ERP: going beyond financials

Large organisations with silos of ERP data are investing in fresh modules that encompass the entire enterprise and extend ERP's reach to cover territory that needed a range of stand-alone applications in the past. Akhtar Pasha reports

Historically, ERP projects were large ones, involving as they did a review of business processes and procedures, and adoption of technology for a specific business function. The technology was also new, resulting in additional challenges and a steeper learning curve. Companies embarking on their first project were developing their own best practices for implementation as they completed the project. Business processes have become more complex over time, so companies require greater visibility into their operations and a flexible, scalable solution that lets them bolt on functionality as needed.

"The case for CPM implementation is so strong that some ERP implementations were led by CPM, as in the case of the Malaysia-based Medical Latex" - Chetan Pathak Vice-President Enterprise Solutions Ramco Systems

Points out Chetan Pathak, Vice-president, Enterprise Solutions, Ramco Systems, “ERP was designed to automate and integrate business functions on either an operational or transactional level, but it never focussed on the entire enterprise as a whole. Traditional ERP systems cover about 50 to 60 percent of an enterprise…the remainder hasn’t been addressed in the past. Earlier this problem was addressed with stand-alone or customised solutions.”

With the rise of ERP, organisations have moved beyond the disconnected departmental systems that they had earlier employed, and which housed silos of data. By adopting ERP systems, they have successfully eliminated the inconsistencies and inefficiencies that stemmed from working with stand-alone departmental systems. By centralising data, ERP systems have also eliminated inaccuracies and duplication of information, as well as the time wasted in manual data entry. Organisations must now deal with what is effectively a tidal wave of data collected from every transaction and business process. They are amassing click-stream data, legacy data, ERP data, data housed in relational databases by third-party call-centres on the company’s behalf, manufacturing sites, financial departments, and many other sources and devices in a non-stop process. This data often sits idle, with business users unable to access it.

While large organisations are looking beyond their ERP systems, there are some new business realities and demands—increased competition and shrinking profit margins, to name just two—and also reporting requirements thanks to the emergence of legislation such as Sarbanes-Oxley, all of which are placing fresh demands on companies to manage and leverage their data in a better way. They need to improve access to it, analyse and combine it in new ways, even combine it with external data sources or legacy data that is still important but lies outside the scope of the ERP system. In addition, data is always in flux; companies are always losing or gaining customers, modifying their internal employee data, or moving data from one location to another. Organisations therefore need to ensure that all of these events are managed in a way that preserves data accuracy and integrity.

A recent study by Ernst & Young found that virtually all the companies surveyed placed significant reliance on controls in some or all parts of their businesses to reduce the risk of inaccurate financial reporting. Comments Subhomoy Sengupta, Director, Application Sales, Oracle India, “If the systems supporting the company’s daily transactions are not controlled properly, they may give a distorted picture of the company’s performance results. Many companies today operate in environments that make this distortion of reality all too easy. For instance, companies often operate different systems to support different parts of the business, from customer relationship management to financials to manufacturing. Inaccuracies can result from data that is poorly managed as it passes through these multiple applications or between them.” Establishing a compliant environment by unifying IT operations with integrated application suites improves control, reduces overall cost, and increases the assurance of data quality. Further, a unified technology model gives companies the chance of gaining an accurate and timely picture of business data, enabling better decisions and faster response to change. It is in keeping with this trend that companies are now focussing on functionalities beyond basic ERP requirements.

According to Sushant Dwivedy, Business Group Lead, Microsoft Business Solutions, Microsoft India, “Organisations which have successfully deployed a core ERP system are looking beyond this to put a hub-and-spoke model in place. There are concerns about how they can empower employees to make better decisions, which is why they are going in for additional modules beyond ERP relating to employee self-service (ESS). There is also demand for project management modules because demand for quality and on-time delivery of projects has become important for organisations.”

"Businesses today can ensure they have visibility into the performance indicators that truly matter by investing in support functions such as BI, CPM and ESS" - Ravi Kathuria Vice-President Global Marketing Birlasoft

To this adds Ravi Kathuria, Vice-president for Global Marketing at Birlasoft, “Performance-driven enterprises are increasingly standardising on applications and IT infrastructure which will enable solutions that transcend traditional departmental boundaries. Businesses today can ensure they have visibility into the performance indicators that truly matter by investing in support functions or add-ons such as business intelligence, corporate performance management (CPM), ESS, and so forth.”

"CPM holds the promise of delivering the perceptiveness and agility managers require to make effective business decisions" - Nagaraj Bhargava Director Marketing & Strategic Initiatives SAP India

“The demands that organisations place upon ERP solutions have changed significantly,” says Nagaraj Bhargava, Director, Marketing & Strategic Initiatives, SAP India. “Today we observe companies using ERP to address an expanding set of business requirements and needs, all of which are oriented to improve their competitiveness and performance.”

CPM = a healthy company

In recent years, companies have found themselves in the position where they have significant amounts of data being generated by their fresh, shiny ERP systems. Many initiatives have been started to render this data useful. One tack has been to deploy reporting systems which provide a good ‘rear-view mirror’ picture of the business with limited forward visibility and predictability of company performance. Most of these have been clubbed under the umbrella term, CPM, which is a collection and alignment of metrics, measurement methodologies, processes, insights and reporting systems. CPM allows an organisation to institute a framework where corporate performance can be monitored and measured. With this technology, rather than simply analysing certain areas of their operations, companies can view all their critical business data and key performance metrics in a holistic manner.

Notes Lawrence Chan, Senior Vice-president for Asia Pacific, Infor Global Solutions, “With companies seeking to maximise their IT investments, they begin to demand more from their ERP implementations. CPM is one of the more popular extended or support solutions to be adopted after the first ERP implementation.” He adds that the transactional ERP solution provided the benefits of operational efficiency within the order-to-cash process cycle. However, it did not provide a complete overview of an organisation’s corporate performance. In the last few years there has been a push for senior management to place greater emphasis on managing all aspects of a company, hence the popularity of CPM as an extension to traditional ERP systems.

Companies of all sizes and types are looking at CPM. Specifically, all of them are developing different forms of balanced scorecards and key performance indicators (KPIs) to manage their operations. Explains Sengupta: “Today, companies can leverage the rules of CPM as a benchmark to articulate and consciously re-design the way they do business. Companies with plans to go public or those looking to be acquired need to pre-emptively establish and articulate internal controls and financial reporting practices. Even companies that rely on lenders or venture capital must now demonstrate effective governance practices and financial transparency in order to gain funding.” Beyond this, many private and non-profit companies have established compliance programmes simply because they see it as good business. Companies need to focus on strategic goal-setting and alignment to traverse to active CPM businesses.

CPM can help companies regain control of their businesses, increase organisational credibility, and remove barriers throughout the enterprise. The new focus on control and visibility opens up avenues for business process improvement in several ways. Documenting business processes creates a body of easily shared and enforced organisational knowledge. Visibility and transparency in reporting brings timely, accurate information, moving companies towards a ‘daily close’ that lets executives manage with today’s facts rather than last month’s info.

“CPM holds the promise of delivering the perceptiveness and agility managers require to make effective business decisions,” observes Bhargava. “CPM as an amalgam of new technologies reporting both analytical and transactional data stretching across five disciplines—corporate objectives, accounting, reporting / analysis, prediction and optimisation—gives managers an integrated and analysable view of the entire enterprise.” To this Pathak adds, “The case for CPM implementation is so strong that some ERP implementations were led by CPM. Take the case of Malaysia-based Medical Latex, where the dashboards and KPIs were clearly defined before they went in for an ERP system. “

And here’s user feedback from S K Sivakumar, Manager, Work Accounts, IP Rings: “We wanted to have an online mechanism by which KPIs could be tracked. This led to the implementation of Ramco DecisionWorks (RDW), a CPM solution. RDW has the facility of balanced score-card, goal hierarchy, and alert system, besides many other features.” KPIs of all perspectives—including customer, internal business processes, financials and HRD—are taken into consideration, giving an organisation a top-view of its overall performance.

Advanced Planning Optimisation

Planning and budgeting is an important step in any organisation’s endeavour to deliver high levels of customer service while making optimal use of organisational assets. Advanced Planning Optimisation (APO), through strategic planning and budgeting (for creating plans and budgets), analytical workflow application (for routings, approvals and versioning), and advanced analytics (data mining and optimisation) applications offers powerful planning and budgeting capabilities.

APO offers an enterprise-scale planning and budgeting application that unifies the planning process with data and processes for budgeting, forecasting, optimisation, reporting and score-carding. It supports top-down planning with the facility to communicate organisational goals. It also supports bottom-up planning including data consolidation, collection and collaboration; multi-dimensional modelling including ‘what-if?’ and scenario analysis that enables users to measure and assess potential outcomes; and collaborative forecasting and bi-directional (horizontal and vertical) communication managing interaction between planners and stakeholders.

Take the case of Maestro Engineering, which is evaluating APO. The company is a manufacturer and exporter of high-fashion garments. This type of business is typically identified as a made-to-order one. Paul Arthur Dueman, Business Analyst and Head of IT at Maestro offers insight: “Our turnaround time is short, and we have two seasons in a year—Autumn / Winter and Spring / Summer—each spread over six months. During each season, two months are spent in sampling, booking orders, production and dispatch. We are considering APO because we want to make accurate forecasts. Since our selling window opens for just two months, investing in APO should give us more lead time for manufacturing and procuring raw materials accurately, thus reducing the production wastage that results from dead stock. Although we are using ERP we are still guesstimating with regard to certain things. For example, if a customer increases the order size by 10 percent, how do we align to this need?”

Providing a view from the other side is Anil Bakht, Chairman and Managing Director, Eastern Software Systems. “In the case of a customer, OyzterBay, the jewellery designs that they make and sell in south India are much different from those that retail in the north. Even the seasonal sales cycles are different. Given that they have an inventory of 5,000 items of finished goods, inventory management and production planning becomes exceedingly complex. OyzterBay would like to capture data from its ERP system as to which region is more profitable, which are fast-moving items, and so on.”

Business Intelligence

BI can be used to find and tap new sources of revenue. Marketing departments often need to blend existing sales and customer data with external market data to match their sales model with new opportunities. Manufacturers looking to improve quality may want to measure their output against industry benchmarks. To identify their most valuable customers, sales may need to combine its data with that of purchasing, marketing, service and finance. An agile company needs to spot and profit from trends faster (and in greater detail) than its ERP system churns out reports. In light of these requirements, organisations around the world and in every industry have been looking for a means to unlock ERP data and put information in the hands of users to better manage and improve business performance.

Explains Sudipta Sen, CEO and Managing Director, SAS Institute (India), “In large organisations silos of data have been created by ERP systems, and these companies are looking to glean some insights from this data that may be transaction-oriented from a customer relationship system or the supply chain.” Business intelligence can also be used to eliminate data duplication. A CRM system may have captured a high net worth customer as Lakshmi Enterprises, whereas the internal systems would be referring to the same customer with a different name, maybe Lakhmi Enterprises.

Large businesses are applying analytics to ERP data, looking at historical data to create patterns of information pertaining to, say, production planning, material management, inventory, CRM or even the supply chain. They are also trying to predict and forecast the same, or to study customer behaviour / churn using historical data, and are deploying intelligence across the organisation. A large service provider (who refused permission to be identified) says that it is in a high growth market with high data volumes. Using the SAP (NetWeaver) BI system, its users are in a position to focus on the business at a granular level. For instance, this company’s analysts can drill into individual geographies, hour-bands, or call-types anytime, and can zoom out again while evaluating rate plans.

Sen says that just as we have seen the verticalisation of ERP, we are witnessing the same trend in the case of business intelligence. For example, the banking vertical is using customer intelligence for higher profitability across customers and products. Using vertical-specific BI, banks are carrying out focussed ad campaigns or targeted marketing. Then there is Infrastructure Intelligence, wherein analytics can be used to predict where a network has failed. SAS says it has 15 vertical BI solutions for retail, manufacturing, telecom and government, among other verticals.

Large organisations that have seen the benefits of ERP systems are investing in support functions that are strategic in nature such as CPM, BI, APO and ESS. As per market estimates, these support functions are contributing as much as 20 percent of the licence revenues of EAS vendors. With the maturity of ERP in the case of SMBs, the contribution of support functions should rise.