Are small subsidiaries prepared to deal with a new ERP?
Updated: Oct 3
This article will be based on trying to answer questions, as well as providing a set of considerations and recommendations for a successful entry of a new ERP in a small subsidiary. This test was carried out through our experience of more than 20 years in consulting in countries such as Portugal, Spain, France, Italy, Brazil, Colombia, Chile, Mexico, India, Cuba, among others, where I hope to be able to contribute, through practical examples and in a language accessible to all, for the success in the implementation of an ERP in the subsidiaries that face this challenge. In the end, I also point out some advantages in the use of an ERP by the same subsidiaries.
ERP - Basic Concepts
For those less aware of the technological world of companies, an ERP is an integrated management system (Enterprise Resource Planning). An ERP consists of several modules that, in an integrated way, address the various business areas of a company such as Procurement, Quality Control, Production, Sales, Logistics, General Accounting, Industrial Accounting, Budgets, Project Management, Treasury, Fixed Assets and Human Resources. Nowadays, all multinationals already have, in one way or another, implemented their ERP, either in the form of internal development, or through the use of licenses for one of the many products available on the market (Infor M3, SAP, Oracle , etc). MRP (Material Requirements Planning) is a tool that is available in all ERP's, at least in what I know in depth, as is the case with Infor M3. This tool, properly configured, allows managing the needs of a supply chain of any industrial company. That is, by entering a customer order, MRP will go through the structure of a product (BOM - Bill of Material) and will calculate the products to buy and/or produce, in what quantities and for what dates, to satisfy the generated needs. A planned purchase order or a planned production order will then be automatically generated. After the production is finished, the customer order will be reserved, allocated, shipped and invoiced to the customer where, in an automatic way, stocks, accounts receivable, sales statistics and accounting are updated and the cost of sales is calculated. (COGS) and the respective margin. In the vast majority of companies that I provided services to, we were asked to implement the Activity Based Costing ABC (Activity Based Costing), a methodology for tracking the costs of activities carried out by a company and verifying how these activities are related to generate revenue. income and resource consumption. Its main function is to alleviate the distortions caused by the use of arbitrary apportionment. It consists of separately observing the various activities of a company, to individually identify the costs involved in each process. Thus, in the ABC costing method, the highest costs involved in each action or measure that the company takes are identified. From this, the information obtained allows an improvement to be made where there are inefficiencies.
Choosing an ERP
It's one thing for companies to rationally choose which ERP best suits their needs, another thing is to implement it, that is, configure the system and make it available to users for use. In my opinion, the success of the project does not depend directly on the chosen product, but on its implementation and support. With regard to small subsidiaries of large companies, they will often have to obey the decisions taken by the parent companies, both in the type of application chosen and even in their implementation methodology.
ERP Project Types
Project-Based ERP - typical project in which a company or group of companies, after evaluating the existing options in the market, through the answers to its specifications, implements an integrated management system from scratch.
The project that involves transferring knowledge of an ERP between a parent company and a subsidiary is called a Rollout, and it is precisely this type of project that a subsidiary will be faced with when its parent company has already chosen the ERP for its group of companies.
5 Key Questions
In this article, I will try to answer the following 5 questions:
1) Are small subsidiaries in other countries prepared to follow the implementation methodology proposed by their headquarters?
2) What will be the main challenges in implementing an ERP in a subsidiary?
3) Are the small subsidiaries willing to accept all processes already defined by the parent company?
4) In which phases of global ERP implementations (Core Solution) should those responsible for small subsidiaries be heard?
5) Are those responsible for small subsidiaries aware of how different their country or region is from the others in terms of tax legislation and even in their own logistical circuits?
ERP Implementation Methodology
There are several methodologies for implementing an ERP. During the various projects in which I was involved, I was taught lessons that I am very grateful to the various project managers I worked with, as my favorite methodology goes through 5 phases: 1-Prepare, 2-Design, 3-Build, 4 -Implementation and 5-Go Live. Each of these phases will have a very specific set of activities to complete during the project. In simpler language, the first phase called Prepare, will be where the project is defined through the elaboration of a document called Project Definition, which is nothing more than a detailed plan of the project's schedule, the human and technical resources involved and the project's objectives. The second phase, called Design, will be where all the company's internal processes are designed and where they try to anticipate possible problems through an activity called Fit-Gap Analysis. For a subsidiary, it is essential at this stage to understand the global solution already implemented in the mother house through a task called “Understand the Core Solution”. Only in the third phase, called Build, does the work effectively begin with the new system in a test environment, where, with the help of the consultants, the first interactions with the system begin through the configuration of tables and small individual tests. In the fourth phase called Implement, after the end users have already been properly trained, we will test the different scenarios identified in the previous phases of the project. Before the Go-Live there is a task that is one of the most important milestones (Milestone) of the project which is called CutOver. This activity must be properly planned (Cut Over Plan) as it will be like having a detailed list of all systems and peripherals to disconnect before connecting the new system. In the end, a conscious decision is made whether we will proceed to Go Live or if, for some reason of force majeure, this will not be possible. Go Live will then be the most desired step by all, with users already carrying out transactions in the new system.
Before starting to use the new system, there is a very significant set of information that is communicated by the project manager. Those responsible for small subsidiaries are asked to enter as quickly as possible within the rules of the project, for this it will be necessary to acquire new concepts and new vocabulary so that everyone speaks the same language. It is therefore necessary to pay attention to the definition of the project (Project Definition) where normally there is not much flexibility on the part of the project management for any change to the previously defined, so it will be the opportune time to propose any duly justified change. As an example, it is necessary to discuss whether the proposed start-up date (GO LIVE) meets the subsidiary's needs in logistical and accounting terms. It is also necessary to analyze whether there are adequate internal resources to absorb and constructively criticize the project definition, where management involvement and an open spirit of users for change are recommended.
Challenges of implementing an ERP in a Subsidiary
In my opinion, the main challenges of implementing an ERP in a small subsidiary are of different order, I will point out the most important ones here:
Resistance to change
User resistance to change is identified as one of the main causes for an ERP implementation project to fail. It is up to the subsidiaries to be able to count on people with an open mind and enough enthusiasm so that the adaptation to the new system is seen by everyone as a great improvement for the company and for themselves.
Top Management Involvement
Here, top management will have a great responsibility for commitment to the project, that is, if users perceive that top management is not involved in the project, they will conclude that the project will not be that important and their degree of involvement will also decrease.
Often, it is organizations that fail to build a change management team and view change only as an end-user training exercise that finds flaws in the implementation project. ERP change management does not only involve changes in business processes, but the entire culture of an organization. When end users aren't involved, process changes aren't communicated clearly, and expectations aren't set, ERP implementations often fail.
The management of expectations where the objectives must be clear and attainable. It is normally up to the global project manager to manage the expectations of end users and also of local managers (Country Managers). In larger projects, it is recommended that subsidiaries also have a local project manager, who can act as a bridge between the global project manager and their local manager.
The difference in corporate culture between the users of the subsidiary and the parent company. It is necessary to be aware and accept these differences in a serious and constructive way, assuming that the two parties are neither better nor worse, only that they have different ideas that will have to be mitigated and aligned.
English is normally the official language of international projects. Although there is no great difficulty for users to understand the English language, there are always issues that, due to their complexity, need to be discussed in the mother tongue. The existence of local consultants who can speak the same language is always an asset for any project carried out in the subsidiaries.
Within a subsidiary it is essential that there are people with enthusiasm, motivated and with the ability to motivate, focused on the project and with full knowledge of the business itself. I would like to emphasize this completely, because as the name implies, we are dealing with an integrated management system where the modules communicate with each other. For example, a Financial Controller will need to dialogue with the factory manager to jointly monitor the evolution of the company's industrial cost.
The entry of an ERP in a subsidiary leads to some increase in data traffic on the network as is normal. Thus, in order to be able to browse the system with some speed, stability and security, it is essential that this subject is not neglected. In Brazil, for example, I had a case where not even with two dedicated lines it was possible to have acceptable network stability.
For adequate training to users in the different modules of an ERP, it is very important that there are specialized consultants in each of the areas, preferably with knowledge of local laws. Users must learn to navigate the new system with enthusiasm so that the adaptation to the new system is as fast as possible. In larger companies, there is the figure of a key user who are responsible for transmitting knowledge to end users after training.
Having quality supporting documentation is always a big help for faster learning. Key-Users are normally responsible for adapting the existing documentation to the subsidiary's reality.
Data quality is identified as a critical success factor for an ERP implementation to be successful. For a subsidiary with local requirements it is very important to pay due attention to data quality and to know what additional data will be needed to comply with local legislation. This factor is even more important in countries where, for example, the invoice is approved electronically. In Brazil, for example, a poorly entered customer's zip code is enough for an invoice to be rejected by the tax authorities.
Complexity of the Tax Law
In some countries, the tax law, in addition to being more complicated, undergoes changes very frequently. Being able to count on local consultants in the project will be the key to success in this challenge, as they will certainly be more attentive to possible changes to the law that may occur even during the execution of the implementation project.
The more complicated the tax legislation of each subsidiary, the greater the number of scenarios to test before using the new system. For example, the tax to be considered on an invoice to a customer in Europe, excluding exceptional cases such as alcoholic beverages and tobacco, will be VAT. However, in Brazil, there may be 4 or 5 different types of taxes depending on the state where the sale is being made and even on the type of product sold. So the main task of the consultants or key-users of the subsidiaries will be to rigorously define all the possible scenarios to be tested. After this definition, all scenarios must be tested in the test environment, where a list of all tests must be followed, having as main elements: date, responsible, scenario, status, comments.
In some South American countries, such as Brazil, Mexico and Chile, Electronic Invoice has been a reality for the last 10 years. In these countries it is required that you can automatically send a message in XML format sending your invoice data in real time at the local date and time and not at the date and time where the server is hosted. It may seem like a very simple issue to resolve these days, but the truth is that there are specialized companies in these countries to electronically communicate invoices to the respective tax authorities. So the solution always involves having the ERP connected to another system (Third-party software) so that the communication and management of invoices is carried out successfully.
Warranty and Support
Once the guarantee provided by the support phase for GO-LIVE is over, many subsidiaries are still afraid of not having support for the daily activities and periodic closures that they will have to carry out with the new ERP. It is therefore crucial that they can be advised by service providers, ideally the same company that implemented the new ERP, which can provide a support service and allow them to have a timely response to queries.
Advantages of using an ERP by subsidiaries
Fortunately, a subsidiary is not only faced with challenges when a new ERP is implemented. Here are the main advantages:
Experience from other implementations
The experience acquired in the previous implementations of other subsidiaries is in fact a great asset as it will be possible to accurately predict the existing difficulties of other implementations and take the necessary measures so that they do not happen again.
Shorter Implementation Time
The implementation time of an ERP in a subsidiary tends to be much shorter because, through the use of the same migration model already tested, it will allow tasks to be completed in a much faster way.
Improved communication with other group companies
The people of the subsidiaries, through the use of the same ERP as the other companies of the group, will use the same business language when referring to a certain subject. Thus, there will be a significant improvement in communication, namely by consulting the same ERP screen and following exactly the same steps in a given flow.
Reduced Hardware and Software Maintenance Costs
Hardware and Software costs, normally shared by the group companies, will certainly be lower compared to the use of a local system fully paid for by a subsidiary.