Three Insights Every Business Leader Should Know about ERP Consolidation
What are the key points to remember for successful ERP consolidation? Find out.
ERP consolidation is a hot topic, but leading enterprises are pivoting to ERP transformation to ensure accelerated business value. In this article, Lori Witzel, director of thought leadership and customer engagement at TIBCO, explains why organizations are making this shift and how to do it successfully.
Enterprise resource planning (ERP) consolidation is a recurring hot topic that’s in focus again due to the ongoing volatility seen in today’s supply chains. In the new normal, it’s become more critical than ever for organizations to anticipate resource needs to optimize their business. However, aligning supply chain management systems (SCMs) with ERPs has only become more challenging.
Enterprise organizations with multiple, poorly integrated SCMs and ERPs risk not meeting business goals and being unable to optimize their business processes. With the various risks associated with ERP consolidation, however, enterprise IT and business leadership should refocus efforts on emphasizing ERP transformation instead.
ERP Transformation and How It Compares to ERP Consolidation
Interest in ERP consolidation arises recurrently because organizations believe it makes sense to reduce the amount of Oracle, SAP, and other ERP-running instances throughout the enterprise. Executives want to accelerate their organization’s resource management and optimization enterprise-wide while at the same time simplifying their IT portfolio. Unfortunately, “big bang” ERP consolidation could potentially lead to delays in improving business outcomes, oftentimes when improvements are needed most.
As noted in “The 2023 ERP Report” by Panorama Consulting Group, almost 50% of survey responders’ projects went over budget, with nearly 40% citing underestimating project staffing needs as the cause. While the promises of cost savings and simplicity through ERP consolidation are tempting, every business leader should know and discuss three things with IT leadership teams before embarking on this journey.
- ERP consolidation can put time-to-market at risk: Unless the enterprise does not have business-critical, long-lived back-office systems, consolidation will require deep discovery of legacy processes and software. As a result, other modernization efforts needed to reduce time-to-market will likely be deprioritized or halted altogether.
- Scalability is an Achilles heel for those seeking open-source solutions: While open-source solutions can be powerful in enterprise modernization, ERP systems require integration and connectivity with multiple CRMs, SCMs, and similar business-critical systems at a massive scale. Open source integration, which is often needed through hundreds of thousands of interfaces, will require custom connectors to be developed. These connectors will need to be maintained and updated with every open-source update. Enterprises that have tried open source for ERP consolidation have found the time and cost needed to set up and maintain connectivity to be a deal-breaker.
- The cloud is just part of the answer: Executive leadership has become more aware of the advantages cloud computing provides. The cloud can increase business agility and scalability, as well as accelerate business transformation. A hybrid approach blending cloud and on-premises, however, may be the best course of action for ERP transformation. The data flowing through ERP systems may need to meet local or regional sovereignty regulatory compliance. Additionally, the extra hop between regions via the cloud may increase latency – the time it takes for data to travel between systems. IT leadership will have the expertise needed here.
Mission Produce provides a real-world cautionary tale regarding the complexity and risks associated with “big bang” ERP replacement. In Mission’s fiscal 2021 Q1 earnings call, Steve Barnard, CEO, described the impact of implementing a new ERP system to replace their old system, which had been built through acquisitions over a 30 year period. The team at Mission Produce had been diligent in planning for the ERP replacement and conversion, spending countless hours preparing.
They also contracted with experienced implementation partners to plan and execute. Despite their thoroughness, the ERP consolidation and replacement had serious impacts on their business. Problems with the implementation of the new system and struggles with inventory visibility were the primary cause of operating expenses rising $4.1 million in that first quarter. As Mr. Barnard said in their call, “While we weren’t naive to the risk of disruption to the business, the extent and magnitude was greater than we anticipated.”
In contrast to consolidation, ERP transformation is focused on optimizing business outcomes as opposed to merely optimizing IT spend. IT leadership can focus on adaptive, iterative approaches that support broader organizational goals by reframing the challenge of ERP sprawl from an IT systems issue to a business reality. Unlike consolidation, ERP transformation approaches are adaptive. According to McKinsey, it is a modern IT best practice to “[T]reat the ERP system as a sum of capabilities rather than a monolithic stack.” The underlying technologies to make this possible – of scalable messaging, data management, and integration – have been time-tested.
For example, a global athleticwear manufacturer based in Europe chose the adaptability and agility of ERP transformation. The company determined that a “big bang” consolidation wouldn’t align with its business goals and knew it needed to optimize its order-to-fulfillment experience for trading partners and customers. By pivoting from ERP consolidation to ERP transformation and finding a seamless path to managing thousands of application interfaces, the company was able to meet aggressive business goals for operational efficiency and customer satisfaction. ERP transformation affords them the agility to pass nearly 100 million messages per day between regionally distributed cloud and on-premises cloud data warehouses.
See More: ERP Shift to Cloud Requires the ERP Channel To Adapt
Improving ERP and SCM Outcomes without the Risks of ERP Consolidation
Generally speaking, all business systems need to be automatically synchronized with ERPs in order to create a single source of truth in the enterprise. IT teams can significantly reduce information silos to yield timely and accurate ERP data throughout the enterprise through scalable and adaptable integration. In an ERP transformation, the enterprise gets the benefit of this agility without the risks of consolidation.
Stakeholder input should be required for integration prioritization and will be the best path forward for enterprises. Enterprises should have a Center of Excellence for ERP transformation, as well as SCM improvement. As a necessary first step, enterprises should pilot a working group to ensure IT processes are aligned with business goals.
It’s essential for enterprise leadership to support IT in changing the conversation from cost savings to true business optimization. This can help IT teams avoid risks associated with ERP consolidation while ensuring IT reaps the benefits of ERP transformation.
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