Small and medium sized enterprises (SMEs) are more active in international markets than ever before. Advances in technology and lower barriers to international trade have made it easier for them to compete globally, yet building a network of subsidiaries presents a fundamental challenge, with each business unit operating in a different environment.
It is therefore critical to have one set of master data for managing core business functions like benchmarking (KPIs), communications and reporting. ERP software is designed to achieve this, by integrating business processes, functions and workflows within a single IT architecture. It provides one ‘source of truth’ and supports the efficient flow of information across the organisation.
However, ERP projects are notorious for taking longer and costing more than anticipated. Even the most well-equipped organisations struggle to successfully realise the expected business benefits. Indeed, the scale and complexity of ERP projects has meant that historically, only very large and multinational corporations have undertaken an organisation-wide implementation.
Smaller firms that do successfully deploy ERP at their head office can then find it difficult to ‘stretch’ their central system across multiple sites. International subsidiaries in particular have very different needs – both in terms of the business processes they employ, and local culture, language and legislation.
In order to make ERP more relevant to smaller firms with international operations, innovative mid-tier vendors now offer modular systems. Available at a fraction of the cost of top-tier cross border solutions, modular ERP enables SMEs and entrepreneurial organisations to expand their implementation one step at a time without weakening it.
Out-of-the-box, stand-alone extensions to a company’s existing infrastructure ensure that new operations enjoy the same level of support as the HQ. Each new ‘add-on’ can then feed into a central master data system, allowing local offices to run independently while contributing to company-wide reporting. The ERP’s reach is extended as required, rather than being stretched. Faster and cheaper to implement, smaller organisations are able to grow their system in line with their business needs and in response to market demand.
The Pareto principle
Deploying additional, highly specific blocks of certain ERP functionality can deliver significant business benefits. Rapid improvements can be made in targeted areas rather than trying to manage the wide range of challenges associated with broad and therefore complex implementations. Basic yet essential functions like financials can be up and running in a matter of days or weeks, whereas a full ERP rollout can take months or even years.
Moreover, experience shows that with ERP deployments, the Pareto principle (the 80/20 rule) often applies. Focussing ERP on the 20 percent of functions and features that align with core business processes will typically account for 80 percent of the efficiency gains to be realised.
Crucially, a modular approach to ERP allows SMEs and entrepreneurs to address the overriding organisational challenge posed by expansion across borders – the evolution of management. When a business moves to a more formal organisational structure its head office must maintain organisation-wide control. At the same time, subsidiaries need the freedom to drive their own objectives in local markets. Empowering them at the local level with the functionality they need, while still maintaining a holistic overview of the company, is the key to success.
For senior management at head office, the main concern is a lack of business transparency. Reporting will usually be done monthly but can often be subject to delay and based on definitions and procedures differing from those used in other subsidiaries. Conducting like-for-like comparisons of KPIs such as inventory levels, day sales outstanding, and product mix and margins therefore becomes highly complex and time-consuming.
Modular ERP can help. Running one master data system used by all subsidiaries provides a single source of truth and delivers improved insight and reliable cross-border KPIs. Standardising centrally and localising where necessary ensures clarity and supports standardised reporting practices.
Effective communications
Eden Chocolates for example, has a production facility in Suzhou, China and implemented the same mid-tier ERP package used at its head office in Belgium. This way, the company has been able to align its finance and accounting, inventory, production and quality control functions locally while ensuring effective communications between its Suzhou plant and head office. This has resolved many of the inconsistencies in communications that existed previously.
“Our two offices currently keep separate databases,” says Alven Ge, Finance and Human Resources Director at the Eden Chocolates plant in Suzhou. “Only top management can access both databases, but we still need to be able to communicate without difficulty. When the Belgian office downloads reports, they can easily understand them because they use the same system, which saves time. Sometimes head office sends us a sample report from their own ERP, so that we can send them exactly what they want.”
Eden Chocolates uses ERP to administer the entire process of producing chocolates – from generating sales to shipping and everything in between. When a sales order is received, it is entered directly into the system, from which an MRP (materials required planning) is created and issued to the sourcing team. Once a supplier has been selected, the ERP system generates supplier and pricing information, as well as item codes for new materials. It also tracks incoming supplies and customer orders, creates production orders, and makes this information available to the warehouse for shipping.
Once finished goods have been shipped, a sales invoice is generated and sent to both the customer and the accounts receivable department. The latter can then create reports to see whether there are still suppliers that need paying, or whether there are outstanding payments from customers. Eden chocolates also uses its ERP system to assure quality control, by tracing all items leaving or entering its factory, recording detailed information relating to inspection, and monitoring the shelf life data of individual ingredients. “The system prevents waste and saves money, because it automatically generates reports telling us which individual items will expire in the near future.”
Improved visibility
Another mid-sized company to benefit from a standardised yet localised approach to ERP is Vacu Vin, a manufacturer of food and wine consumer products. Vacu Vin implemented a mid-tier ERP system across its eight subsidiaries in Europe and North America to improve decision-making and the level of support provided to subsidiaries. Using ERP, Vacu Vin has automated its procurement and warehouse processes, enabling local subsidiaries to ship directly to local customers and eliminate double entry, meaning time savings, fewer errors, and faster delivery times.
According to Vacu Vin’s Stephan Schneider, the company’s ability to plan production centrally has also improved considerably as it can now view local stock levels directly, as well as incoming sales orders from local offices. “The result is better capacity planning and utilisation as well as fewer out-of-stock situations,” he says. “Furthermore, our inventory levels are lower today, because of the visibility ERP provides. Our ability to plan sales is much better and therefore we need fewer inventories. Finally, we can better support local resellers in terms of selecting the optimal product mix and purchase volumes and they really appreciate that.”
Using ERP has also enabled Vacu Vin’s head office to benchmark subsidiary performance and react accordingly. “Today, we have global, real-time visibility of our business operations,” continues Schneider. “There is a huge difference in our ability to support our eight subsidiaries, because product sales managers in the head office can react very quickly to problems. Today, all subsidiaries run ERP, and it is easier to benchmark subsidiary performance and take corrective actions. For example, one subsidiary saw a 30 percent revenue increase after a change project that was started due to the business intelligence from ERP.”
Simple, but powerful
Despite the simplicity of the modular approach when compared to projects proposed by the top tier international ERP providers, there is clear evidence from successful multinationals that they have the power to continue driving impressive growth.
When Bugaboo, a Netherlands-based manufacturer of baby buggies, launched in 1999, the team comprised just six people and was working with very simple installed systems. Accounting was done on a small scale and Bugaboo’s ERP requirement was minimal. Opting for an SME solution to support its wholesale & distribution operations, Bugaboo has subsequently grown to be a major international player with operations in Australia, Spain and the US. It therefore conducted a review to determine whether its ERP platform could still provide the necessary level of support.
“Exact software is actually intended for the SME sector and as we are undergoing tremendous growth we decided to take a critical look at the situation,” says Rob van Dijk, project leader for system development at Bugaboo. “We looked at a number of different systems, including the big players with ERP packages. We nevertheless came to the conclusion that we were still very satisfied with Exact and would stick with it for a number of years. There are two reasons for this: it works very well and is excellent value for money.”
All the sales organisations within the Bugaboo group use its ERP system, with every site linked to its four international divisions, while its central customer contact centre records all contact points within the system. As well as accommodating local legislation for tax, local transport and language, the ERP platform has enabled Bugaboo to develop a worldwide Retail Online Ordering portal. Users can create inbound and outbound orders based on a range of factors – including prices, product range, language, and inventory and delivery time – which are then processed automatically and forwarded electronically to retailers, logistics partners and e-commerce platforms.
Trustworthy reporting, out-of-the-box
In the past, too many firms have relied on spreadsheets and non-connected systems to support international growth. The risks of this approach are wide-ranging. Manual processes are prone to human error, while data cannot easily be shared or compared with that held in other spreadsheets or systems. Conversely, if all sites use the same system, it is comparatively simple to reconcile definitions, maintain a consolidated database and report on it.
Using a modular ERP architecture and web services, it is relatively straightforward to build a hyperlinked cross-border backbone to provide SMEs with an integrated view of their business. A modular architecture means that a company can use only the ERP features necessary to support core business functions when establishing a new site.
In addition, innovative ERP vendors are offering monthly subscriptions like those employed under the software-as-a-service (SaaS) model, providing a flexible alternative to the rigid user licensing agreements employed by top-tier ERP players. Under the utility pricing model, the cost of the licence and ongoing maintenance are aggregated into a recurring monthly fee. There is no minimum contract period and upgrades can be implemented on a pay-as-you-go basis. This allows SMEs to start with a sub-set of ERP functionality and add new features as their business grows.
With the traditional capital outlay eliminated and a monthly fee that is a fraction of the cost of conventional ERP licensing, SMEs have the flexibility to scale rapidly both up and down depending on the local market requirement. At the same time, ERP allows organisations to pool strategic functions such as finance, HR and marketing at one location and deliver them as a shared service to local subsidiaries.
Ultimately, smaller firms should not be afraid to think big with ERP. Today’s modular ERP solutions offer powerful functionality at an attractive price point, with the flexibility to scale both up and down as necessary for an extremely efficient, low-cost and rapid ERP implementation.
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