Does your three-letter acronym for enterprise resource planning, or ERP, end with an “s”? If so, you’re a manufacturer on track to right-size those ERPs with an ERP consolidation strategy or maybe even a two-tier ERP strategy.
As any manufacturing business grows, it’s bound to open new facilities, expand to new regions, and bring on more and different technology systems. Mergers and acquisitions (M&A) are also a likely avenue to help a manufacturer expand, and those new subsidiaries or groups bring more technologies to the mix. At best, these multiple ERP systems create an IT headache and business friction. At worst, they create a nightmare for operations, finance, accounting, and other teams who must manually find, collect, reformat, and merge disparate data from disparate systems.
In either case, manufacturers must embark on an ERP consolidation strategy, not to literally consolidate to a single ERP system, but to reconcile the multiple systems—referred to as “two-tier ERP”—and develop a plan to ensure accurate data gets to the right people in near real-time. Here’s how to run your own two-tier ERP consolidation strategy.
What is ERP Consolidation?
As manufacturers grow organically and through M&A activity, each new addition often brings with it the fundamental IT system every manufacturer needs to run the business: ERP. And, while choosing to move every division, location, and subsidiary to a single, standardized ERP solution might be nirvana, the expense and time to implement a parent company’s ERP may be more not be worth it. The “juice is not worth the squeeze” as they say. The more realistic ERP consolidation strategy is a two-tiered approach where each entity uses the best ERP for their operations and the data all rolls up to a parent ERP and accounting system.
An ERP consolidation, or ERP integration, or ERP reconciliation, or whatever moniker you assign to your project, is the rationalization of the ERP systems in use across your manufacturing business. Selecting your top-tier and second-tier ERP systems, and determining which entities run which ERP, then defines how the data rolls up to the top-tier ERP solution.
Gartner takes this concept a double-click farther with a strategy known as “Composable ERP.” Composable ERP breaks applications into “packaged business capabilities” (PBCs) and enables manufacturers to create, modify, and extend their ERP system at the functional level — for greater resilience and agility — to dynamically configure functionality as changing needs demand. Composable ERP involves creating a network of applications, data, and solution providers which work seamlessly together to fit any business need.
ERP Integration vs. ERP Consolidation: Which is Right for Your Enterprise?
As mentioned above, a realistic ERP consolidation strategy involves integrating ERP systems as opposed to replacing a legacy ERP system. But a more modern approach is to eliminate some of your ERP vendors and move to a cloud-based ERP as part of your ERP consolidation strategy to reduce costs, streamline operations, and natively integrate with the CRM, customer service, and other tools your business already relies on.
Integrating your ERP systems, which just means connecting different software applications together, is a common path for manufacturers. Integration enables you to transfer operational, financial, and other business data easily and automatically to a top-tier ERP system. This is a very common method manufacturers take to integrate data from divisions or entities that manage a distinct profit and loss centers (P&L), and it eases corporate-level compliance reporting, tax calculations, and more.
But the goal of an ERP consolidation strategy for manufacturers should be more focused on minimizing complexity and creating a centralized system of record. In this case, the top-tier ERP system would be the corporate system of record with the second-tier ERP maintaining the operational system of record for individual transactions. Rarely would the parent need to drilldown into the day-to-day operations of a business unit, but the connection enables this such as in the case of an audit. The data is available, just in the secondary system.
For more information on ERP implementation for manufacturers, read ERP Implementation Strategies and The Four Elements of ERP Implementation Success Guide.
Does Your Enterprise Need an ERP Reconciliation Strategy?
At this point, you may be feeling a bit unsure about an ERP reconciliation strategy. There are five common questions to ask about your current ERP situation that will help you determine how to move forward.
● Are the ERP systems performing the same functions?
Redundant, overlapping ERP systems performing the same function is a likely opportunity for ERP consolidation. For example, having separate ERP systems is inefficient and contributes to higher IT costs. So, the logical choice is to eliminate one system and consolidate the business onto the preferred system going forward. The two business units can continue to operate autonomously, but the company can consolidate IT resources under a common eco-system.
● Is manual data entry or double entry becoming an issue?
Manual data entry is a magnet for human error. Likewise, double entry of information from paper-based recording activities into a spreadsheet and then transposed into an ERP system is inefficient, wastes time, and also invites human error. For example, Northeast Lantern was managing all of its data in spreadsheets before implementing an ERP system. Its former manual maze of double entry not only took time, but it also left the data disconnected and prevented the company from seeing the details, such as how the sources of demand were connected at the part level. But the manufacturer selected Rootstock Cloud ERP to give it visibility into its data and automate production processes that used to be performed manually.
Similarly, if you’re relying on exporting and importing spreadsheets to move data between manufacturing ERP systems, linking multiple spreadsheets from different departments, or exporting data from multiple ERP systems to a central spreadsheet for reporting and analysis, you’re wasting time, creating gaps in reporting, and once again inviting human error. In these scenarios, your reporting is only as accurate as the last upload.
Additionally, productivity tends to suffer if you’re frequently moving data between disparate ERP systems and makes reporting capabilities weak. Executives won’t trust the data and won’t be confident in their decision-making. All it takes is one bad or ill-timed decision to justify the cost of better reporting and analytics.
Using the right ERP for the right level of the business solves these data entry issues.
● Are ERP maintenance and support costs rising rapidly?
While an ERP reconciliation strategy may uncover that you need to support and integrate multiple ERP systems, it is still a good idea to consolidate and eliminate legacy ERP systems as the costs to maintain and support them is not a good return on your investment and may continue to be a financial burden for quite some time. As indicated above, manufacturers can save time and money simply by having fewer ERP systems for IT to maintain or for teams to train workers to operate. But they may gain tremendous benefits in terms of additional functionality and streamlined business processes with modern cloud ERP that is updated and enhanced regularly.
If you suspect that your ERP system is costing you too much money, check out the free e-book, “Is Your ERP a Financial Drain?”
● Is your enterprise experiencing rapid growth?
Manufacturers experiencing rapid growth will likely benefit from ERP consolidation. For example, if your company has plans to grow and scale, then a cloud-based ERP with virtually infinite storage and compute capacity can help you maintain and accelerate that growth. Adding newly acquired businesses is significantly easier with cloud ERP than adding to a legacy, on-premise system. Implementation will take time and come with a cost, but the increased visibility into all areas of the company for all functional teams such as sales and field service makes up for the cost in fewer errors and greater productivity. The biggest benefit of reconciliation will be better decision-making through visibility into the entire business across each manufacturing site.
Developing an ERP Consolidation Strategy
If you’ve answered yes to one or more of the questions above, it’s time to get started on your ERP consolidation strategy. Here are tips and tricks for taking a best practices approach to ERP consolidation and reconciliation.
1. Assess the Current State of Your ERP System
Create a map detailing the current state of the ERP systems across your manufacturing business. This may be as simple as organizing Post-It notes on a wall by tasks that different groups perform.
Then, look for areas of inefficiency and duplication across systems. Survey decision makers, clerks, administrative personnel, and others who not only work with the ERP systems but rely on data from the ERP systems. Ask where the ERP systems or data collection, reporting, and analysis tasks are adding friction to their processes. Confer with IT to understand how the ERP systems are integrated, what other systems they are integrated with, and the burden of maintaining the systems.
2. Evaluate Your Current IT Infrastructure
Working with IT, operations, and your current and potential ERP vendors to determine if any ERP system can be eliminated or consolidated. Also look for opportunities to move an entity to an ERP system that’s currently in use by another division or facility. Cloud-based ERP systems make it easy to add new facilities and users while keeping all your data in a single cloud repository, thereby eliminating the need for fragile and risky integrations.
It’s a good idea to understand IT’s vision and approach to technology as well. For example, if most of a company’s mission-critical processes and data are hosted on one on-premises ERP system, IT is likely planning to modernize it by moving to the cloud. The pandemic also proved that manufacturers need systems to be in the cloud, easily accessible from anywhere at any time from mobile devices and be inherently robust.
Manufacturers that already have some data and systems, such as CRM, on a cloud platform like Salesforce can make the move very easily. Using ERP built on the Salesforce Platform automatically brings your critical demand, operations, and supply data into a common data model. Plus, it’s relatively easy to move all data from an on-premises ERP to a new, cloud-based ERP.
3. Set Goals and Objectives, and Identify Key Stakeholders
Any project needs goals and objectives plus some key people to ensure the project moves toward success, and an ERP consolidation is no different. Considering the four critical elements of people, processes, data, and systems is a great foundation for an ERP reconciliation project. You’ll need those elements in place to set realistic expectations and allocate the best resources at the right time, while still retaining flexibility.
- People: The first critical element to consider is people, who are the drivers of your ERP reconciliation process. You need the right people with the right experience on your team from the start to help ensure a successful outcome.
- Processes: Successful ERP reconciliation requires that you have a deep understanding of your current processes, which you mapped in step 1 above as you assessed the current state. Don’t approach this task with a “digitize our current processes” approach but look to the next generation of your business needs for inspiration. When you see what is working and what is not working, then can you decide where you need to improve.
- Data: Data is the life’s-blood of any manufacturer. But your data spread across multiple ERP systems and disconnected spreadsheets may be inaccurate, incomplete, or otherwise unreliable. Use your ERP reconciliation project to ensure your manufacturing data is always clean, reliable, and accessible.
- Systems: Creating a system to support your business strategy is the crux of a two-tier ERP consolidation and reconciliation for manufacturers. You’ll want to ensure that the new ERP infrastructure helps each division and facility operate at peak performance while leaders and decision-makers in both tiers of the business have easy access to current data to make confident decisions.
4. Develop a Timeline, Budget, and Go Live Date
Any ERP reconciliation will require a timeline, budget, and switchover or go-live date when new cloud-based ERP systems are deployed and integrations are switched on. A key advantage of a cloud ERP is the ability to configure and train without disrupting operations and only throw the “go-live switch” when you’re ready. If you’re rolling out a new ERP system, do your homework by evaluating multiple cloud ERP manufacturing software vendors. The vendors can also help you benchmark durations and estimated budgets required for similar projects.
5. Identify the Right ERP System for Your Enterprise
It’s helpful to understand the pain points and challenges presented by your current ERP structure to start creating a wish-list for a new manufacturing ERP system as you embark on this ERP consolidation strategy. Look at how much your existing systems cost you in time, money, and even lost and frustrated customers.
If you’re considering adding or moving to a cloud ERP solution, use this simple “Basics of Evaluating Cloud ERP Software” guide to understand the important factors to consider when making such a decision.
6. Plan for Data Migration and Cleansing
Before you move or integrate any data from existing ERP systems into your manufacturing operations, take the opportunity to clean your data. The adage of “garbage in, garbage out” could not apply more perfectly here. So, make a plan for deleting duplicate, inaccurate and untrustworthy data while reconciling the right data into the new system.
Specifically for manufacturing operations and production, it’s also critical to create a data map where terms can be defined and agreed upon. For example, an “item” in one ERP system may be a “part” in another ERP system. Or an “assembly of parts” might be sold as a single “item” that your sales team refers to as a “product” in their CRM system. The ramifications of inconsistent or mismatched terminology can cause massive challenges down the road, so take time now to understand how your manufacturing terminology is used now and will be used in the future.
Learn more about the importance of data cleansing in in the blog post “Data Cleansing – A Most Important Step in ERP Implementations” and in the data section of this guide on successful ERP implementations.
7. Fully Replace ERP and Conduct Extensive Testing
Before you go live on a new or two-tier ERP system, you’ll want to test it. You may even run old and new systems side-by-side for a short period to quickly identify and resolve bugs, inconsistencies, or hiccups. Again, the benefit of a cloud solution is that it can be tested prior to being exposed to your production operation.
Once you’re comfortable with the reconciled, two-tier ERP infrastructure, it’s time to move everyone onto their new system and turn off the old systems.
8. Train Your Employees
The workers using your ERP systems will either be hesitant to change to a new system or wondering why you didn’t do it sooner. Or both! But it’s clear, especially with new, cloud-based ERP systems built for manufacturers, that employees will be delighted with a modern user interface that provides a familiar web interface. If your new system is on a next generation platform like the Salesforce Platform, your users will enjoy a common user experience across all domains which makes “switching chairs” easier for the broader team. This makes training faster and easier, and improved user adoption and change management across your manufacturing operations.
Don’t forget to tout the benefits this move will give your workers. They’ll enjoy the native options for mobile accessibility that empowers them to do more, from anywhere, and with more confidence. Power users and newbies alike will enjoy the advantage of the low-code ERP tailoring that automates processes without getting into the underlying software code.
9. Establish Ongoing Maintenance, Monitoring, and Support
Be sure to talk with your ERP vendors about maintenance and support options, either from the ERP vendor or a third-party service. For example, Rootstock offers high quality, high touch support to ensure every customer’s complete success. Learn more about Rootstock Customer Success and Support.
Resources to Help You Develop a two-tier ERP Strategy
Rootstock Manufacturing ERP is a cloud-based ERP system that powers business growth for manufacturing, distribution, and supply chain organizations. From sales to customer service, engineering to production, and supply chain to inventory, Rootstock Cloud ERP is designed by manufacturers for manufacturers. Take a look at our other helpful resources to help you develop an ERP consolidation strategy: