for references and adopt best practices. This will save you expensive adjustments, speed up implementation and achieve productive results faster.

Conclusion: Rely on thorough preparation

Determining the ERP functional scope is not a sprint. Rather, it requires a detailed analysis of your processes and a precise definition of your goals. This may take a lot of time at first, but this investment will easily pay off later. Encourage your project team to plan in a balanced and forward-looking manner, which will serve as a stable foundation for the implementation.

If, on the other hand, you misjudge the ERP functional scope, the entire project will be on shaky ground. The software implementation may even be doomed to failure.