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Improving Visibility Into Subsidiary Operations, Part 1

You are responsible for procurement or supply chain operations at the headquarters of a Fortune 1000 technology company. Your team has done an outstanding job selecting preferred suppliers and negotiating prices and volume discounts, as well as setting quality and service targets. You now want to ensure that your hard work is paying off and that the pricing, terms, and service level metrics defined by your team are being followed across the entire company, including smaller subsidiaries, regardless of their location.

In short, you want headquarters to have the visibility and compliance it needs to optimize the overall performance of the business. Similarly, you want subsidiaries to benefit from lower purchasing prices, better payment terms, and higher quality levels that they would not be able to negotiate themselves.

Until now, such a degree of visibility and compliance at the headquarters level has been a challenge. Your subsidiaries are running completely different enterprise systems that are not connected to the headquarter ERP system, and they follow different purchasing processes that do not map to your purchasing process at headquarters. This gap makes it challenging for your subsidiaries to leverage the higher quality suppliers, terms, and conditions of the contracts that you have negotiated.

Furthermore, some of the communication about preferred supplier lists and negotiated contract terms falls through the cracks when spreadsheets and emails are used to coordinate with the subsidiaries. There is now an opportunity to address this issue and fully leverage the headquarters’ supplier arrangements. With legacy systems at some subsidiaries in need of replacement, you can help subsidiaries select a system that best meets their business and budget requirements, yet also addresses headquarters’ need for visibility, compliance, and coordination. But, how do you help them frame the right selection criteria for a new system?

Multiple options are available, each with advantages and disadvantages. In the end, your governance model, together with the business requirements of the subsidiaries, should drive the decision. There are three options that you may consider. Let's start here with the first:

Deploy the same ERP system across the company
Under this option, the corporate ERP system is deployed at every business unit and subsidiary, ensuring that the same processes and metrics are enforced across the entire company. In our procurement example, every stakeholder would use the agreed-upon procurement terms, do business only with approved suppliers, and measure compliance using the same set of rules. Such an approach would give headquarters clear visibility and control over the procurement process.

While some companies have implemented such an approach, especially when their business is homogeneous across the globe, this option of deploying a corporate ERP system in smaller subsidiaries or divisions comes with a set of steep challenges. The process complexity and workflows in a small, autonomous subsidiary are typically very different from those of headquarters or a large division. As a result:

  • Smaller subsidiaries are likely to get smothered by process overload
  • The cost of implementing the corporate ERP system may significantly exceed the planned budget and skills of the smaller subsidiary
  • The corporate ERP system may have to be heavily customized to meet the unique industry, functional, and compliance requirements of the smaller subsidiaries

Hence, in many business environments, such an option may not be viable. Instead, some companies opt for a two-tier ERP approach — the corporate ERP system is deployed at headquarters and at larger divisions, while a different ERP system that is simpler, easier to use, and better suited to the local financial and regulatory requirements and line of business needs is implemented at the smaller subsidiaries.

In the second and concluding part of this blog, I will discuss two additional options available to companies for resolving issues between diverse operations.

— Sheila Zelinger is vice president of portfolio marketing at SAP, which includes SAP Business Suite as a corporate ERP system, as well as multiple solutions including SAP Business All-in-One, SAP Business ByDesign, and SAP Business One for midsized organizations, including subsidiaries.

5 comments on “Improving Visibility Into Subsidiary Operations, Part 1

  1. stochastic excursion
    February 9, 2011

    A recent enterprise software trend has been toward standardizing interfaces while limiting the exposure of functional and data layer components.  Thus conceivably, two ERP systems, even ones that originate from different vendors, can communicate through a standard web service format.  Getting different vendors to agree on a standard connector format can be as tricky in the software world as it is in the hardware world, but seeing the ubiquity of USB and RJ-45 connectors, it's clear it can be done. 

  2. anilk
    February 11, 2011

    In the hardware world connectivity standards such as USB are designed  to exchange data.  When ERP vendors try to build standard APIs, they also just exchange data to each other using these APIs.  However there is no process context and without that you can fully address the issue.

  3. stochastic excursion
    February 11, 2011

    Process context meaning another layer requiring a standard?  Agree that's another hurdle, but compared to replacing ones ERP maybe one worth getting over.

  4. ENev
    February 20, 2011

    Which is why I feel that having standard connectivity that can be easily used is important.  While web services connectivity is the buzz on the day, seldom are there common web services available.  Typically what you hear is “do you have a web service” that I can consume.  I think that also offering connectivity via HTTP/HTTPS, Flat File, SQL, etc. as well as web services allows for a greater reach and flexibility for known connectivity.  These connectivity types are more generic  too use.  Having a solution that allows for the use of the connectivity types is also important.  SAP offers a solution for ERP integration that allows for the above connectivity types to be utilized connecting different systems or same systems with its SAP Business Suite.  The job of the actually connectivity, error handling, etc. is handled by the SAP Business One Integration platform, leaving the technical business manager or IT staff to simply build business scenarios for integration using common XML and XSLT.  I also do not believe it today’s business world it is enough to simply push data between the systems, but rather harmonize the data within the companies eco-system so that data and processes are in line.

  5. hwong
    February 25, 2011

    They should consider using Shared Services to consolidate all these different systems into one single point of access. This will help with economies of scale and streamline the organization's functions to ensure that they are working off one set of numbers.

     

     

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