E-Guide WHEN IS ERP CONSOLIDATION THE RIGHT MOVE?

Transcription

1 E-Guide WHEN IS ERP CONSOLIDATION THE RIGHT MOVE?

2 M any manufacturers end up with multiple ERP systems for one reason or another, whether it s a result of mergers and acquisitions or a matter of geographical distances. However, maintaining disparate systems can be costly and confusing for employees to maintain. This E-Guide discusses the factors involved in an ERP plan, and compares the benefits of single, two and multi-tier ERP systems. PAGE 2 OF 12

3 CONSOLIDATE MULTIPLE ERP SYSTEMS TO ADDRESS FOUR KEY DIMENSIONS Lauren Gibbons Paul It is not uncommon for manufacturers to end up with systems, often from different vendors. Mergers and acquisitions often lead to disparate systems and many branches undertake Software as a Service (SaaS) ERP projects on their own, which only adds to the problem. But there are serious downsides to having systems: complexity, cost, inflexibility and lack of accurate data on which to base decisions. For companies that have decided it is time to consolidate systems, experts say there are a number of factors they need to consider when formulating a plan. ERP involves much more than choosing to go from many systems down to one or two, or to run one ERP for corporate financials and a second one for the other functions. Chiefly, it requires understanding how the ERP will map to business goals, because if it doesn t map to the business goals, the company shouldn't do it. PAGE 3 OF 12

4 Murali Raghavan, senior vice president and head of horizontal IT services for igate, a consulting firm with operations in the U.S. and India, said his clients are driven by objectives such as improving decision making for greater agility as well as improving the customer experience. Running systems often means customers can t get accurate information on things such as exactly what has been shipped and when they can expect to receive their orders. Manufacturers are asking how they can increase their companies responsiveness to make a better experience for their customers, said Raghavan. In this case, ERP fills the gaps left by fragmented, disconnected systems. FACTORS FOR AN ERP CONSOLIDATION PLAN When Rajeev Ranjan helps manufacturers create ERP plans, he examines and assesses their status in four dimensions: business process, user perspective, technology and cost. A company s status on each of those will inform the ERP plan, said Ranjan, associate vice president and delivery head of manufacturing for Infosys, a global consulting and IT services company headquartered in Bangalore, India. Here s how his analysis of the four PAGE 4 OF 12

5 factors plays out: 1. Business processes. We look at the health and productivity of the business process. For example, if the process in question is order fulfillment, Ranjan looks at fulfillment rates. If something is amiss, he next examines whether there is a system-based reason for the dysfunction and how much an ERP might help the situation. Let s say there are three different divisions under the same group, and they each do credit checks differently, he said. We look to see what kind of improvement they would get in this function by implementing a single ERP system for all three divisions. The quantification of benefits from optimizing business processes goes into the business case, along with the other expected benefits. 2. User perspective. Dealing with systems can be quite difficult for employees they have to learn (and remember) more than one interface and feature set. What they can do easily on one system they might not be able to do at all on another. To cope and get their jobs done, employees often create a series of workarounds, which eats into productivity and morale. Improving the user experience for employees is often a significant benefit of ERP once the learning curve for the new system is passed. 3. Technology. The technology questions that come into play are the PAGE 5 OF 12

6 same ones associated with an ERP upgrade, plus a few more. For instance, is the organization running one or more systems that will soon be obsolete? Has it outstripped the system s capacity? Do the ERP systems interoperate or does it take a lot of custom integration to pass information between them? How long does it take to make changes to the system? Are the multiple systems preventing flexibility? All of these factors will affect the type of ERP the company eventually decides to do. 4. Costs. It s only common sense that it s more expensive from a total cost of ownership standpoint to keep s running compared to consolidating on one system. Along with licenses and maintenance is the cost of enhancements. Often, said Ranjan, this is so burdensome it s prohibitive. Companies learn how to live without enhancements they need to keep competitive and that is not a good thing. An analysis of all four dimensions underpins all good ERP plans. You overcome what you are lacking, and you add what you want to achieve, Ranjan said. Other factors like geographic-specific needs, applicable regulations and the need to minimize capital expenditures will also come into play. PAGE 6 OF 12

7 TWO-TIER ERP, SAAS BECKON COMPANIES EMBARKING ON ERP CONSOLIDATION Lauren Gibbons Paul For manufacturers that are tired of operating systems and have decided to start the ERP process, a world of technology options awaits. They include better integration of systems, replacing them with a single platform and deploying Software as a Service (SaaS) ERP at satellite offices, according to ERP experts. Most manufacturers -- even small ones -- have multiple operating sites, according to research conducted by Cindy Jutras, principal of Mint Jutras, a Windham, N.H. ERP consultancy. They must carefully evaluate the needs of each site to decide how to architect their ERP setups before choosing applications. Before you make the technology choices, you have to define the business application architecture, said Rajeev Ranjan, associate vice president and delivery head for manufacturing at Infosys, a global consulting and IT services company headquartered in Bangalore, India. PAGE 7 OF 12

8 The most important decisions are not about the hardware or the software that you use, said Ranjan. You have to look at the structure of the organization you re going to support with ERP. Begin by looking functionally across divisions and don t necessarily stop with ERP, he said. A company might decide, for example, that it wants to do order management on one ERP system for locations A, B and C, with each system rolling up into the corporate ERP for profit and loss accounting. This type of arrangement is known as two-tier ERP. Further, the same company might decide to handle warehouse management separately at each division, since it is difficult to use the same instance for logistics in geographically separated locations. You have to draw the map, then you can start to apply the technology choices, Ranjan said. COMPARING SINGLE, TWO AND MULTI-TIER ERP After sketching out this application architecture, the next step for many companies is to define ERP standards. It doesn t have to mean choosing one system to use across all sites, Jutras was careful to specify. The 2011 Mint Jutras ERP Solution Study found that 97% of the top-performing ERP implementations (at companies rated in the top 15% for their PAGE 8 OF 12

9 results and progress toward goals) have established a corporate-standard ERP system or systems. But these same top performers are 68% less likely to standardize on a single ERP solution, she said. Instead, nearly 30% of the top performers had a multi-tier ERP strategy. Jutras defines three different approaches to tiered ERP: Single-tier ERP. Here, all business units, divisions or locations use the same ERP. The larger the company, the less practical this option may be. Two-tier ERP. This is where one ERP system is used at the corporate level, generally for back-office financials, and a second platform (often referred to as operating ERP ) is used for business units. Two-tier ERP is attractive to many companies because it offers business units some flexibility beyond the corporate ERP. Multi-tier ERP. One ERP system runs at corporate with several different ERP platforms and instances for business units, depending on function or location. One of the tiers could incorporate a SaaS ERP system. Venturing into SaaS ERP this way reduces risk when compared with migrating wholesale to SaaS ERP under a single-tier architecture. PAGE 9 OF 12

10 Making these decisions can be difficult and time-consuming. After all, the company will likely have to live with the result for at least several years, so many factors must be considered. Take the single-tier vs. two-tier ERP decision. Not only do you have to look at whether the different business units and operating divisions are similar or dissimilar, you also have to look at the relationships between them, Jutras said. If one plant or location feeds components to another plant or division, there will be a lot of interaction between the two. The more interaction there is between the different units, the more they need to interoperate from a data standpoint, Jutras said. In that case, it will be a lot easier for them all to operate on the same ERP, just feeding up to a corporate general ledger. No matter which architecture the company chooses, defining a corporate standard for ERP is a critical success factor. While there is no single best approach to standardization, Ranjan and Jutras emphasize a three-step process that goes a long way: Evaluate the needs of all locations, map out the relationships between them and create a plan that includes integration. PAGE 10 OF 12

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