Talk about unintended consequences. Just as a ploy by mainframe programmers to save space ended up causing the infamous Y2K bug, so too did globalization spawn the problem of multiple instances of ERP.
Offshore outsourcing, mergers and acquisitions, and far-flung operations have resulted in many different versions of ERP applications running in different locations or, worse, applications from different vendors. ERP installations seem to grow like kudzu, increasing in complexity every day, as users clamor to keep using the local ERP instance.
The problem is, multiple-instance ERP is difficult to manage and hampers enterprise visibility. Worse, it is a huge waste of money. Why maintain many different servers for different geographies when you no longer have to?
Top executives at manufacturers all over the globe are asking themselves that very question. Rationalizing their ERP systems down to one version of a single vendor's application and database running in one location appears to be the holy grail for larger companies, which often find themselves running a tangled mix of systems. Enterprise software vendors are only too happy to help with consolidation, which involves porting legacy applications to the new platform, training users on the new system, and helping with change management issues, which can be immense.
"Multiple databases, multiple vendors, multiple instances — it happens all the time," says Sharad Vajpayee, vice president at 3i InfoTech, an enterprise software vendor. Vajpayee notes this is a pressing matter for large companies, though mid-size manufacturers are interested in it, too. Commonsense guideline: The more instances, locations, and versions you're running, the harder it will be consolidate into one instance.
Single-instance ERP was nothing more than a dream until recently when international telecommunications costs dropped exponentially. Now that geographically dispersed users can access an application across continents thanks to a high-speed, cost-effective Internet connection, running a single instance becomes a much more plausible goal. "Cheaper, easier, more reliable communications — that got executives thinking about whether they needed to have a separate instance," Vajpayee says.
Then, given the brutal margin squeeze — another consequence of globalization — manufacturers quickly wised up to the potentially great cost savings of consolidating ERP.
ERP provider Oracle Corp., for example, itself just finished a two-year rationalization effort that saved the software giant millions annually. "We originally had some 40 data centers and dozens of versions and databases worldwide," says Jon Chorley, vice president of supply chain management and e-business strategy for Oracle. "We merged them into a single 6.5-terabyte database, and we were able to reduce our overall IT cost by 46%."
Coming on the tail of a strong acquisition streak — most notably Oracle's 2004 purchase of PeopleSoft — the consolidation effort was "a lot of work," Chorley acknowledges. But, like most ERP vendors, Oracle is finding single-instance ERP to be a hot topic among its customers, with cost savings being the top driver.
Driving Forces
There are compelling reasons to do this beyond cost, however. Having one database for customer and transactional data provides the elusive "single version of the truth" that enables consistent customer service, as well as cross-selling and up-selling opportunities. In addition, single-instance ERP greatly eases regulatory compliance. "The cost of auditing and signing off on your SOX [Sarbanes-Oxley] compliance sheet is dramatically lower," Vajpayee says.
Perhaps the purest luxury of single-instance ERP is the visibility it gives into enterprise business processes. This lends itself to a corporate performance management (CPM) effort, in which executives can easily compare regional, plant, or even employee performance. "Having one instance of the application and the database where the group information resides enables you to get very good understanding of how different divisions are doing," says Vikram Amaranath, vice president and head of manufacturing at MindTree Consulting.
Perry Cozzone, CIO of Colorcon Inc., agrees with this assessment. Privately held Colorcon, a supplier of specialty chemicals to the pharmaceutical industry, began a migration of its eight worldwide manufacturing sites to Oracle at the end of the last century. The primary reason for consolidating the mix of mostly homegrown, legacy applications that ran in the plants was simple: to provide the best service to customers, which are mostly large pharmaceutical companies.
"We wanted to give our customers a high level of confidence that no matter where they developed or manufactured their product, they would get consistent product from us, no matter what," Cozzone says. To do that, the company needed to standardize the platform on which it ran its business. Cozzone and his team decided the Oracle database and e-business suite was the way to go.
Shifting to a standard platform is not easy technically (a host of translation issues can trip you up), but Cozzone will be the first to tell you that technology is by far the easier issue compared with human factors. He advises anyone looking to do this to think hard about change management and preparing the organization for the harmonization of business practices that must precede the new platform.
To get all 25 locations running off one database and one application took a lot of work, but it was worth it, Cozzone says. "The key point of the single global instance was the ability to share information better. As a result, you are able to measure your processes based on a complete and consistent set of metrics, and you can watch the information flow and business process and figure out what areas you should focus on," he adds.
Of course, no matter the benefits, single-instance ERP is not always a realistic goal. Fortune 500 companies may find it impossible to rationalize all their disparate systems down to one. And a number of variables might point to distributed ERP as the best choice for some manufacturers. For example, local requirements in certain regions may mandate running different versions. In addition, "some applications may have a threshold where it is best to split up the instances regionally," says Jeff McKee, director of product management for Microsoft Dynamics AX. About 10% to 20% of Microsoft Dynamics customers run different versions of Dynamics in parallel, he says.
Even when using a distributed ERP approach, however, companies should craft an IT infrastructure based on standards allowing for flexibility if the business case warrants. "There may still be business reasons to have a distributed ERP strategy," McKee says. "But we now give customers better choices. They didn't have the choice to do single-instance 10 or 20 years ago."
As a general rule, the experts say, manufacturers should aim for single-instance ERP wherever possible. "You have to keep that as your vision, even if you can't achieve it perfectly," Amaranath says. "You have to keep that as an objective or there will be no end to the divergence. That costs you money, not just in terms of support and IT infrastructure, but, from a business perspective, the harmonization of data and business processes will not happen."