A Combined Method for Evaluation Criteria when Selecting ERP Systems

David L. Olson, Univ. of NebraskaBjörn Johansson, Lund Univ.

Rogério Atem de Carvalho, CEFET Campos

CONFENIS 2011 Aalborg

ERP

• Integrated• BPR efficiency• Reduced IS payroll• MANY OPTIONS– International differences

• SELECTION– PIRCS meta-method– SMART multicriteria selection

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Alternative Supply Chain Software SourcesMethod Advantages Disadvantages

Develop in-house Best fits organization Most difficult to developMost expensiveSlowest

Stand-alone APS Less expenditureSimpler installation

Harder to integrate

Full vendor ERP Relatively fastLess expensive than customizationIT efficiencyEasier to upgrade

InflexibleEmployees change work methods

Selected vendor modules

Less riskRelatively fast to installLeast expensive vendor approach

Expansion problems in time and cost

Customized vendor ERP Retain flexibility while gaining vendor expertise

SlowerUsually more expensive

Best-of-breed Gain best of all systems Difficult to link (middleware)Slow

Application service provider

Least risk of ERP changeLeast costFastest

At ASP provider’s mercyNo controlSubject to price increase

Open source system COST (it’s free to install)Flexible

Greatest risk (after in-house)Need computer-literate employees

ERP Selection CriteriaBaki & Çaki [2005]

Criteria Hecht [1997]

Brewer [2000]

Rao [2000]

Verville & Hallingten [2002]

Kumar et al. [2003]

Mean

Fit with allied organizations * 4.79Cross module integration * * 4.72Compatibility with other systems * 4.28References 4.24Vision * * 4.22Functionality * * * * 4.15System reliability * 4.08Consultancy 4.06Technical aspects * * * * 4.01Implementation time 3.94Vendor market position * * 3.87Ease of customization * * 3.84Software methodology 3.83Fit with organization * 3.83Service & support * * * 3.77Cost * * * * * 3.65Vendor domain knowledge * 3.46

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Open Source Development

Red Hat [2009]: Can save by:1.Enabling use of commodity hardware rather than proprietary machines2.Avoids maintenance contracts3.Greater functionality, reliability, performance4.Faster learning curve, available support tools5.Avoid vendor lock-in6.Reduce need for security consultants & tools

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Open Source ERP/EIS

• Jaisingh et al. [2008]: OSS ERPs can be customized to modify code, gain competitive advantage

• Serrano & Sarriegi [2006]: OSS ERP benefits:– Increased adaptability– Decreased reliance on single supplier– Reduced costs

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Open Source ERP Products• Compiere• OpenMFG• Open for Business Project• Tiny ERP• Web ERP• Open Office• OpenBravo• OpenProSourceforge.net listed over 1,000 ERP projects May

2009

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Conclusion

• Open source ERP projects are increasing– Not all projects are highly structured

• Reluctance to use open source ERP in firm’s core activities

• PROVIDES OPTION FOR SME• VENDORS CAN USE TO REFINE THEIR SYSTEMS– Open source an access to free labor

Open Source ERP Software Selection Criteria

Criteria Reuther [2004] Rittammanart et al. [2008] Baharum et al. [2009]

Technology Technical requirements

Complexity of technologyEast of database

administration

Database migration

BPR Business drivers Ease of business logic implementation

Synchorizing modules to workflow

User interface Ease of presentation layer implementation

User friendly interfaces

Administration Ease of administration Integration with 3rd party software

Cost Cost drivers Others Flexibility

ScalabilityBusiness specific

Ease of service exposureResource utilization

User support

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ERP Selection Crtieria for Outsourcing ERP

Study Context CriteriaEkanayaka et al. [2003]

Application service providers

Customer serviceReliability, availability, scalabilityIntegrationTotal costSecurityService level

Kahraman et al. [2009]

Outsourcing Market leadershipFunctionalityQualityPriceImplementation speedLink with other systemsInternational orientation

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Conjoint AnalysisKeil et al. [2006]

Attribute Effect t-value P<0.01 P<0.001

Software Reliability 0.464 20.34 Yes Yes

Software Functionality 0.457 20.03 Yes Yes

Software Cost -0.253 -11.08 Yes Yes

Implementation Ease of Customization

0.129 5.67 Yes Yes

Software Ease of Use 0.073 3.19 Yes No

Implementation Vendor Reputation

0.007 0.29 No No

Implementation Ease 0.000 0.01 No No

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AHP CriteriaÜnal & Güner [2009]

• Cost• Functionality• Implementation approach• Support• Organizational credibility• Experience• Flexibility• Customer focus• Future strategy

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ANP Vendor Selection CriteriaPerҫin [2008]

System Factors Vendor Factors

FunctionalityStrategic fitnessFlexibilityUser friendlinessImplementation timeTotal costsReliability

Market shareFinancial capabilityImplementation abilityR&D capabilityService support

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AHP HierarchyKahraman et al. [2009]

Top Level Criteria Second Level CriteriaMarket Leadership Relevant technology

Innovative business processCompetitive position

Functionality Consumer preferenceFunctional capabilityCompatibility with third party

Quality ReliabilitySecurityInformation QualityConfiguration

Price Service costOperating costSet-up cost

Implementation speed PerformanceUsabilityTraining

Interface with other systems Data shareCompatibility with the systemMulti-level userFlexibility

International orientation National CRMWeb applications

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PIRCSDe Carvalho [2009]

• Prepare– Define requirements– Establish positioning strategy– Identify attributes and constraints on the decision– Identify measures of attributes to be considered

• Identify– Identify alternative ERP options and their characteristics

• Rate– Establish the utility (value) of each attribute on each alternative

• Compare– Apply multicriteria methods, such as AHP or SMART

• Select– Consider the comparison analysis– Make the decision

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Value Matrix Cost Time Flexibility Robustness Support

Large vendor 0.2 0.3 0.1 1.0 1.0

Customize vendor 0.0 0.0 0.8 0.7 0.5

Mid-size vendor 0.4 0.6 0.5 0.5 0.6

OSS with support fees 0.7 0.9 0.6 0.8 0.7

OSS without support 0.6 0.6 0.5 0.4 0.0

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Swing WeightingCriteria by order Relative weighting Standardized weighting

(/320)Time 100 0.312

Robustness 80 0.250

Support 70 0.219

Cost 40 0.125

Flexibility 30 0.094

SUM 320 1.000

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Relative Scores of Alternatives

Alternative Score

OSS with support fees 0.778

Large vendor 0.597

Mid-size vendor 0.541

ASP 0.446

OSS without support 0.409

Customize vendor 0.360

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Conclusions

• Many criteria important in ERP selection• Business case for ERP challenging– Costs complex (hidden)– High levels of benefit uncertainty

• PIRCS framework• SMART selection evaluation

CONFENIS 2011 Aalborg