Business Accent

ERP: Local or global?

Ipshita Basu Guha

Which one do you buy? The Moderate Indigenous or the Complex Global?

Today, due to globalisation, the pattern has shifted from a seller to a buyer’s market. We all know the adage, ‘Customer is king’, and he has a wide range of options to choose from be it tooth-brush or turbine, candle or car. The software market is also not far behind. There are quite a few choices when it comes to selecting operating systems, office administration tools, or designing, database or ERP applications. Fundamentally all are alike, and serve more or less the same purpose, but each and every product has specific nuances and specialties.

Thus, there are numerous ERP products available for us to choose from, so how do you decide which one is best for you? This article tries to touch upon certain parameters on which you can base your broad decision of whether to opt for an indigenous product or go in for a global one. You will be required to mix and match the parameters in certain combinations to come up with a probable choice.

Stage of growth of the organisation

Organisations go through various phases from inception to maturity. Sub-sequently, they either decline or undergo a process of rebirth where the learning curve again starts moving upwards. Organisations overnight don’t become what they are today. The stage at which the management decides to IT-enable its processes, and more specifically, implement an ERP application, is important for making the choice. It is always advisable to opt for an indigenous simpler (less resource-intensive) application if the organisation is at its initial stages. A large mature organisation has the economies of scale to bear the implementation pressure of an expensive and resource-intensive complex global ERP application. Apart from the ability to opt for an expensive product, these larger companies also ‘need’ the expertise, tools and streamlined processes built into these products to remain viable.

IT-enabling a business (which is at any stage of growth except decline and possible death) in today’s world is highly recommended. If you have a simple application in place which is functional, then at a later date when you grow larger in size and revenue it will be very easy to port your data from the legacy ERP application to a global one using some data-filtration back-end database techniques.

Type of business

Does your business turn out a made-to-order or made-to-stock product? What type of service does your business provide—a very country-specific or a generic one? For example, if the business is of exports or imports, then the type of data that has to be maintained is very country-centric. The documentation that has to be submitted may or may not be the same as done in other countries. The export-import benefits, the mode of receiving the benefits, and the payment options are severely customised in each country as per the law. In such cases, an indigenous application is more suitable. If the business is of standard manufacturing, then implementing a global product with industry best-practices would be a good option.

Geographical factor

Where is the organisation located? In a single site, in one city, in various cities in a country, or in various cities around the globe? Global products have the vision and capability to automate businesses which are far-flung over various nations and subject to multiple accounting and financial practices. If your business is limited to one or two factories and a head office location then there are many indigenous products capable of managing your data without too much cash outflow. In fact, if your business is restricted to a city or adjoining cities, then you can find some local ERP application vendor who will be available for your day-to-day queries too. Apart from that, he will be able to customise the application for you to a certain extent. Of course, all this at a much lower cost than a global one.

Budget

The choice of application also depends on the budget allocated by the management for the project. This budget should be inclusive of the cost of networking, hardware, training and implementation, apart from the product itself. There should also be provision for recurring costs in the form of licence renewals, upgrades, implementation of newer modules, annual maintenance, etc. Many a time ERP projects fail since they overshoot the budget. If the budget is not large enough for a bigger product, then it is advisable to go in for a smaller application with lesser frills. The point is that the moment a budget is allocated, the automation process should start. The chances are that in future more budgets will be made available if the initial expenditure starts showing results. It is easier to convince top management with hard-core examples rather than simply drawing what-if scenarios on paper and making graphical presentations. For implementing a global product an organisation needs to have deep pockets—and the ROI comes in after quite some time.

Product characteristics

What product characteristics are you looking for in the application of your choice? Are there any typical guidelines and regulations in which your business functions should be handled by ERP? If yes, then you need to verify which product provides you with the required features. The pharmaceutical norms in our country are weaker than in developed nations; over there, companies have myriad regulations to adhere to. One of them is 21 CFR Part 11. Generally, a standard global product is more likely to have these features (which have already been tested and proved in critical environments). If your business has spread to, say, the US, then you might need to follow their accounting practices too. Indigenous products are less likely to have these US GAAP procedures.

IT penetration

Well, you may have decided to implement ERP in your organisation, but are you prepared in terms of hardware and software to manage the ERP onslaught? Do most employees in your company have computers to work on? Do they function in at least a basic local area network? Is your staff skilled enough in using computerised systems and applications? Skilled does not mean that they are capable of writing letters in Microsoft Word. Employees should be IT-savvy (at least some amount of proficiency is required) and self-reliant instead of requiring continuous supervision. Buying an expensive product without having your fundamentals correct is suicidal. You are risking large amounts of capital and other resources. Imagine the amount of wastage that an organisation will incur in terms of hiring expensive consultants and implementers when they are unable to connect with the users.

Skill level of employees

Why am I again talking about skills? The previous point deals with using only computers. Here the issue is whether the employees are mature enough and can be involved in the implementation process. Every process should have a process owner who ensures that it is configured properly and that it works as per the organisation’s requirement. If an organisation lacks such skilled people, then the quality of the ERP configuration will also be poor and faulty. In such cases, it is advisable to have a simple application which also helps the employees in learning, and makes them capable for a complex environment in future. Data entry using computers is one thing; understanding a process and taking part in its automation is an entirely different terrain.

Availability of support

The marketing pitch of any ERP product will try to sell you the moon. They normally tell you “only” all that is possible. The pitfalls become evident only in the course of implementation. What is needed (at least initially) is good support from the vendor’s end. Consultants are available from the vendors who configure the ERP system. Availability of implementers or partner organisations who are specialists in implementation is crucial for making the system function successfully. For example, SAP is owned by SAP AG, but there are many companies which are implementation partners. The problems arise when you do not get adequate support for the product you have bought. There are finer intricacies in any package which require expert guidance from the vendor’s end only. International products are highly standardised, but the cost of support is very high. The consultants have very high demand, and have high billing rates. There is the added problem of high employee turnover.

Existing computerisation level

Do you have your IT infrastructure in place to support the product that you are buying? How much additional budget will be required to upgrade your hardware and network? This ‘as-is’ evaluation, along with the comparison of the ERP vendor’s ‘to-be’ document, will tell you the gap (if any) in your IT infrastructure. It is more important for smaller organisations since it can make the project or the selection of a particular ERP unviable.

Therefore…

Implementation of ERP is obviously an advantage, but the stakes are also high. The procurement of the application is just the beginning. The road ahead is tedious with lots of obstacles, human and technical. A good choice can reduce these uncertainties to a large extent.

The author works with a pharma company as Business Systems Analyst. The views expressed here are her own and not necessarily those of her employer. She may be reached at ipbasu@rediffmail.com