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Global ERP Functionality Delivered: The delivery differences between products and vendors explained
Global ERP Functionality is also known as : Global Placement Services, Enterprise Resource Planning, Global ERP Functionality, ERP, Global ERP Software, ERP Software, Ecommerce Integrated ERP, Global ERP System, Global ERP Solutions, 
ERP Systems, Global ERP Functionality, Global ERP System, Business Consulting, Global ERP Customization, Process ERP Functionality, ERP System Functionality, Business Intelligence ERP, ERP Implementation.
Putting it into Context
While globalization was once the exclusive domain of large multi-billion dollar companies, today even small to medium size enterprises cannot escape the issues associated with global trade and offshore manufacturing. Whether you view the world as flat or round, it is definitely shrinking. North American and European companies have been challenged by the introduction of lower priced products coming into their markets from countries with inexpensive labor, causing the trend in recent years toward offshore manufacturing operations and the procurement of materials from low cost country sources, which in turn introduces a higher level of complexity into the supply chain.
Enterprise Resource Planning (ERP) is a mission critical component of any globalization strategy. Yet this is often overlooked while focus is concentrated on supply chain issues. As a result, the majority of companies today still rely on some element of manual effort and/or spreadsheets in order to consolidate financial reporting and fulfill global trade management, legal and reporting requirements.
Defining Requirements
Enterprises looking to compete in a global marketplace must be able to comply with international financial and legal requirements – they must be able to think globally but at the same time act (and comply) locally. Enterprises cant focus on gaining a competitive advantage if they struggle to integrate their own international operations. Internal operations must be integrated before interoperability can be achieved on a global scale. The more seamless the integration, the easier it is to manage governance, risk, and compliance.
What is globalization?
Globalization is the interaction and integration of people, companies, and governments of different countries, a process driven by international trade and investment and aided by information technology. Globalization is not new. For thousands of years, merchants have been buying from and selling to each other in countries separated by great distances. Yet some things have changed, and they have changed very dramatically, including:
- The time factors associated with communicating and transporting goods and services across varying distances
- The level of legal and financial reporting requirements
- The technology that supports international businesses
A recent Aberdeen study, The Role of ERP in Globalization, explored the extent to which companies have global operations and engage in global trade, and whether these global operations are expanding or shrinking. In spite of the increased complexities a global supply chain introduces, research shows that 83% of respondents were planning to expand international operations.
Supply Chain and Global Trade Management applications are at the forefront of discussions that center on globalization. But ultimately, corresponding transactions are captured in the back office which means that ERP must be able to deal with issues such as currency exchange, multi-site and multi-company transfer of inventory, consolidations, localization, and translation. Aberdeen found the ability to support a multi-national implementation from a single instance of ERP and the global consolidation of financial data across multi-site and multi-database implementations are clearly viewed as the two highest ERP priorities for global companies (Figure 1).
While 89% of companies view the ability to support multi-national implementations from a single instance as either somewhat or very important, less than half of companies we surveyed (44%) actually operate using this model ?– and sometimes for very good reasons. However, the ability to present consolidated financial results is a core business requirement regardless of the single instance/multiple instance decision, leaving Aberdeen to conclude that the 10% of companies that did not feel this was an important feature of ERP are performing cumbersome and manual reporting gymnastics.
Configuration Options
Configuring a multi-site ERP implementation can be a challenge, particularly if multiple sites represent multiple legal business entities, as is usually the case in a multi-national enterprise. This situation is further complicated if the enterprise has grown through acquisition, resulting in multiple ERPs. Aberdeens August 2006 Benchmarking ERP in Manufacturing study found that 80% of large companies (with annual revenues in excess of $1 billion) and 42% of mid-size companies (with revenues between $50 million and $1 billion) have more than one ERP. The same study also found that 74% of these companies are planning to consolidate, but in the mean time, even the ability to integrate internal functions and consolidate reporting will be limited by the inter- operability of the installed ERPs.
Companies that are operating in multiple countries around the world are required by law to operate as multiple legal entities, and ERP also plays a key role in the consolidation of financials. As mentioned earlier, the ability to support a multi-national implementation from a single instance of ERP is viewed as a high priority for global companies.
However, research also showed that a single instance of ERP supporting all global locations (22%) is far from the norm (Figure 2). While another 22% of companies do have a single instance of ERP, this instance does not support all international locations in which the enterprise operates. And over half of respondents are operating in an environment with either multiple instances of the same ERP or multiple ERPs. Let?s examine two different possibilities.
Single ERP
Those international companies running multiple sites using a single ERP package will be faced with the decision to run from a single or multiple instances of their ERP, providing that their ERP provider gives them the option ?– but not all do. While it is clear that most companies prefer to have the choice of running from a single instance, this may in fact not be the optimal solution.
The advantage of a single instance is that it forces a standardized implementation of ERP across the enterprise. This certainly makes consolidation and reporting easier and simplifies interoperability between sites or divisions. Where businesses (or divisions) across a global enterprise are dissimilar and operate autonomously, and where there is little or no need to coordinate and share across the divisions, force fitting into a single instance can be counter-productive. This is often the case where the parent company is nothing more than a holding company or if the companys growth strategy has been driven by a combination of acquisition and diversification.
Multiple ERPs
For those companies with multiple ERPs, the decision will come down to whether or not to consolidate. This decision must carefully weigh the business value brought to the enterprise. Consolidation efforts have an enormous potential for saving time and money, but there is a price to pay in order to reach this goal. Ultimately those projects which have a dual purpose of reducing costs and standardizing business processes achieve the most success.
Where autonomous or semi-autonomous divisions are significantly different businesses within themselves, there will be less pay-back than in cases where business units make similar products, using similar manufacturing methodologies.
Case Study
Goss International is an example of a company faced with two decisions: to consolidate ERP or not, and whether to run single or multiple instances. The company is a global leader in web offset printing solutions, with a complete product range of newspaper and commercial press systems, as well as mailroom and post press equipment. Having grown through acquisition, at one point the company accumulated a collection of ERPs including Baan (previously acquired by SSA Global, now owned by Infor), SAP R3, Oracle, and several highly customized legacy systems. Two years ago the company made the decision to consolidate and chose SAP as the single strategic platform. Not only has Goss International chosen a single ERP platform but it also maintains a single instance of the software and a single database, forcing standardization across all divisions using the software.
How has Goss International measured the success of its consolidation strategy and ERP implementations? On a broad basis, it gauges success based on the ability of the business to run and the ERP to provide a financial system of record. They look to tangible metrics such as reductions in inventory, improvements in inventory accuracy, quicker turns, and visibility into data.
Delivering ERP Globally
Beyond the consideration of a single or multiple ERP(s), and beyond the single instance decision, there is a myriad of challenges related to installing and maintaining ERP at all sites that comprise a global enterprise. All major ERP vendors today offer versions of solutions that have been translated and localized to selected international markets. However, the way they deliver this functionality varies, even across product lines offered by a single vendor.
User Interface
There are several aspects to consider in presenting software to an international audience of end users. The two most common considerations are translation and presentation of date formats. Any residual issues of date formatting were typically addressed in Y2K (Year 2000) remediation, leaving the issue of translation. Again, there are two issues: the user interface and presentation of data (such as product descriptions). Providing that the labels used by the user interface have been externalized, this element of translation represents the ?“easy part.” The newer releases from all major vendors have taken this approach, making it relatively quick and easy to deliver translations into western languages. However all may not support the UNICODE standard or double-byte representation often required for eastern languages such as Chinese, Japanese, or Hebrew. In evaluating software, technology buyers should ask what restrictions will be placed on users that speak different languages but share a common instance of ERP.
Localization
International functionality, such as localizations, for country-specific legal, trade, and reporting requirements might be embedded in the core ERP product or delivered separately in a country-specific layer or “pack.” The decision between these two approaches often reflects a trade-off between speed, upgradeability, and complexity. If all international features are embedded within the core ERP product, all countries can benefit immediately from new features and upgrades. This is the preferred approach of Infor and Lawson. QAD is actively working on combining these features into the core product.
Much of what SAP delivers is built into the core product, including optional support of UNICODE, translation of 34 languages, time zone capabilities, as well as multiple date formats. Yet, they also manage the following:
- 55 country versions of mySAP ERP
- 39 country versions of SAP BusinessOne
- 36 standard country versions and 11 add-on versions of Human Capital Management, with 22 partner versions
- 45 standard country versions, 8 add-on versions, and two partner solutions of Finance and Operations
The sheer volume of versions would be enough to overwhelm some smaller ERP vendors but SAP delivers 95% of international functionality as part of its standard offering. All SAP standard country versions are part of the core product - the country versions are released at the same time the core product is released. SAP takes on managing the complexities in order to simplify installation and implementation for its users.
Addressing country-specific requirements within the core product can, however, add a level of complexity from which few customers will benefit and therefore Infor considers factors such as whether the feature is required to fulfill a statutory requirement and the level of complexity it will add to the product. For example, the Mexican requirement for invoice numbering was added to the core product because Infor was able to meet Mexicos requirements while providing a numbering scheme that could be used by others. In the case of Thailand?s specific requirements for inventory balancing, the company decided to deliver the functionality in a separate country pack rather than confuse it with the more generic inventory balancing reporting expected outside of Thailand.
Lawson uses both approaches as well. The majority of country specific requirements are delivered in a single version of the core product and its strategy is to move to include all countries in a single, standard product. Those which are not covered in the current release, however, are addressed with add-on functions, allowing Lawson to expand its geographic reach in parallel to its normal release cycle, supporting immediate customer needs, adding new countries, and subsequently rolling them into the standard product.
There are risks associated with delivering features in a separate layer, however. Often upgrades to these add-on functions are staged incrementally and are delivered well after the core release, and thus, there is a danger certain countries can be ?“left behind.” The risk is greater from smaller ERP players with limited development resources.
However, in other instances, this delivery approach provides direct benefit to the end user. While QAD intends to combine localizations into the core product, it may also deliver some features that address regulatory requirements as external “drivers.” Electronic banking features are an example, where these drivers are based on XML (external markup language) and EDI (electronic data interchange) principles. The advantage – updates can be delivered without requiring the user to upgrade the core product.
Having limited development resources is not the only reason companies will use partners for either development or delivery of country specific features. While larger ERP suppliers may seek local expertise, they are careful to protect their Intellectual Property (IP) and the customers ability to move forward. Infor contracts with local companies in select emerging markets (Vietnam and South Korea) but is careful to retain all distribution and ownership of IP created. Lawson uses a local partner as a sub-contractor in the development process in a small number (less than 10) of countries, but takes full responsibility for the definition, development, and quality assurance of all localizations. SAP partners for its Israeli version, but otherwise, local experts in various countries are SAP employees. While much of the development of localizations occurs in local countries, all code development and maintenance flows back through a centralized development center and is delivered on a single set of CD?s. License keys determine which are used.
Aberdeen Conclusions
Multi-national companies face several decisions in terms of ERP implementations. Whether developing new supplier and customer relationships, expanding sales, service, or production facilities, ERP plays a role. It is the transactional and reporting backbone of a well-run organization. The more pervasive the implementation throughout the organization the better multi- national operations are supported. Yet not all ERP companies offer the same level of international support, and delivery of functionality varies across the major and minor players in the field. Before an ERP purchase, extension, or replacement, companies are well advised to understand the countries supported by the ERP solution providers as well as how both support and feature functionality is delivered. Fully understand the implications of running a single or multiple ERPs, single or multiple instances, and the impact these decisions will have on their ability to interoperate between divisions, consolidate reporting, and compete effectively in an international market.
© 2007 AberdeenGroup, Inc.
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