Building Business Globally With Modular ERP

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-the-box, stand-alone extensions to a company’s existing infrastructure ensures 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 per cent of functions and features that align with core business processes will typically account for 80 per cent 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.

Freedom with control

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.

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. Although the two offices keep separate databases, senior management can access both and download easily comparable reports in the same format. This way, Eden Chocolates 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, largely due to cultural differences.

Another mid-sized company to benefit from a standardised yet localised approach 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. It also wanted to plan production and sales centrally.

Vacu Vin’s ERP system has enhanced capacity planning and utilisation and minimised out-of-stock situations. Inventory levels are lower because of the improved visibility, and it is able to better support local resellers in selecting optimal product mix and purchase volumes. Using ERP has also enabled its head office to benchmark subsidiary performance and react accordingly. One subsidiary saw a 30 per cent revenue increase as a result of a change project undertaken on the business intelligence provided by 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.

Following a review to determine whether its ERP platform could still provide the necessary level of support, Bugaboo concluded that it was extremely effective and provided excellent value for money when compared with top-tier solutions. All the sales organisations in the 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. This has made processes much faster and more efficient.

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. It unites islands of information in a single, company-wide system. This enables all users to share documents and planning, obtain unified project insight and benefit from structured workflows that ensure clarity of ownership.

Furthermore, solutions with ‘out-of-the-box’ support for multiple languages and legislations enable a rapid and simple ERP implementation across organisational functions and locations. Similarly, standardised features can be rolled out quickly on an international scale and be ready to use in each locality within days or weeks.

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.