AN ERP STRATEGY FOR APOSTPANDEMIC WORLDBy Neveen Awad, Anmol Pareek, Zeeshan Shah, and Karsten SchottOver the past decade, expectationsthat vendors such as Infor, Microsoft,Oracle, and SAP will end support for theirtraditional enterprise resource planning(ERP) solutions have been slowly pushingcompanies to adopt next-generation ERP.But the COVID-19 pandemic will accelerate this migration as digitalization andnew ways of working become more criticalto business. Indeed, it will be virtuallyimpossible to use traditional ERP tomanage the anticipated huge growth ine-commerce and the need for flexibilityand speed.The decisions that companies make todayabout their enterprise resource planningsystems will set their trajectory for yearsto come in terms of operational flexibilityand resilience. As companies manage thetransition to next-generation ERP with digital solutions and cloud features, theymust mitigate risks by first addressingtheir most urgent business challenges andthen preparing for a full transformationand a smooth transition of the core ERPfunctionalities.Critical Business ChallengesThe deficiencies of traditional ERP landscapes are all too well known. These platforms contain a vast number of ERP applications with limited integration andinteroperability. Heavy customization overtime has increased ERP complexity andslowed deployment speeds. Moreover, business insights are difficult to tease out ofthe data. And integrating new acquisitionsis enormously complex.Despite these shortcomings, the size andpain of a move away from current landscapes have kept the status quo in place atmany companies. But now several of thebusiness challenges raised by COVID-19are tipping the scales toward speedieradoption of next-generation ERP systems.Companies are particularly focused on thefollowing: Digital Supply Chains and SmartManufacturing. Companies needreal-time visibility to better managesupply chains. This will allow them, forexample, to incorporate weather
patterns, port delays, and supplierissues into their decisions—and tocourse correct in real time. Because ofsocial distancing requirements, theyalso need to run manufacturing operations and supply chains with fewerworkers. Digital Finance, Procurement, andHR Functions. Companies needadvanced automation that relies onfewer but more qualified workers andworkers who can operate from theirhomes. Consumer and Go-to-Market Trends.Companies need to cope with anexplosion of consumer data as consumption patterns change. They need tobuild the scale necessary to ship smallerquantities of goods to more and moreresidential addresses—and be able tohandle a surge in returns. Open, Collaborative Ecosystems.Companies need to collaborate digitallywith existing suppliers, as in workingremotely with fashion retailers, forexample, to forecast demand for thenext summer collection, or in codesigning new products in “design-to-order”businesses. And they need to replaceoffshore vendors that have been cut offfrom transportation.Next-generation ERP platforms can helpcompanies address all these business challenges. They give companies real-timetransparency with respect to sales, inventory, production, and financials. Powerfuldata-driven analytics enables more agiledecisions, such as adjustments to the supply chain to improve resilience. Robuste-commerce capabilities help companiesbetter engage with online customers before and after a sale. And a lean ERP coreand “cloud first” approach increase deployment speed.Three ERP Time HorizonsAs companies consider their ERP strategy,they need to frame it with three differenttime horizons in mind. First comes “thenow”—the immediate priorities in themidst of the pandemic. These include protecting people and ensuring business continuity. COVID-19 will force many companieswith diminished revenues to pause or slowdown their ERP migrations in 2020. Butwhen pausing it is important to pick a goodstopping point to revalidate the businesscase in the face of the new reality andeventually restart the implementation.Companies should take the time now to refine their ERP strategies so they are readyto launch ahead of the pack.Companies also need to frame a near-termERP strategy that prepares them for the recovery. The near-term moves are mostlytactical improvements that allow a company to operate better in the current landscape by tackling certain challenges headon. The imperatives include the following: Identify opportunities to reducecosts. For example, reduce total cost ofownership by rationalizing ERP apps,and look for opportunities to renegotiate ERP licensing agreements. Create more flexible supply chains.Use external data to improve supplyand demand forecasting in light ofCOVID-19, and broaden the supplierecosystem for resilience. Also, reconfigure warehouses and warehouse management systems so it is possible to shipindividual parcels as well as bulkpallets. Enable remote working and digitalcollaboration. Give employees theappropriate remote-working anddigital-collaboration tools, ensure thatthey adhere to the latest cyber/ITsecurity standards, leverage rule-basedworkflow automation, simplify systemtouch points to propagate a leanarchitecture and increase the quality ofdata entry, and create virtual desktopsand mobile front-end apps to facilitateremote work practices. Focus on future-oriented platforms.Document the business benefits acrossdifferent modules, so that requirementsBoston Consulting Group An ERP Strategy for a Postpandemic World 2
are clearer and future design work iseasier. Leverage tools for assessingtechnical debt (the costs of the additional rework necessary in future upgrades). Look to acquire ERP talent. Bigsystem integrators are expected tofreeze hiring or even cut back as theiroutlooks worsen. This creates opportunities to pick up top talent and buildinternal ERP capabilities.Finally, companies need to frame a longterm ERP strategy to win in the new environment that emerges after the pandemic.Think about ways to cut out the complexityand rigidity that have developed in connection with highly customized traditionalERP systems. By embracing enhanced digital collaboration, simplified business processes, and real-time insight through theuse of standardized reports, tables, andprogram configurations, a company can usethe modular architecture of next-generationERP systems to increase speed, quality, andproductivity.Migration ConsiderationsPutting an ERP migration on hold in thecurrent environment is understandable, buta company should not wait too long if it believes the transition is vital for the business.There is pent up need to make the switch,both because vendor support will end laterthis decade and because the pandemic hasbrought new focus to digitalization. As aresult, many companies might try to transform or migrate at the same time, whichwould create a resource crunch, drive upimplementation costs, and elongate the implementation timeline.That said, any ERP migration will taxresources. Business leaders need to keepfour key considerations in mind to ensuresuccess.Organizational Commitment. As with somany enterprise-wide initiatives, successdepends on strong buy-in from seniorleaders and other key stakeholders. Theyneed a clear vision of how the ERP-basedtransformation will improve the business,and they must lend continuous, visiblesupport for the migration. Leaders and thebusiness process owners must align on goalsand agree on the progress metrics. It is alsoimportant to set guidelines for how the ERPimplementation team and the businessprocess owners will engage throughout theinitiative, from design to go-live.Modular Design. Ideally, the company willkeep the new ERP core as close to standardfunctionality as possible. This allows thecompany to leverage modular, best-in-classinnovations—on top of or outside of theERP systems—for faster attainment ofbusiness benefits. A lean, modular ERParchitecture is API-based, cloud-ready, andagile.Planning and Execution Rigor. About 60%of ERP programs suffer delays, a majorreason being that system integratorssometimes take a cookie-cutter approachto program management, using point-intime information. What’s needed instead isa forward-looking, metrics-driven, andobjective approach to program execution.The planning steps should include definingthe change management process (for example, the escalation/resolution processes forchange requests); creating governancemechanisms (compliance and progresstracking, for instance); identifying allcross-functional interdependencies; developing system testing scenarios beforego-live (for example, by factoring in allprocess variations, exception scenarios, andedge cases); uncovering potential risks; andconducting a bottom-up planning exerciseto build a robust implementation plan.The Right Partner. Robust due diligence iscritical when choosing a system integrator.Align with the partner on targets, metrics,and advanced-warning mechanisms thatcan alert the team if the implementationstarts going off track. Build in-house ERPskills by training internal staff and selectively hiring experts.Next-Generation ERP in ActionTo get a better idea of how the new digitalfunctionality in next-generation ERP couldBoston Consulting Group An ERP Strategy for a Postpandemic World 3
help mitigate COVID-19 issues, we took aclose look at two business functions. In thefirst case, we looked at order-to-deliverymanagement. (See Exhibit 1.)improves customer satisfaction and avoidsrevenue loss.In another case, we looked at hownext-generation ERP could improve supplyplanning. (See Exhibit 2.) In traditionalERP, planning features are basic, with littleability to predict short-term demand.Next-generation ERP, by comparison, offersa real-time, omnichannel order management platform that identifies demandchanges without lengthy batch processing.In traditional ERP supply planning, poorvisibility into the order management system means that companies often resolveorder fulfillment issues slowly, which candelay delivery. Next-generation ERP canmonitor the fulfillment status of all salesorders in real time and use a list of keycharacteristics to prioritize outstandingsales orders. Another challenge relates torebate processing. In traditional ERP, rebate calculations often depend solely oncustomer invoices, which necessitates atime-consuming and error-prone process.Next-generation ERP can settle rebates immediately, without manual activities.Next-generation ERP also offers better support for complex B2B agreements and contractual relationships by bundling productsales with projects, service offerings, subscriptions, and other information into onemaster agreement. The new systems alsoembed better support for internationaltrade (which reduces financial risk) andcan generate reliable customer deliverydates (for example, by using demand characteristics to allocate short supply), whichOther challenges with traditional ERP include fragmented and manually intensivematerial requirement planning (MRP) processes, difficulty setting inventory targetsacross the supply chain, and overnight waitsfor inventory updates. Next-generation ERPaddresses all these issues by providing asingle MRP process (with a real-timedashboard) and live inventory management that enables simultaneous materialmovements.Asuccessful migration to nextgeneration ERP requires leaders whoare committed to this complex transitionbecause they firmly understand the specificbenefits and the overall value to the business. When we exit the COVID-19 crisis,Next-GenerationERPTraditionalERPExhibit 1 New Order-to-Delivery Features Might Have Mitigated the Impact of COVID-19 FasterManual steps andslower, moreerror-prone processManual approvalprocesses, thirdparty systems, mationand fulﬁllmentIntuitive userexperiencewith real-timeinsightsAdvanced availableto-promise (ATP)with allocationmanagementExcess safety buﬀersinterface betweenERP and warehousemanagementManual steps toupdate shippingpoints, inﬂexibleshipping quantities,and slow analyticsSlow tracking andlimited visibility;batch updatesthrough traditionalintegration patternsInventorymanagementShipping andtransportationIn-transittrackingPredictive materialand resource planning,a single warehousingplatform, and minimizedsafety stocksEmbeddedtransportationmanagement withadvanced analyticsIntegrated locationand weather data,real-time analytics,and improvedserviceSource: BCG analysis.Boston Consulting Group An ERP Strategy for a Postpandemic World 4
Next-GenerationERPTraditionalERPExhibit 2 More Flexible Supply Chain Planning Functionality Enables Faster ReactionLimited ﬁnancialalignment withbusiness planningStatistical forecastingand demandplanning based onhistorical dataMissing link betweensupply planningbusiness prioritiesand fulﬁllmentplanningEmails andspreadsheets to resolveissues in case of supplydisruption ordemand changeIntegrated businessplanningDemand planningand sensingResponse andsupply planningScenario planningand collaborationHolistic alignmentto business plan,including ﬁnancials andinventory target settingDemand signals fromorders, point of sale, andweb to eliminate biasand determine optimumforecast parametersFinite planning basedon optimization orbusiness rules,coordinated withtrading partnersFull visibility with rootcause analysis andsimulation of demandand supply acrossthe networkSource: BCG analysis.leaders who are ready to launch or resumetheir migration will be in a position toboost their operations’ flexibility and resil-ience. More than ever, these characteristicswill be crucial to success.About the AuthorsNeveen Awad is a managing director and partner in the Detroit office of Boston Consulting Group. Youmay contact her by email at [email protected] Pareek is a manager in BCG’s Dallas office. You may contact him by email [email protected] Shah is a manager in the firm’s New York office. You may contact him by email [email protected] Schott is an associate director of enterprise software in BCG’s Dusseldorf office. He is globalleader of the firm’s work related to next-generation ERP. You may contact him by email [email protected] Consulting Group partners with leaders in business and society to tackle their most importantchallenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it wasfounded in 1963. Today, we help clients with total transformation—inspiring complex change, enablingorganizations to grow, building competitive advantage, and driving bottom-line impact.To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deepindustry and functional expertise and a range of perspectives to spark change. BCG delivers solutionsthrough leading-edge management consulting along with technology and design, corporate and digitalventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive. Boston Consulting Group 2020. All rights reserved. 9/20For information or permission to reprint, please contact BCG at [email protected] To find the latestBCG content and register to receive e-alerts on this topic or others, please visit bcg.com. Follow BostonConsulting Group on Facebook and Twitter.Boston Consulting Group An ERP Strategy for a Postpandemic World 5
AN ERP STRATEGY FOR A POSTPANDEMIC WORLD By Neveen Awad, Anmol Pareek, Zeeshan Shah, and Karsten Schott Over the past decade, expectations that vendors such as Infor, Microsoft, Oracle, and SAP will end support for their traditional enterprise resource planning (ERP) solutions have been slowly pushing companies to adopt next-generation ERP.