As businesses grow and operations become more complex, it’s natural for them to add new software systems such as an inventory management system, specialized software to help handle accounts payable (AP) and accounts receivable (AR), or customer relationship management (CRM) — and all of these solutions could likely be handled by a single enterprise resource planning (ERP) system.
Yet, thanks to mergers, acquisitions and new business units, some businesses wind up with multiple ERP systems as well. Consolidating to a single ERP may come with upfront costs and migration work, but the long-term efficiency and cost savings often far outweigh the investment of time and money. Consider these pros and cons of ERP consolidation when deciding if it makes sense for your business.
What Is ERP Consolidation?
ERP consolidation is the process of combining multiple ERP systems and databases onto a single ERP platform. At the end of an ERP consolidation, applicable employees can log into a single system to access financial, product, employee and customer data.
When consolidating, a business may select one of its existing ERP systems for the consolidation. Before deciding to stick with current software, however, an ERP consolidation project is a good opportunity to review other options to see if there’s a better fit for the company’s long-term vision.
Businesses running multiple ERP systems have to pay each vendor to keep all systems up and running. Additionally, multiple systems can lead to inconsistent — and inaccurate — data and hinder communication between departments that use different software. A single ERP system means there’s only one set of data to maintain and secure, and everyone’s looking at the same information. That can lead to lower IT spending and improved efficiency for all parts of the business.
With a single ERP system, all service or product data can be tracked and managed in a single place. Customer, vendor and employee details, contracts, communication history and payment preferences may be securely stored within one system. By consolidating multiple ERP systems, you may even uncover new parts of your business to optimize.
Why Businesses Have More Than One ERP
There are two main reasons companies have more than one ERP system:
Multiple systems purchased for different needs. Larger companies may find that their departments have vastly different needs, which at one time made it beneficial to have separate ERP systems tailored to each one.
Mergers and acquisitions. Different companies may have different ERP systems, and so when one is absorbed into another, either by merger or acquisition, the new company will have multiple ERPs.
If you operate two or more distinct divisions with different needs and goals, it may be worth keeping two ERP systems even with the added costs of maintaining both of them. However, when the ERP systems offer similar features, businesses should consider ERP consolidation. For example, if you work in a business that once merged with a competitor with similar offerings, an ERP consolidation is likely the right choice.
Key ERP Consolidation Challenges
When consolidating multiple ERP systems, not everything will come together overnight. In many cases, ERP consolidation carries the same challenges as implementing ERP. Migrating data and configuring a new system can be expensive and may require custom development so the old system can temporarily talk to the new system.
Here are some common ERP consolidation challenges you may encounter along the way:
Difficulty Choosing a New ERP system: The first challenge is choosing the right ERP system. The key is to identify a solution that fits your industry, business model and financial needs.
Data Migration: Moving financial and customer data is far more challenging than moving your digital music collection to a new laptop. IT teams have to export information from your old database, update the data to conform to your new system's requirements, import everything into the new database and fix any problems that arise along the way.
Work Disruptions: There may be temporary downtime while you’re implementing a new ERP system. Even with a relatively fast and easy implementation, employees will need some time to be trained and get up-to-speed on the new system with an ERP project plan. That makes it imperative to choose a system with strong support and learning materials.
Employee Buy-in: Often employees are reluctant to change, particularly when it comes to systems they’re familiar with. Soliciting advice from the workforce before and during the implementation process and explaining how it will make their workdays easier can help encourage user adoption.
Cost: ERP systems can be expensive, especially if you have several users or need customization. Consolidating these systems is a major upfront cost when you include the time spent implementing the new system and training your employees on how to use it.
The magnitude of these and other challenges will vary. If you have a tech-savvy workforce, switching over to a new system should be easier. But after ironing out the kinks, the right system and a well-planned ERP consolidation plan can lead to excellent results.
3 Steps to Determine If ERP Consolidation Is Right for Your Business
ERP consolidation doesn’t make sense for every business. Here are three steps you should take to determine whether to consolidate onto a single ERP instance or not.
Analyze and Understand Impact of Consolidation
It’s important to carefully consider the pros and cons of consolidation and visualize how that may affect your business. Thoughtful analysis of the needs of your different departments and employees, as well as considering the time and effort required to consolidate ERP systems, should give you a basic understanding of the impact consolidation can have on your company.
Tip for Success: Review the list of pros and cons for ERP consolidation below, detailing with each one how you might envision them impacting your business.
Identify Strategic and Cost Savings Benefits
Next, you can look at the costs directly related to your old ERP and other software that will be consolidated. Working with your IT and finance teams, gather details on current costs and estimate future costs. Using a discounted cash flow (DCF) model may give you the most accurate results, but it also takes the most work to put together. Higher-level ROI estimates may be useful early on, but it’s worth the added effort to conduct a thorough profitability analysis before making a major commitment for an ERP consolidation.
Tip for Success: Consider licensing, hosting, power, security, support and training for multiple old systems versus one new system. If moving from an on-premises solution to a cloud-based solution, you may find extensive savings.
Identify and Verify Business Benefits
To decide if it makes sense to move forward, you’ll want to analyze current operating inefficiencies and costs, system burdens and what operations could look like after the consolidation. You may look at ERP case studies provided by the vendors or industry publications, white papers and employee surveys to estimate how ERP consolidation would lower costs through operational improvements.
Tip for Success: Consider current pain points in your operations, whether it's managing inventory, billing, shipping, payroll, etc. Estimate the cost of time or product lost due to inefficiencies in these areas to get a good picture of how beneficial consolidating your ERP systems may be there.
Pros and Cons of ERP Consolidation
Pros of ERP Consolidation
Better User Experience: After consolidating ERP systems, every employee can find what they need in one place with a common and user-friendly interface. This should increase adoption and ultimately flatten the learning curve for new employees.
Increased Efficiency: Employees won’t have to stop what they’re doing, log into another system, find what they need and return to the first system. Context switching really hurts productivity, and it’s eliminated with consolidated systems. As an added benefit, workers will only need one password for one system, which improves data security and auditability (more on that below).
Cost Savings: Instead of paying for two or more systems, you only have to pay for one. You also save on training, as workers only need to learn one system, and IT, as there are fewer systems to maintain, upgrade and support.
Single Data Source: A single data source can eliminate mistakes and discrepancies that ultimately harm the customer experience. Having one data source also makes it easier to keep data secure and backed up to prevent any losses.
Simplified Auditing: When you need to conduct a financial or operations audit, all the details are available to your team in one platform. Some ERP systems may also include data trails to show who accessed specific financial or customer records and trace the source of mistakes and problems.
Risk Management: Audit and data security lower the risk of employee theft, data breaches and other problems. With a single ERP system, you can better manage other risks as well. For example, a cloud-based ERP gives your company continuity even in the event of severe weather events or natural disasters at headquarters.
Better Business Intelligence: With all your data in one place, reports and analytics that used to take days to create are available in real time to aid in decision making. Key performance indicators (KPIs) are used across the entire business to monitor performance and help guide decision makers to underperforming areas to take action.
Cons of ERP Consolidation
Potential Data Lapses: In rare cases, data transfers don’t run as planned. That could lead to downtime or missing information while systems are restored and create extra work for your team.
Time and Resources Requirements: Your IT and finance departments will be hard at work before and after the consolidation. IT staff time, consulting and custom development may be required in addition to any one-time implementation costs for your new ERP system.
Difficulty Finding a Single Solution for Everyone’s Needs: Some teams may want highly customized solutions that fit their exact needs, which can be difficult to achieve while supporting your business’s broader needs. There may be some internal disagreement over finding a single solution that’s perfect for everyone.
Steps to Ensure a Smooth Consolidation
Businesses ready to undertake an ERP consolidation project should follow tried-and-true ERP implementation strategies when consolidating their business systems. Here are steps they can take to reduce the burden of bringing together all functions on one platform:
Clean and Standardize Your Data
The work begins in your old system. Consider deleting outdated data that doesn’t need to be migrated to the new system. Then, go through all existing systems to ensure you use standard formatting and data types that can be combined into a single dataset.
Create a Plan
Chart out the timeline for preparing your old system, standing up your new ERP, migrating data, testing, training the workforce, getting customers ready (if needed) and making the official switch to the new solution. An ERP consolidation project may take longer than planned, so consider building in buffer times between dependent stages in this process. Consider setting aside time to reward your team’s hard work with a happy hour or another event that recognizes the work they’ve put into the transition and when it’s completed.
Set a Date
Now that you’ve decided to move forward with an ERP consolidation project, you can set a date to finalize the transition. Many businesses will keep multiple systems running in parallel in case problems arise at the beginning.
Get Stakeholders and Users On Board
As your IT specialists and other members of the project team stay busy working behind the scenes, start training company leaders and getting them excited about the new ERP system. Even if you meet some internal resistance, focus on the benefits and how everyone’s day-to-day tasks and responsibilities will be easier with a single, reliable system. Get end users involved from the beginning to ensure an on time, on budget project.
Communicate New Workflows
Many of the changes that come with your new ERP system will benefit users. New workflows should improve efficiency and empower your valued employees to do their job to the best of their abilities. But it’s critical to explain any changes and how things work in the new system for each category of users. Better efficiency is a win-win for everyone involved.
To ensure a smooth consolidation, businesses should also consult this ERP implementation checklist.
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Companies shouldn’t settle for old, inefficient, disconnected ERP systems. There are solutions available that provide all the functionality required and have the flexibility to meet the requirements of companies in a number of different industries. When it comes to efficiency and cost savings, the business case is clear: ERP consolation is often the right choice.