News Stay informed about the latest enterprise technology news and product updates.

Expert explains where to integrate manufacturing procurement with ERP

What procurement processes should be integrated with core ERP and where does it make less sense? Gartner analyst Deborah Wilson explains what companies need to know about procurement integration.

It’s not always clear what manufacturing procurement processes need to be integrated at the ERP level, or why. Gartner analyst Deborah Wilson recently spoke to about what companies need to know about integration, from e-procurement to contract management.

Don’t assume you need to integrate all your manufacturing procurement processes

Deborah Wilson: At the highest level, when you look at integration issues, the question to ask is, Are you taking data from one system and retyping it into another? That’s really the foundation of deciding what to do with integration. You really have to ask yourself, How much are you going to be retyping if you don’t connect the systems? If it’s a whole lot and [you] get a sense of how many man-hours you’re talking about … are you going to possibly be introducing a lot of mistakes? I find that a lot of people never sit down and do the business proposition calculation for integration. They just assume they need it. You don’t always. 

You need to sit down and ask, what is the value, how much time am I going to save, because when you [integrate] two systems, you have to manage that. You have to keep the technical integration fresh any time you upgrade or change either one of the pieces of those systems connected together. That can be costly.

Think about your business case and what you really need and let that drive what, if any, integration you [perform].

E-sourcing integration usually unnecessary

[Maybe you’re using an] an e-sourcing system [to] run a reverse auction and source your fleet requirements for the next year. You do all the work to qualify suppliers and figure out who you’re going to order from and make the bid. And at the end of the process, you spend one hour retyping the information from the event into creating a blanket order in your ERP. If that’s the level of retyping you’re looking at, it’s no big deal. Most organizations, as a result, do not integrate certain tools back into their ERP system. E-sourcing is the prime example where the three quarters of our clients who are using an e-sourcing tool do not integrate to their ERP. Retyping is minimal. Another reason is that you probably want to get quotes from a whole lot more prospective suppliers than you actually buy from.  So why stuff all of those suppliers into your vendor master in your ERP when you’re never going to pay them? 

E-procurement: A better case for integration

[However, an ideal place where you would want to integrate is] if you’re looking at an e-procurement system where you have to have the correct vendor number in order to settle the bill, and you have to have the correct general ledger account numbers so that people can set up the right account to charge to, and you want to have an accurate representation of the reporting hierarchy from your HR systems -- and you don’t want to have to retype that. There the numbers are exactly opposite [compared with e-sourcing]. Ninety percent or more of e-procurement implementations are integrated back into the accounts payable and GL [general ledger] capabilities of an ERP, because there would be tons of retyping.

Real-time or batch mode?

Another question to think about is, Do [your data updates] need to be real time or can [they] be batch mode? Batch mode is less expensive, but for example, in procurement, [in] most organizations, general ledger, chart of accounts, is pretty stable. You may only change it occasionally. You don’t need to have a real-time connection to test every second whether or not there’s been a change or an account added. You can wait maybe a couple of days and update it once a week.  So it’s easier and cheaper to do a flat-file movement between two systems.

The case for contract management integration

This is a new area for integration, where ... you have a contract management system and you’re storing the full document and you are managing the contract from negotiation through expiration. It’s a nice idea to have that connected back to your ERP so that when you place orders that are relevant against that contract, you can actually add them up and make sure that number one, you’re not making duplicate payments, and two, you’re staying below the total amount that you agreed to in the contract, and three, that your orders are going to the correct suppliers. If someone does a requisition for something that’s supposed to be with vendor A, but they use the requisitions for vendor B, if you’ve integrated those systems, you could potentially catch that. That’s a pretty new integration point, and just a handful of our clients are doing that, and there’s some experimentation there to see how it’ll work.

If it’s not integrated, then you tend to miss some opportunities for really insuring compliance to contracts. Maybe instead, at the end of the year or the end of the quarter, you would do a spend analysis and see how much spend went to that supplier, or if you’re pulling a contract number, you could check by that. The thing is, however, it’s way after the fact and it’s harder to change.

Dig Deeper on ERP integration

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.