Organizations are steadily moving business-critical data and workloads to cloud ERP systems, with the global cloud ERP market size expected to reach nearly $38 billion by 2024, according to MarketsandMarkets. While this shift promises cost efficiencies, it will not solve the inherent limitations of native ERP financial reporting, which is typically designed to support only basic reporting needs, rather than the specialized reporting requirements of finance departments.
Insightsoftware recently conducted a global survey examining perceptions about the impact and readiness to adopt cloud-based ERPs. “This survey exposes broad misconceptions that cloud ERPs will help to overcome the pain points associated with native ERP financial reporting, including the need to manually manipulate static data and depend on IT teams, all of which result in a time-intensive process that’s not conducive to the speed of business,” said Wes Gillette, vice president of product management at insightsoftware.
“Unfortunately, these same financial reporting roadblocks that exist with on-premise ERP systems remain unchanged in cloud ERPs. For finance teams, it’s just ‘the same problem, different server,’ and in fact, new issues with performance can arise in the cloud, making financial reporting even slower. Finance professionals that anticipate these challenges can help their organizations prevent reporting delays and ensure the transition to a cloud ERP is a smooth one.”
IndustryWeek recently discussed the results with Gillette.
IW: What do these numbers mean for manufacturers?
Gillette: As evidenced by the current global crisis, real-time financial reporting about supply, demand and operations is absolutely critical for manufacturers. While the benefits of moving to Cloud ERPs are clear for IT teams, the survey data shows that Cloud ERP systems do not significantly improve the level of financial reporting offered compared to their existing on-premise ERP. Given that ERP systems are the ‘heart and lungs’ of manufacturers based on the size and complexity of their global supply chains, manufacturing finance teams need to engage with IT on Cloud ERP migrations to ensure they have their specific financial reporting needs covered and to anticipate other challenges they may face to avoid reporting delays or disruptions to operations.
IW: Do you see manufacturers being early or late adopters with cloud ERPs?
Gillette: Manufacturers are more likely to be in the 69% of respondents in the survey who aren’t currently planning to move to a Cloud ERP or who aren’t sure. This is largely because manufacturers have invested considerable time and money to heavily customize their ERPs to their specific business and Cloud ERPs typically do not offer the same level of customization. In some cases, we are seeing manufacturers take a hybrid approach where they will move their standardized business process – including finance – to a Cloud ERP first and then keep more customized areas in the on-premise ERP.
IW: What do you see as the key action items for manufacturers?
Gillette: Manufacturing finance teams need to take a more proactive role in any Cloud ERP migration project to ensure their voice is heard with IT and the other decision-makers when it comes to reporting. Quite frankly, they cannot just take the ERP vendors word that financial reporting and their needs are covered.
Also, given the level of flexibility and customization needed for today’s manufacturing environment, it’s good for finance teams to ask the following questions before moving to a Cloud ERP:
- Can you access real-time data in your reports? Given the current situation, having access to up-to-the-minute, accurate information from your ERP is more critical than ever to respond to the new questions that arise each day.
- How easily can reports can be customized (e.g. adding new fields, adding extra filters, changing the layout, etc.)?
- How easily can new reports be created from scratch?
- How much IT help is required for reporting and customization?
- Can users drill down from the reports to investigate integrity and reconciliation issues (this is critical for manufacturers to investigate cost anomalies)?
IW: Who should be driving the ERP decisions within manufacturing organizations?
Gillette: Accurate cost accounting is critical to the success of any manufacturing business. This depends on the ability to identify, analyze and trend data across direct and indirect costs from ordering to production and on to finished goods. With so much data and data sources originating in the supply chain – there is a real, continuing risk of inaccurate data entering the system. Effective financial reporting is critical to identify any discrepancies in a timely manner to ensure accurate data is available for reporting and decision making.
For manufacturers, ERPs are probably one of the biggest technology decisions they ever make so it is typically driven by IT with various levels of consultation and input with the rest of the business – including finance, sales, customer support and other departments. The challenge for finance is that financial data is very different from data in other parts of the organization and financial reporting needs are different to those in other parts of the organization.
The need to access real-time data, be able to drill from summary data into balances, journals, and sub-ledger transactions (e.g. to find and fix reconciliation issues, or to validate an adjusting entry was posted correctly) are unique needs of the finance team. The problem is, often finance’s voice isn’t heard, so they end up with tools that may work well in sales or marketing, but don’t work for them. That is one of the many reasons why finance teams in manufacturing often still dump data into Excel to manipulate and present it.