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Friday January 21st, 2022

Everything you need to know about an ERP: Mistakes to avoid and how to optimize return

Jehan Perinpanayagam CEO at Infomate

Enterprise Resource Management. Better known as ERP. Most of us know it as a platform that runs applications that automate business functions like production, supply chain, sales, accounting, and more. Typically, an ERP system gathers and organises business data through an integrated software suite. In this interview, Jehan Perinpanayagam, Chief Executive Officer at Infomate, a pioneering BPM company and leading BPM export earner that is part of the John Keells Group, tells us everything we need to know about ERP, the pitfalls to avoid when implementing one and how to maximise returns from existing ERP systems. Jehan begins by taking us through how ERP has evolved over the years and its modern iterations and manifestations:

ERP has been around for over four-five decades. Back then, these were large and expensive pieces of software that only large companies or government agencies could afford and these companies used ERP systems to integrate production, supply chain, manufacturing, sales, accounting. Today, it has become much more affordable. There are versions for small and mid-sized companies. A whole suite of second-tier ERPs is now available which are affordable to all. In Sri Lanka, all large companies have ERP systems and even SMEs have good ERP solutions up and running. ERP systems are moving to the cloud and becoming less server or hardware intensive.

Over the years, there have been rapid advances in how ERP deliver business insights. Predictive analytics deploying AI, integration with robotic process automation, user-friendly and customised dashboards generate better information to decision-makers any way they want it, when they want it and wherever they may be. They can access key insights and keep tabs on critical functions of a business online, even via smart mobile devices. ERP systems are increasingly able to integrate with other data platforms for compliance and fraud analytics. ERPs are becoming more user friendly and increasingly efficient in capturing data and able to process large volumes of data in an instant, terabytes of data in seconds, and present actionable insights on demand by business leaders.

In summary, ERP systems have moved from being very expensive hardware and software to much more agile cloud-based, easy to use applications with a lot more insights.

Infomate was set up as a shared service for John Keells Group (JKH) to work on the SAP platform for the 60+ subsidiaries of the group and to centralize, standardise processes, and bring in best practices. I am enthusiastic about ERP because I have seen the good, bad, and ugly and the huge potential that a system like SAP has. But I have also seen that very often, it is sub-optimized, it is not used to a fraction of its potential. So, over our 16 years of business, we have been able to work on SAP and immensely proud that we have been catalysts for introducing a range of SAP best practices, automation and delivering actionable intelligence to our customers.

Why is it critical to have an ERP? What type of businesses needs them? Should SMEs too invest in ERP?

Businesses, when they start up, focus exclusively on their core deliverables. But as they grow, it is important that the different parts of the business talk to each other, and that they have a single point of truth.

What typically happens as a company grows, for instance, is that you find that the sales department is not coordinated with your stocks and supply chain, and in turn, they are not in sync with your HR and accounting divisions.

And then you start to have a lot of operational problems. Managing stocks, suppliers, cash flow, and debtors becomes harder, and businesses realise they need to put their house in order, and they need a proper system to do that, an ERP system, to be exact. Most of the big ERP systems including SAP, have versions that are suitable for SMEs. So, I would recommend that SMEs have a version of an ERP system that best suits their needs.

Infomate specialises in all the major areas concerned with inputs into the ERP systems from procuring to pay, to order to cash, accounts receivable, record to report, the entire range of reconciliation activities such as bank reconciliations, the general ledger, accruals management, fixed asset accounting, and master maintenance and more.

In a successful ERP system, everything starts with the masters. You have your materials master, customer master, general ledger master, vendor master and so on. We managed all of these for our customers.

If you do not get that right, you end up with information that is not complete in your masters and substandard insights. Similarly, if you end up with duplications, you will not get actionable insights, such as data on your biggest suppliers and your procurement patterns. That is where Infomate comes in. In each of these areas, we look to bring in SAP or ERP best practices to eliminate as much manual work as possible and ensure that the controls are optimized. You need to make sure that the controls and segregation of duties are in place.

First, let us talk about a company wanting to implement an ERP system. How should they approach it and ensure they invest in something that best suits their needs?

I am intimately familiar with this because I was part of the core team of project Excalibur that implemented SAP across the JKH Group in 2004 and subsequently been part of many different implementation projects. So, the first thing is to choose the right ERP platform for your business.

It should not be a status symbol because then you can end up with something too expensive or ill-suited to your business. Picking the right fit, and the right ERP for your business is key. Look at the long term cost of ownership of the system. Because you have licenses, you need support, you need maintenance. That is something that some companies do not factor in. They look at the initial investment, but they do not factor in the year on year costs.

Next, you need to consider the right implementation partner. It is especially important to get people with local experience. Many ERP projects here and overseas fail at this stage because of the implementation partner.

Get the right people with expertise on the ground level who have an impressive record. Diligently interview the consultants because it comes down to the individual consultants. Consider their brand name but also drill down to their individual CVs and the scope and outcomes of past projects. Then you need to get the right core team from your company who will collaborate with the consultants to make sure that the objectives of setting up an ERP system translate properly into your business.

Avoid rushing a project. Setting timelines for an ERP installation and implementation is not the best approach, it is often impractical and leads to half-baked results. You are investing in an expensive system, something you are going to work with for at least two decades. You need to get it right.

And thereafter, think about your model. Now you are implementing a Rolls Royce of a system or a Ferrari of a system. And very often, once it is implemented and assume that it has been implemented well, you must make sure that it runs efficiently, and it runs optimally. And for that, you need sophisticated users. System insights and what you get out of the system is only as good as the information that goes into it.

And here again, I have seen problems, and this is where Infomate has built expertise around adding a lot of value to our customers because we make sure that the users are professionally trained, that we have SOPs (standard operating procedures), quality of inputs, standardised ways of accounting for every transaction.

Too often, users are only interested in the outcome that they want. What could happen sometimes, in the haste to just get their work done at a business unit level, or a divisional level, we sacrifice information that the corporate centre would require. Finally, what happens is at the centre, they are stuck and then they start resorting to using and pouring over Excel sheets. A humorous illustration was given to me by a consultant many years ago, which I found universally true, is that the best ERP system is Excel! Many companies run sophisticated and expensive ERP systems, but all the reporting is done on Excel! It is not the fault of ERP, but that of inadequately trained and ill-equipped people using the system.

There are wonderful functionalities and features that ERP systems like SAP offer, including electronic bank reconciliations, automatic payment transactions, and robotic process automation, and all these make it much more efficient, more cost-effective, more accurate, and timely. But it requires a bit of investment in time and training. This is why you need to get the right people with the right knowledge to be able to get the best out of the system.

What are the common challenges or pitfalls one should avoid when implementing an ERP solution?

We Sri Lankans sometimes tend to complicate things. Some companies have invested a lot of time and resources to develop an ERP system that generates a ton of reports that nobody uses. Keep things simple. Build a core team to closely manage the ERP project and the right consultants to ensure the company gets what it wants and needs. It will be best to have close permission monitoring during the project to make sure that the minimum levels of expectation are properly implemented.

You need to do your homework to whet consultant CVs and experience and also be willing to do your own research. Sometimes ERP consultants will take the easy option.

Another thing to avoid is trying to over-customise the ERP system. Every department or function think they are the most complex and unique in the company which in turn believes it is the most complex and unique in the industry! They end up trying to customise the ERP system to suit their own siloed way of thinking and working and this causes confusion and dents focus of the shared purpose and vision of the organisation and the insights will not be strategically helpful. I would instead recommend re-look at things. Look for ways to simplify a business. There are plenty of best practices in terms of ERP systems that can be fitted into your business and avoid over-customizing standard ERP systems.

Then you need to make sure that you have the right users who are trained and the right support team because of the constant new upgrades, developments, technologies, innovations that one needs to be on top of. You need to think about how you are going to support your ERP system. Have you got your support team? Are you going to invest in that? Or are you going to collaborate with an expert? for instance, our sister company John Keells IT that supports, have very well trained SAP consultants.

What about those companies that already have ERP systems up and running? How can they optimise ERP for better results?

I would strongly recommend those companies who have taken the step to embrace an ERP system, to explore if they are making the most of it. Are you satisfied that you are getting an ROI on your ERP system? You had a vision. Ask yourself, have I achieved that vision? If not, you need to have a close, cold look at what you have. And then invest in the time to reset your course. Work with the right partner to make sure you are getting the best out of your ERP system. That will be my very earnest advice. Do not be satisfied. And do not think that you have to live with what you have. People sometimes jokingly say suffer after purchase. You do not need to do that. There is a better future for your ERP system and your company that Infomate can unleash!

Recently we were approached by a large manufacturing company that said it was not making full use of its ERP. The first step is to take a dispassionate, objective review of the existing ERP system and undertake a gap analysis to find out where your company stands. Next, I would recommend either going with a shared service because if you are running an ERP system, it is an expensive investment. And you need to have sophisticated well-trained users to be able to sustain. Thereafter, once you do the gap analysis, have a process improvement plan. It cannot be done in a day; it will take at least 18-24 months. Then work with a sophisticated set of users or have your chat service or partner with a company such as Infomate who have those expert users.

Thereafter, keep assessing against your gap analysis and your list of improvements, how you are progressing. When we worked with a large overseas company, we had a list of 30 process improvements that required stringent monitoring and monthly review to ensure timely progress in the desired direction. So that would be my advice to companies that already had ERP systems. It is never too late to correct course!

What are your plans for Infomate?

Post pandemic, companies have become much more comfortable with the idea of partnering with SaaS and BPO companies. We are finding that in many parts of the world, people are struggling to find ERP specialists, and this is opening doors for Infomate and the country. At present we are focusing on developing our markets in Australia, the UK, and North America. We have a strong presence in the Nordic region too.

We have expanded our range of services to include non-finance work as well. For instance, we are working now, again on ERP systems, but on different aspects such as sales, supply chain and HR. These are the different aspects of working on an ERP system but beyond finance and accounting. Lead generation, managing helpdesk customers, and supply chain-related services are some of the new areas we have added. We were very encouraged to see what we were able to do with two large multinationals locally. And we are now looking at many more companies running ERP systems to see how we can help them.