As a mid-sized organization begins to go global, it needs to ensure that it has an underlying enterprise business system that supports its new global operations/supply chain model. Many organizations find that their current collection of business systems (or their current ERP system) is unable to support their global operations plans and they must evaluate a new system. However, selecting a core business management system is akin to buying a house -- you need to clearly identify your needs for today, as well as for the long term. This article provides a framework for executives to think through their key ERP requirements as they prepare to go global.
Global or Regional ERP
The first question a company needs to address is if they plan to operate as an integrated global company or operate as a highly distributed organization with a collection of regional businesses and ensure their ERP system can support their needs?
As a mid-sized company goes global, its management requires a global view of its inventory and operations, as well as tight coordination between manufacturing and distribution operations to ensure an efficient supply chain. In addition, they want a consolidated view into the company's financials data so that they have clear visibility into their costs and margins. This ensures that the organization is able to monitor its financial and operational model closely as it prepares to take on the significant new risks of going global. However, many mid-sized companies make regional acquisitions in order to establish a foothold in a new country or region and choose to run these operations in a decentralized fashion before integrating them into their core business. In such an instance, their manufacturing, distribution, procurement and accounting operations may be run locally (not integrated with corporate) and corporate gets consolidated financial data.
As a result, some mid-sized companies may either require a completely integrated or a completely regional model as they go global; others may choose a hybrid model, where they run their core business in an integrated model and new acquisitions and certain regions in a regional model. Hence, when selecting a global ERP system, an organization needs to ensure that their system is able to support both business scenarios concurrently.
Support for Local and Regional Requirements in a Global ERP
A company going global must ensure that their ERP system is able to standardize business processes across multiple countries. These capabilities include multi-currency and multi-language, localization of taxation rules and reporting, consolidation and inter-company transactions. Such capabilities will allow them to have global visibility and control over their operations with a single instance of their ERP system.
However, such capabilities are just the table stakes. The ERP system should also provide the ability to address regional differences in a single instance. For example, the French Government requires that businesses report their inventory figures as a moving average. Hence, the general ledger system used by the company's French unit must comply with the local government reporting requirements, while reporting a standard set of figures to the parent company. Other examples of regional differences include compliance with VAT specifications to enable the organization to print legal documents in Chinese for local business partners and in English for global business partners.
In addition, the system should also be able to support regional views into the operational and financial data. For example, a manager in Japan should be able to view his local business via a dashboard in Japanese, with all sales displayed in yen, while the corporate officers should be able to look at the same numbers in their local currency. The system should also enable a multi-tier organizational hierarchy and consolidation, where the information from local business units can be rolled up into one or multiple levels of hierarchy. For example, the Taiwan operations roll up into the Far East business unit, which rolls up into the APAC business unit, which eventually rolls up into the Corporate level. Moreover, calculations for reporting and consolidation should be done on the same database within the system, so that every stakeholder has a consistent view of the information.
A global company must also be able to meet the local regulatory compliance requirements in the countries in which they operate. For example, the system should meet the confidentiality and privacy requirements of local regulations such as the EU Privacy Directive or HIPAA down to the data item level. Companies taking advantage of Free Trade Zones, such as NAFTA, must be able to track the country of origin information for products they buy, assemble and sell. Ensuring that the ERP system complies with such regulations is not enough. It must also be able to capture transaction logs that can demonstrate that such compliance requirements were consistently met, if required by an audit.
Support for Centralization and Decentralization of Select Processes
Companies that are going global may want to standardize and centralize certain processes to gain operational efficiencies. Such processes include order management, materials planning and inventory control, which enable better coordination between manufacturing and distribution operations that are shared across operating regions and product divisions. However, the company may also choose to decentralize certain processes and manage them at a local or regional level to respond to customer issues or needs proactively and in a timely manner. Such processes may include shipment, order changes, order promising, invoicing and accounts receivable. Hence, an ERP system designed for mid-sized global companies should be able to support certain business processes with a centralized model and others with a decentralized model.
Other Important Requirements
Mid sized companies contemplating a global strategy need to consider several other factors when selecting an ERP vendor.
Companies doing a global deployment need access to local experienced consultants and telephone support in local time zones. Many ERP vendors do not have enough expertise on the ground, either through their own consulting organization or through a partner network to support local deployments and training. Furthermore, many ERP vendors are not able to provide user support during local work hours. Lack of local implementation expertise and unavailability of support increases the cost and risk associated with deployment.
Another consideration for selecting a global ERP system is that it should continue to grow with the organization. As the operations become more complex and global, the system should keep pace and be able to support more complexity and not come in the way of growth.
Finally, the pace of change is accelerating in every industry. As a result, the ability to quickly adapt processes to business changes is critical to staying ahead of the competition and finding new avenues for growth. Hence, a key success factor for any company is to build a flexible business model to adapt to and manage changes that will inevitably occur. The ERP system should support an organization's ability to roll out new processes or adapt existing processes to easily integrate a new subsidiary, a new manufacturing or distribution operation, or a new distribution partner.
An ERP system provides the core infrastructure to manage all business processes and coordinate supply and demand. While going global, a company's process and operational complexity increases significantly, often requiring the replacement of the current business systems. Care must be taken to not only ensure that the new ERP system will support an organization's immediate requirements, but that it will also grow with them as they achieve more success on the global front. Otherwise, the company risks the ERP system becoming an albatross around their neck, rather than a valuable business planning and management tool.
Thomas Tan is Director of Solutions Marketing at SAP in its SME Marketing Group.
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