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The times being what they are, no company stays in its current state for long. Employees come and go, new products are launched and sooner or later, most companies will acquire another firm. In fact, growth by acquisition has been many a midsize manufacturer’s strategy for riding out the recession.
As a result, many manufacturers find that they are running multiple ERP systems or instances of the same system. Mergers and acquisitions aren’t the only root of the problem. Often, manufacturers sought to balance regulatory requirements by implementing an ERP system tailored to the local population’s needs at satellite locations.
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Given the global nature of business today, companies of all sizes operate in a number of locations, which adds to the problem of multiple ERP systems. According to research conducted by Windham, N.H., ERP analyst Cindy Jutras, large enterprises (defined as having revenues over $1 billion) have an average of 10.7 operating locations supported by ERP. Firms with $25 million to $250 million in revenues have 5.5 locations, according to the 2011 Mint Jutras ERP Solution Study.
Even small companies (under $25 million in revenues) are not immune to the phenomenon, according to Jutras. On average, they have 2.5 operating locations supported by ERP. The truth is, a majority of companies use different ERP systems in different locations.
Know the warning signs of ERP overload
Sometimes using multiple ERPs or multiple instances (versions) of a single ERP platform is the best choice. More often, though, there are downsides to doing business this way. Here are experts’ top five signs that multiple ERP systems are standing in the way of ERP optimization:
- Multiple databases and servers. ERP systems need databases and hardware to run on. If a company is running more than one ERP system, chances are it has loads of different databases and hardware to support each environment. That can be a problem, said John Hoebler, managing director for MorganFranklin, a consulting firm in Washington, D.C. “That means you’re going to have high infrastructure and people costs,” Hoebler said. Any ERP system requires an expensive mix of hardware, software and skilled personnel to run on-premises. Add multiple systems on top and you can multiply the cost and complexity. “That’s not good news,” he said. Re-examining your environment and even looking for ways to incorporate SaaS ERP can point the way to a simpler ERP environment that is less costly to run.
- Volume-buying discounts are being left on the table. A common side effect of multiple ERP systems, said Jutras, is that a company can’t leverage its collective buying power across its divisions. Because of disparate systems, no one group knows what the others are buying (and who from), so no group can maximize the discounts that come with volume. “Someone knows you’re dealing with the same suppliers, but no one can prove it because the systems are not connected to share that kind of information,” said Jutras. This can cost the company a bundle.
- It takes too long to make changes to the system. Let’s say the company wants to make a major change in one ERP system. In addition to the normal amount of time it takes for development -- always a bugaboo for traditional software -- companies may first have to stop and consider how the change will affect all the other ERP systems they’re running, depending on how deeply the systems are linked. “It can take a long time to manage the change across all the different systems,” Hoebler said. If the systems do talk to each other, companies can get hung up testing them all.
- Internal audit controls are a mess. Companies that operate in regulated industries or are covered by the Sarbanes-Oxley Act, can quickly get into nightmare scenarios trying to attribute revenue and validate other processes, Hoebler said. “Internal audit is tough when there is one system, but it’s exponentially worse when you have multiple systems. You almost have to have a different set of internal audit controls for each ERP system,” he said.
- The company has multiple versions of the truth. Another especially serious hangover of the proliferation of disparate ERP systems is the lack of sound data on which to base decisions. The problem often arises from a lack of master data management, Hoebler said. For example, the company’s divisions use different definitions of “customer” or “order.” Or one group has employee ID numbers that are eight digits long, while another has IDs that are 12 digits long. These distinctions can lead to much pain for anyone hoping to get a clear vision of business performance to determine what to do next. “You have two different users of two different systems working on the same thing but calling it by different names. This can lead to bad decisions. If employees can’t trust they are working off the same data, that’s a real problem,” Hoebler said.
There are cases where it makes sense to run multiple ERP systems. One type quickly comes to mind: multinational holding companies with disparate, disconnected groups that operate wholly autonomously in different industries. But if a company has one or more of the warning signs, chances are it has much to gain from ERP consolidation.