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The CFO-CPO Conundrum: ERP Replacement v/s Additional ERP Integration

ERP Replacement vs Additional ERP Integration
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The scenario of a C-suite executive trying to create transformational innovation in the organization by proposing the need for a new technology is becoming increasingly frequent. But does creating a big technological change always correspond to solving key challenges within organizational functions? Let’s take the example of Mr. Cook, a newly appointed CFO at ABC Manufacturers, a 24 year old enterprise business. Mr. Cook now assumes a position that was earlier held by a CFO fired due to a decreasing profit margin. As his first project, he tasks his team to conduct a due diligence with existing processes and talks to other C-suite executives.

Mr. Cook’s Conversations with the CIO:

Mr. Cook learns that the CIO is toying with the idea of entirely replacing the ERP from an on-premise solution to an on-cloud one. He sees this as a solution to overcome some problems in procurement that are deterring transactional efficiency. He cites the ‘2017 Class of the Titans’ report by Panorama Consulting that surveyed 500 organizations who signed up with some leading ERP vendors to tackle operational disruption.

Mr. Cook’s Conversations with the CPO:

Now curious to dig deeper into “some problems in procurement” brought up by the CIO, Mr. Cook goes on to speak with the CPO. He is keen to understand specific problems faced by the CPO. The CPO explains that a lack of specialized procurement capabilities has become a deterrent to processes that are directly impacting the organization’s bottom-line. He suggests capitalizing on separate P2P capabilities, particularly e-procurement and e-invoicing by integrating them seamlessly into their existing ERP.

The CPO further goes on to give a detailed explanation on how procurement and Accounts Payable activities are closely linked through the Procure-to-Pay (P2P) process. Any number of inefficiencies in this P2P process results in an increase in expenditure outside of what is planned for and productivity losses relating to manpower, hours and accountability. Some of the current problem areas included:

  • Selecting the right category or supplier for making the business purchase
  • Spending a disproportionate amount of time on non-value added activities
  • Inability to complete off-catalog requisitions – for services or non-standard products
  • Inability to capture the spend in purchases accurately

ERP Replacement v/s Additional ERP Integration

Although the CIO and CPO both agree on the problem viz. procurement inefficiencies, they have different approaches to tackle it. While the CIO wants a complete overhaul, which sounds great philosophically but is impractical with existing budgets, the CPO wants an extension of the current ERP with a specialized e-Procurement solution. Mr. Cook notes that the latter would be a practical way to work around existing budgets and overcome real issues.

A potential e-Procurement software solution comprising of Catalog Management, Requisitions and Approvals, Purchase Orders and Supplier Portal would help departments collaborate and add strategic value. Replacing the entire ERP would negatively disrupt well-functioning processes while still not guaranteeing the issues getting resolved.

Business Need for Specialized E-Invoicing Within P2P:

The CPO recommends a platform with robust sourcing features whose efficiency would extend to the Accounts Payable process. Enabling electronic invoicing would mean meaningfully tackling the mountain of paper invoices, invoice exception handling, payment processing to suppliers, removal of manual error from invoices and a disorganized view of spends and savings opportunities.

There is an obvious consensus between the CIO, CPO and the CFO – Mr. Cook, on the additional ERP integration route. The CPO further affirms that an end to end Procure-to-Pay solution is certainly going to save the company a lot and they can realistically partner with the CFO in helping him achieve for the company what the CEO expects.

For a more detailed account of Mr. Cook’s story and what parameters he considered before choosing the P2P and e-invoicing solution, please read this White Paper titled ‘White Paper : CFO-CPO Collaborate on Specialized Procurement as Postmodern ERP Strategy.’

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