As technological advancements increase the speed of business innovation, companies are quickly embracing new trends and technologies to overcome the challenges and limitations of their ERP systems. One prominent trend is the adoption of a core and bolt-on strategy, where specialized software solutions are integrated alongside existing ERPs. This approach allows businesses to leverage the benefits of best-of-breed applications without undergoing a complete ERP overhaul, providing them with greater flexibility and adaptability than ever before.
Today, we’re evaluating ERPs – their capabilities, limitations and most common challenges – to help you decide when it’s time to find a new or supplemental solution. We’ll delve into best practices for data cleanliness and supplier management, handling purchase order changes and deciding when it's necessary to explore solutions outside of your ERP system. By understanding these trends and implementing effective strategies, companies can streamline their operations, drive growth and stay ahead in today's competitive business landscape.
Businesses often face challenges when implementing ERP systems and managing the resulting changes. Executive leadership can become convinced that an ERP system will be a panacea for their problems, serving as the sole solution for all of their operational woes. However, a critical realization occurs when they first encounter the limitations of the system, leaving them to seek external solutions and hope it isn’t too late.
One such realization often arises when problems occur during the system's initial implementation. For example, while certain modules may function well, complexities unique to the business are often overlooked, leading to issues in critical areas such as accounts payable. This troubling situation can hamper a business’s ability to pay suppliers, resulting in a backlog of pending invoices and a weakened trading relationship. Consequently, businesses must reassess their approach – understanding that the ERP system alone may not be adequate – and carefully consider alternative tools to address their unique challenges. Such experiences serve as valuable lessons, emphasizing the importance of thoroughly evaluating and selecting appropriate solutions tailored to a business's specific requirements.
The Problem with ERPs
ERP systems often face criticism due to two key factors: training and user experience. Visually, these systems may not meet the standards set by popular consumer platforms like Amazon, lacking intuitive and visually appealing interfaces. The training aspect itself poses unique challenges, as teaching employees (particularly young graduates) to navigate complex ERP systems that resemble outdated blue screens can be a demotivating experience.
To tackle these issues, some businesses have sought to improve the user experience by incorporating modern graphical interfaces that resemble familiar designs and workflows. By making the system visually appealing and aligning it with employees' personal experiences, businesses aim to enhance usability and alleviate the misdirected blame placed on ERP systems.
ERPs Are Not Always the Right Tool for the Job
Businesses frequently encounter difficulties in understanding when it is appropriate utilize their ERP systems. One all-too-common challenge is the tendency to bend ERPs out of shape to suit functionalities they weren’t intended for. For instance, while using an ERP for rebate management may initially seem feasible, it can lead to laborious processes, issues with data extraction and an inability to capture complex deal terms.
The availability and familiarity of the system can lead to a mindset where “everything is a nail” to the ERP’s hammer. Employees may default to using the ERP simply because it's accessible and familiar, never questioning whether it is the right tool for the task at hand. Furthermore, the implementation of external software or programs may not satisfy the common desire for quick results within shorter timeframes, encouraging businesses to continue using ERPs for functions they are ill-suited for. Failing to grasp the capabilities and limitations of ERP systems can lead to inefficiencies and organizational challenges that necessitate critical reevaluation and strategic decision-making.
The Problem with Rebates
While discounts and early payment incentives generally work well within ERP systems, rebates pose unique challenges. The complexity of rebate programs can go beyond the standard pricing hierarchies and involve retrospective calculations that ERP systems typically struggle with. ERPs are transaction-based and prefer to focus on current data rather than retroactively adjusting past transactions.
Rebates also involve more complex collaboration between parties, where both the business and its suppliers or customers have their own versions of the truth. Inconsistencies in data or interpretations can lead to discrepancies in the numbers, which, given the significant amounts involved in rebate programs, can have substantial financial implications. ERPs are not inherently designed to handle these collaborative and retrospective aspects, further complicating the integration of rebates within their frameworks.
No matter what system your business uses, data management and cleansing are critical to prevent major issues from arising. Data inconsistencies within ERP systems can result in critical errors, such as inaccurate planning, forecasting and decision-making. Business leaders must recognize the value of solutions that automate and supplement data cleansing processes.
Centralized processes, such as loading part numbers, are one way to maintain data cleanliness within an ERP system. However, the lack of third-party checks and the sheer volume of data make ensuring accuracy a challenge. To address data quality issues, it may be necessary to leverage dedicated systems or tools. These can involve scrubbing exercises, collaboration with vendors for data provision and implementing additional software alongside the ERP. Data cleansing can be complex and time-consuming, especially for older companies with legacy ERP systems, but it is absolutely essential to drive business growth and ensure effective decision-making.
Handling Purchase Order Changes
Managing purchase order changes is part of doing business, but when using an ERP system, this process can be quite challenging – especially when faced with continuous updates from suppliers. Older systems that have adapted over time may initially seem capable of handling such changes, but transitioning to a dedicated solution can quickly reveal the ERP’s true limitations. Many systems are ill-equipped to handle frequent and varied purchase order changes. To address this, many businesses seek specialized software to manage these modifications, ensuring accurate rebate calculations and invoices.
In industries where prices can change between order placement and delivery, the need for flexible software solutions is crucial. Implementing the right software streamlines this complex process, saving time and mitigating risks associated with manual processing. Properly managing purchase order changes not only reduces errors but also maintains data integrity, supporting informed decision-making and accurate predictions.
Should You Move Outside Your ERP System?
When considering whether to move outside of an ERP system, there are several factors that companies generally evaluate:
- Limited functionality is a common reason for seeking additional solutions outside of the ERP. As businesses evolve, their requirements may exceed what the ERP system can offer. In such cases, companies may need to explore third-party tools or software to meet their specific needs.
- Scalability is another important consideration. If a company experiences rapid growth or expands through acquisitions, its existing ERP system may struggle to handle the increased volume or complexity of operations, necessitating alternative solutions to accommodate the company's expanding requirements.
- Cost efficiency plays a significant role in the decision-making process. Implementing or upgrading an ERP system can involve substantial financial investments. Companies need to carefully evaluate the return on investment and weigh it against the potential benefits and improvements that can be achieved by moving outside of the ERP.
- Integration challenges are also a common concern. The ability to seamlessly integrate third-party solutions with the existing ERP system is crucial for smooth operations and data consistency. Choosing compatible software that can effectively integrate with the ERP and other systems in use is vital to avoid complications and inefficiencies.
While the adoption of specific systems or processes may vary depending on a company's needs and industry, most businesses are trending towards flexible solutions that address specific pain points or gaps within ERP systems. By identifying areas where the ERP falls short and finding suitable third-party tools or software, companies can significantly their operational efficiency, meet evolving business requirements and stay ahead of the curve.
Interested in learning more about the capabilities and limitations of ERPs for rebate management? Check out our blog.