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It is not uncommon for manufacturers to end up with multiple ERP 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 multiple ERP systems: complexity, cost, inflexibility and lack of accurate data on which to base decisions. For companies that have decided it is time to consolidate multiple ERP systems, experts say there are a number of factors they need to consider when formulating a plan.
ERP consolidation 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 consolidation will map to business goals, because if it doesn’t map to the business goals, the company shouldn't do it.
More on ERP consolidation
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Understand the benefits of two-tier ERP
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 multiple ERP 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 consolidation fills the gaps left by fragmented, disconnected systems.
Factors for an ERP consolidation plan
When Rajeev Ranjan helps manufacturers create ERP consolidation 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 consolidation 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 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 consolidation 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 consolidation business case, along with the other expected benefits.”
2. User perspective. Dealing with multiple ERP 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 consolidation once the learning curve for the new system is passed.
3. Technology. The technology questions that come into play are the 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 consolidation 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 multiple ERPs 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 consolidation 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.