In the most general sense, a manufacturing business is any business that procures or refines components and raw materials to create a finished good. The finished good can be made to furnish for consumers directly, other companies to use in its own business, or to other manufacturing businesses who may use the finished goods to make their own final product. ERP platforms are an important tool in this industry because a great platform will help move goods quickly and keep you ahead of the competition. In our practice, we represent a number of different manufacturing companies in a range of industry in connection with software license negotiation, ERP implementation contract negotiation and lawsuits involving failed ERP software implementation. Bellow are four ERP software contract negotiation tips intended to help you both increase the chances of a successful ERP implementation and minimize the likelihood of a failed ERP implementation lawsuit.
Tip No. 1: Detail Your Manufacturing Business Requirements: A one-size-fits-all approach does not work in the manufacturing industry when it comes to ERP platforms. Prior to any negotiations with any ERP vendors, make sure that your business requirements are detailed plainly and accurately. For example, you might custom manufacture products for customers with unique requirements whereas the ERP software is really more suited for mass production of generic products. This will help to expedite the negotiations once you have found a potential ERP software candidate.
Tip No. 2: Request And See Software Demonstrations: The manufacturing industry is a wholly different industry in that the speed with which you can go from procuring materials to manufacturing the final goods and delivering to your customers is tantamount to business success. An ERP platform can greatly enhance this timeline, but you must first verify that the ERP software incorporates all the necessary requirements or processes that your business needs. It is important to see a demonstration of the ERP software as it pertains to your specific business, and preferably in a live environment. Ask your ERP vendor from the start whether you will be able to see a live demonstration of the ERP software in a business environment similar to yours.
Tip No. 3: Use Experts To Negotiate And Review Your ERP Agreements: While your in-house contract manager or procurement department may understand your specific manufacturing business much more intricately than any outside attorney or consultant, they are unlikely to have substantive experience drafting and negotiating software Agreement. Standard vendor forms almost always contain legal terms or clauses which are purposefully utilized to pass the risk of failure over to you, the ERP customer. Many of these clauses can be easily mitigated with standard fallback positions that most ERP vendors will accept. Other ERP vendors will hardly ever modify certain clauses.
Even if your in-house contract manager or procurement department catches these pitfalls, an in-house contract manager or procurement department will likely not know what negotiation tactics to take in order to negotiate around these risks. Ideally, you should find an attorney who already has a breadth of experience in dealing with your ERP vendor and knows what negotiation tactics to implement.
Tip No. 4: Becoming Shortsighted With Your Goals: An ERP platform and implementation project for a manufacturing business will usually be a complex process, oftentimes involving multiple consultants or third-party implementers. This will necessarily create more contracts. While an ERP customer is rightfully concerned with the costs associated with greater complexity, it is always important to keep the overarching goal in mind: a successful implementation. Becoming shortsighted with the upfront costs or even with specific functionality that may not ultimately be important for your business is a pitfall to avoid, and one that ERP vendors may use against you during negotiations.
The manufacturing industry is complex and requires unique ERP software functionality to suit its needs. The importance in correctly drafting and negotiating of ERP software implementation contracts cannot be understated. If you have questions regarding the manufacturing industry’s ERP software issues, please feel free to call our office at 312-263-0570.