Enterprise Resource Planning

Background

There were few IT professionals that knew much about structuring or preparing an entire organization for a massive system conversion when the ERP solution entered the scene. However, Y2K ensured they would have to learn quickly. The new world of Enterprise Resource Planning offered salvation, as well as a lot of promises.

Even brilliant technologists, leading consulting firms, and seasoned IT executives learned that implementing and controlling ERP conversions was a massive undertaking. The user community also quickly discovered ERP solutions would fall short of their expectations and cost a lot more than they bargained for. When theses factors were added to the complexity of the new solution, it became obvious that some of the brightest minds in corporate America were going to be significantly challenged.

It is difficult to convey how difficult things were, since so many variables went into the ERP conversion equation. It was clear, however, that if an organization were not astutely aware of the complexities, it would fall short of meeting its desired goals, as many did during the early stages of their conversions. Now that the dust has settled, CRF surveyed its members to see how they perceive the last few years have affected their efficiency and productivity.

The ERP Ecosystem

As business models become increasingly complex, and the daily importance of the integration between both internal and external team members and trading partners increases, the ERP environment is becoming much more sophisticated. The burning question we have is, “Has critical data exchange and collaboration made its way into the accounts receivable modules? If so, what effect has it had on credit decisioning, cash application, collection, account reconciliation and document management, which are considered core business functions and critical to the back office operating efficiently?”
Finding ERP solutions that integrate seamlessly within an organization’s existing systems and business process is rarely easy. As you will see from the survey results that follow, ERP solutions do not always address all of an organization’s critical needs.

The ideal solutions an organization employs must transcend barriers, such as:
• Systems integration issues
• Capital expense budget
• Human resource commitments
• Support—both internal and external
• The ability to interface with trading partner’s ecosystem
• Ease of use, especially at the clerical level
• Ease of adaptability to changes in the business environment

Survey Focus

There are several major players in the ERP financial applications software market. Based on a polling of the Credit Research Foundation membership, CRF felt that the four selected, fairly represented the ERP vendors. They included basic functionality; i.e., multi-currency, multi-languages, electronic funds transfer (EFT) formats, canned reports, electronic document delivery, cash application, reconciliation, collection and dispute management capabilities. Clearly, there are other ERP solutions providers that specialize in financial applications, but there was not enough of a sampling to provide an accurate analysis of those solutions. Therefore, they are grouped under the category called ”other”.

All of the solution providers in this report have released upgraded versions of their software, and it appears none of the respondents are early adapters. The ERP solution providers state that in order to optimize performance around specific business functions that will give an organization more analytics, reports and content, an upgrade is usually required. Additionally, before upgrading, your organization may have to revisit the initial set-up and installation to ensure that the settings required to obtain optimal results for an upgrade, are in place. This usually requires a full reinstallation of your original release. This is not an easy task. As we all know by now, the ERP marketing model is built on upgrades and consulting services, and the cost of keeping up with the most recent release requires commitment, time and money.

All of the vendors we interviewed stated that they provide their customers with a decision support model designed to show an organization the return of investment (ROI) for all of their offerings and upgrades. When reviewing any of these models, the cost of deployment should include an organization’s internal investment including human resource commitments. Comprehensive packaged solutions, even upgrades, require a significant investment of internal resources, both IT and business process owners. ERP solutions are usually delivered in product sets. A new module, such as collection or dispute management, will most likely not be fully compatible with prior releases. This means that users of other modules that interface with your new application, will have to upgrade as well.

One organization we interviewed, had a two-year implementation plan laid out, and the A/R module was one of the last to be installed. As a result of this long implementation, the A/R module would have been two years old, and would no doubt be missing the features and functionality more recent releases would have to offer. In our survey 28.1 percent of the respondents were two or more versions behind the latest release, and 40.7 percent said they had no plans to upgrade.

Segmentation

We segmented our survey into what we were told are the key functions performed by a credit and collections organization today. Additionally, we expanded the scope to include some additional areas, which are usually considered critical credit and collection support functions. Clearly, contract compliance, contract administration, order entry, order administration, customer relationship management (CRM) are all supplemental ERP applications that, in a perfect world would be part of a total integrated solution. Unfortunately, credit and collection, and most of the functions that support the idea of a totally integrated solution, are far from becoming reality. This no doubt, explains why there are so many “Bolt-On” solution providers willing to fill the voids that now exist in many of user community’s ERP solutions.

We found some of the ERP vendors either buying missing components through mergers and acquisitions, or collaborating with outside developers and consulting firms. Through a collaborative effort, they built a “bolt-in solution”. The ad hoc enhancements are then marketed as an optional module under the ERP brand name. Although this appears to be a viable solution, we found that this “band-aid” approach may not always be the best solution for the user community at large. Usually the application does not integrate well, or they are not very robust when it comes to cross vertical market functionality. In some cases, the bolt-in solution will not work with or upgrade to the ERP’s next release, since it is not part of the core product.

As you will see in the survey results that follow, the ERP solution providers have a long way to go to reach a “best-in-class” status when it comes to credit and collections management.

The results of our survey reflect how the CRF user community perceives the ERP solution providers’ application; and how, it addresses their specific organizational needs. Because the sampling is from such a diverse group, we entered a variability matrix into the results to help the reader associate more closely with the ERP environment they may be associated with. The survey clearly indicated that not everyone is at the same level of sophistication. In many cases, it is obvious that they do not need to be.

Summary

Our survey prompted some interesting comments. Many respondents cited the reason for the deployment of their ERP system was:
• A need for a common platform
• Process improvement
• Data visibility
• Operating cost reductions
• Increased customer responsiveness
• Improved strategic decision making

Respondents told us the pros and cons of the systems they are using. The various reasons proved to be interrelated, as new system platforms should enable new capabilities linked to important performance outcomes. The dominant motivation for installing ERP seems to be to provide a common systems platform.

For some firms, Year/2000 compliance had been the driving stimulus. But for other firms that mentioned Year/2000, it was merely a catalyst to replace an aging IT infrastructure with one that's more manageable and an enabler of new business processes.

Several firms deployed an ERP to replace legacy systems built on a myriad of outdated technologies that had led to high-cost support. The ERP solution standardized much of their IT environment, so they anticipated lower support costs. For some firms, the larger issue was the difficulty of integrating disparate systems. At one firm, a new system had so many interfaces with existing systems that integration testing took nine months and there was great user resistance to the system by the time it was ready. At several firms, the systems integration challenge resulted, at least in part, from mergers and acquisitions. Through business combinations, these firms inherited systems that didn't integrate effectively with similar systems.
Most firms expected that their new ERP-based systems environment would enable process improvements. There is a tendency to be cost-driven reasons for ERP implementations. Other firms were more concerned with process standardization to ensure the quality and predictability of business processes. These firms anticipated reduced cycle times from order to delivery and sought better customer responsiveness.

Another ERP motivator was data visibility. Because ERPs are highly integrated, they can deliver better decision-making information to managers. More data visibility can provide an end-to-end view of supply chain processes and yield improved operating and revenue chain decisions. Respondents also saw data visibility as essential for presenting a single face to distributed customers and to recognize global customers as a single entity. Data visibility was expected to impact strategic decision-making. However most respondents pointed out the difficulty of getting the data out of the systems in a usable format. The on-line, real-time transaction-processing characteristic of ERPs can provide current information on a firm's performance - facilitating increased responsiveness to market conditions.
Although respondents were clear about why they adopted ERP solutions, they often had not established metrics for determining success against objectives. The most common metrics focused on cost-reduction objectives. Other metrics measured customer satisfaction and process improvement in inventory value, inventory turns, time to delivery, order accuracy and other measures, but few sited major performance improvements in the management of accounts receivable. In fact, most respondents felt that they took significant steps backward (from their prior legacy system) in tasks such as cash application, monitoring customer credit lines, etc.

ERP solutions promise to deliver more self-service applications, and a portal to optimize results around specific business functions. This survey indicated that 55.3 percent of the respondents felt this promise was met, however, 50.7 percent of the respondents still felt that accounts receivable and credit capabilities were insufficient.

In most organizations, accounts receivable is the largest asset on the balance sheet. It makes sense that there would be a great deal of focus on collecting trade receivables as invoices become due. Therefore, one would think that the credit and collection function would be a fundamental component of the ERP solution. Solution providers should place a priority on making the accounts receivable module very robust. However, there does not appear to be a “best of breed” ERP solution provider in the area of credit and collections management. Little attention is being paid to real-time credit decisions at the point of sale, algorithms to match payments and invoices that are not exact matches, collection work flows, document management, and dispute resolution. All of these are essential elements to good receivables management.

The gaps in the ERP systems are being addressed primarily through outsourcing, bolt-on modules from third party vendors, increases in headcount, and factoring.

Oracle and PeopleSoft have incorporated key credit data into their A/R packages, extending visibility to the CRM processes, but have not yet embraced all aspects of the credit and collections’ process. The major reason for this may be the small number of seats associated with the A/R process. In the survey the average number of employees performing the collection function (collector) was five.

Organizations must consider business process re-engineering in tandem with ERP system implementation, to maximize return via best-practice adoption throughout the credit process. Although the ERP applications are primarily focused on other more lucrative applications, some are actually recognizing the importance of having more credit functionality within their A/R module. Clearly, credit functionality is an afterthought, since 50 percent of the respondents found it necessary to incorporate other solutions into their organization in order to supplement the ERP module shortfalls. The survey results indicate that after installing a bolt-on solution, few credit organizations feel inclined to push the ERP vendor for upgrades or enhancements.

Solutions to these shortfalls, whether in the form of additional modules, home grown fixes, outsourced services or purchased solutions, must be seamless, automated, flexible, and trusted in order to be considered a “best-in-class” solution. Finding the right combination for all of these requirements within a single ERP solution is a tall order.

Ultimately, the successful companies of tomorrow will be those that strive for improvements, fully utilizing technology to improve trading partner relationships more strategically than in the past, creating new levels of efficiency and higher levels of customer satisfaction. Clearly, this is not an easy task. Based on the results of this survey, ERP vendors and organizations have many challenges to overcome to achieve this goal. However given the progress that has been made, as well the willingness of all parties involved to work together towards common goals, we should continue to make great strides in efficiency and productivity.

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