The ERP system may be a vital part of a company’s IT infrastructure, but tight order management integration with...
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this ERP is key.
“Order management is vital -- if you mess up your orders, you’ll be doing funky things as a company,” said Alexander Drobik, regional research director for EMEA, ERP and Enterprise Suites for Gartner, the Stamford, Conn.-based research group. Because it’s so important, one of the first steps toward order management system integration with ERP is ensuring that an executive is responsible for the order management process, the systems that support it, and for making sure it stays in lockstep with the company’s goals.
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In addition, this leader needs to understand what solutions are available from the vendors that will support all the layers of order management, as well as the necessary integration. Even with ERP, Drobik said, “order management will cross multiple vendors because it’s rare that you can get all the pieces of an order management process from a single vendor. If you’re small, it’s possible, but larger companies tend to have different technology bases for CRM, financials and supply chain.”
That demands someone who can stand back and look at the order management system from an architectural and business process view and know if the company has built the right system to support it, he said.
More tactically, said Jonathan Gross, vice president and corporate counsel for Toronto-based Pemeco Consulting, to ensure successful order management integration with financial ERP systems requires that the underlying data is clean, accurate and timely.
“In other words, the information in the system needs to reflect the real world,” Gross said. “Otherwise, the system will be generating recommendations and advice based on factors that simply aren’t applicable.”
Review the integration checklist
Before relying on system-issued advice -- which is a key benefit of an ERP system -- Gross recommended that businesses would be well advised to check the following prerequisite items off of their lists:
- Ensure clean master data files, including items, customers, and suppliers
- Ensure high inventory accuracy rates -- a minimum of 90% with targets of 98%
- Ensure that planning master data is clean and timely, including lead times, routings, and bills-of-materials
However, when all of these factors are locked in and ready to roll, it still pays to take a step back and make sure the business drivers remain clear, focused and directed at results.
Organizations aren’t necessarily required for order management integration with ERP, according to George Lawrie, vice president and principal analyst for Forrester Research in Cambridge, Mass.
“It’s always about building a business case,” he said. “You have to look at your order to cash, look at your unbilled work in process, and ask questions like, ‘How much quicker might you do that billing? How many days can you save?’ You can really calculate that.”
Companies should also consider the value of harmonizing credit collections or getting all their customers and business units to a uniform level of sales outstanding. What would shaving a day off that period be worth? That helps to make the case.
These answers should not be the only motivations for deciding to integrate order management into an ERP system, but they should provide the foundation for making key business leaders specifically responsible for achieving the proposed benefits.
“The worst thing is when someone says, ‘ERP integration . . . that’s an IT project,’” Lawrie warned.
There is a massive risk that if IT drives it as a project, the integrations will be technically accurate and well-connected, but will likely tread outside of the true business needs.
“If the company is smart, they will have the CFO involved in the benefits, but unless there’s a business person charged with the responsibility of realizing the benefits, we can guarantee that the benefits will never happen,” Lawrie said.
Indeed, those benefits should be made a part of that executive’s compensation plan, he added.
Balance sheets essential to order management system integration
Of course, for the biggest business justifications, Lawrie recommends that organizations concentrate more on balance sheet measures and less on possible outcomes such as making employees more efficient.
“If the integration doesn’t result in headcount reduction -- and it often doesn’t -- then that’s not really a benefit to go for, which is why sophisticated implementers will focus on the balance sheet numbers. The sums of money that you can release can be absolutely enormous,” he said. And, if the business benefit is unclear, any integration will be for naught.
Even with ERP systems that already integrate well with order management -- backend connects to logistics with supply chain, operations planning, sales planning, forecasting, analytics, and the tactical side of managing orders are more clearly defined than ever -- there’s plenty of room for consternation.
“Order management sometimes rolls into issues around customer service, e-commerce, and supply chain, and sometimes we get too picky about which piece has gone wrong,” Drobik said. “But if you stand back, you can see that the simple task of trying to accept an order, fulfill it, and make somebody happy with the result can still go wrong. That tells me that the systems and process design are still not up to the complexity of order management -- a human element is needed.”