Strategy in the Modern Times – Part 2 – ERP and System Controls

Several times a week we get inquiry on ERP system implementation projects. Many are mass emails and not even followed up by senders but the increasing trend mirrors the increasing demand for system support in the modern times with ever growing need of technology and efficiency.

So then, what does it do and how can we manage old system controls and implement new ones successfully? How does technology relate to strategy?

Image from one of the most popular ERP systems – Oracle, Netsuite

Purpose & Set of Objectives

Does your company have a defined purpose and set of objectives for this new project, whether it is implementing a new ERP system or set of other system controls?

Knowledge of system controls by the top management (C-executives) and understanding of their functionality as well as impact of technology-driven information into strategic decisions made all the difference in successfulness of technology-driven projects. They may not be involved in the day-to-day functions and objectives of the project itself, however, played a vital part in setting the tone and success (getting it done) of the project for company as a whole.

SOX 404, “Management Assessment of Internal Controls can be implemented using a modern ERP system.” https://www.sarbanes-oxley-101.com/SOX-404.htm

“Companies in regulated industries know that compliance is serious business and ongoing workforce training is a critical component to success. Your organization’s reputation, liability, and even bottom line can be affected by how well your processes are managed and documented. Given the rise of cybercrime, coupled with the pace and use of cloud, automation, AI, and other emerging technologies, it is imperative that your organization is up-to-date. Regulatory rules continue to change and training needs to be updated on a regular basis. An Enterprise Resource Planning System solution enables you to stay in compliance in accordance with regulations.“

The common misunderstanding of new start-up CEOs (unless they have IT/tech background or prior large company experience) is that ERP system is just to collect and maintain data, expensive, and can be put off till much later. Therefore, they often do not put much value or priority into the project... till it’s too late. Recruitment team is also asked to seek outside personnel to handle this project without much understanding and rest of the company is not on-board together for this much needed team-work. And often, this very misunderstanding leads to unfinished implementation project and failure to keep up, and a bigger cost in the future to correct and meet pending deadlines and regulations.

ERP system is not for just collecting and maintaining data. Purpose is to meet objective as company as a whole, such as efficient operations (including customer engagements), reliable financials, and compliance.

Systems are costly, and budget should be decided only after purpose and objectives are communicated throughout the company as well as proper team support set in place.

Cost-benefit

Purpose of ERP and other system controls (such as CRM) should be to ensure meeting objective as a company as a whole, such as efficient operations, reliable financials, and compliance. Let’s look more in detail here.

Efficient Operations & Meeting Customer Requirements

Here are the lists of Top 100 Retailers Worldwide for 2021 and Fortune 500 companies of 2020. https://nrf.com/resources/top-retailers/top-100-retailers/top-100-retailers-2021-listhttps://fortune.com/global500/2020/search/?sector=Technology View them then ask yourself what type of systems would these companies be using? Though you may not know the answer, it is safe to assume they are not individually driven excel files or print-outs for important operations… but we see them often in start-ups needing ERP/CRM/system controls in place.

Though your company may not be a Fortune 500 or Top 100, your company and many start-ups support these top companies as their customers/clients. Therefore, it’s crucial your company's technology meets the operational requirements of company customers/clients.

Photo credit: Sheryl Sulistiawan

Compatible with the Industry

Having worked with Walmart (No. 1), Amazon (No. 2), Kroger (No. 3), Home Depot (No. 4), Target (No. 7), CVS (No. 8), Ace Hardware (No. 20), Macy’s (No. 24), Nordstrom (No. 49) and so on, we can let you know they all had very serious system requirements to work with them as their supplier company. Supplier guides alone are textbook length pdf files and without meeting them, business relationship simply can not proceed.

Companies need to have industry-compatible systems in place to be able to support their major customers with ease. Orders from Amazon and Walmart come in thousands of line items and must flow-in to supplier (your company) system successfully, timely and accurately for company to be able to manage orders, and flow-out (shipment tracking, invoices to be paid, A/R) successfully and timely to be able to record revenue according to GAAP principles and also earn revenue (income, cash-flow) in time for company to operate and be profitable.

These customers will simply not pay suppliers unless supplier invoices and shipment records are in their system (automated to in their Accounts Payable) according to their supplier manual and companies are agreeing to meet their guidelines when they sign contract to become their supplier. We will not discuss in detail here, but by the time shipment is recorded, ERP system is able to calculate the Cost and P&L for that specific shipment prior to any returns and/or damages if all the steps are done timely and accurately by each department during the operations (which are often another struggle companies without team-wide effort of ERP systems face).

Real-time Information, Real-time Strategy

Information is real-time. Technology is improving to support this timeliness of data transfer, and companies that best utilize this technology and information into their daily operations and strategic planning will be ahead of the curve.

Technology advancements, cloud computing and SAAS enable real-time data or at least almost real-time data (depending on the update schedule and lag time for each system). Many C-suite executives utilize these technology advancements to view status of their companies they run wherever they are through cloud computing. They simply log onto their ERP system or dashboard system using internet connection, and view the reports often confidential to the top management team such as Sales Report, P&L, and Dashboards and graphs (if the specific system supports this function).

Sales orders change daily to weekly, shipments change daily, and cash flow changes real-time. This functionality enables the management team to view necessary information without asking each department head in-person (time and place) and strategize and plan as needed anytime they wish (efficiency).

This was crucial especially for companies working internationally, as with the time difference many conversations were held off but information was viewable real-time 24hours/7 days a week. Businesses move fast, and this real-time ability can make one company much more successful, and another company fall behind as the ability to meet demand is crucial and also the information and trend recognition to strategize and protect company assets were more accurate and timely.

Few of the best CEO’s we have worked with were always ahead of the curve, and held knowledge of the business that much surpassed anyone else in the company and their competitors as they kept monitoring actual operations both US and abroad as well as the system reports proactively as well as market reports and competitor trends.

SOX section 302 requires that: principal executive officer (usually CEO and CFO) or officers have reviewed the report and are responsible for establishing and maintaining internal controls. https://www.sarbanes-oxley-101.com/SOX-302.htm

Outside hires can be made to lead and assist in the implementation process, however, company must be on-board as a whole from top-down for operations and financials to function and be recorded properly and systems be at their best cost-utilization. Implementation lead is not someone who can do everything on behalf of your company as a whole. Sales team must input sales data and customer data into ERP, production team needs to learn and use the system for their day-to-day inputs and cost and inventory planning, and inventory and finished goods correctly recorded in the system updating daily as they receive and send shipments through the system which enables easy-monitoring.

And if executives are not getting information and reports from ERP or Dashboards (with information each department has input timely), where are they getting this information? Word-of-mouth from each employee? Something to think about and digest if your company is in this situation.

Company Information and Data, Team-driven Work and Collaboration

One of the biggest struggles working with newer companies without proper ERP or data system in place was having to communicate and drag out information individually. (The very opposite of the key benefit listed below.) This was a huge hurdle to the company, and created a lot of inefficiency and many “silos” as our former IT guy called. Company information is company-owned (as you can see on all the employment contracts or project management contracts), however in reality, was owned by individuals and often hidden or manipulated resulting in incorrect sales data or shipment data and in return incorrect financials, and lack of visibility creating hurdle to strategize properly and timely.

One of the key-benefits of ERP systems is “collaboration and teamwork encouraged with widely distributed information… using a single system instead of multiple.” - wiley for IMA

Compliance

This type of operations also led to unnecessary division within the company, information was no longer company-wide but owned by individuals in reality making team-driven work almost impossible and management of operations as well as financials incredibly difficult. Sales manager kept sales report hidden in her own computer without real-time update, and Production manager kept cost sheets and deadlines in his own physical folder. Sales orders and Shipments were not updated timely without proper technology in place and therefore A/R nor the Income (Revenue) were not accurately updating. Impossible for financials to be accurately reported, moreover, having to be constantly revised (time & labor) unnecessarily. Information was held “hostage” by many as a form of job-security at times or to create special cliques within the company, and created much inefficiency and lack of operational flow within the company which in the end results in inefficiency as a whole, more work, lack of professionalism, and falling behind their industry competition not to mention not meeting the compliance requirements for the industry operationally nor financially.

At its worst, thefts and frauds were found at this type of operations both internally and externally as information was not managed properly. leading to failure in monitoring and managing operations timely and accurately..

Establish Expectations, Evaluate Operations and Reward Performance

Then how can we successfully make it all work?

1. Company must establish expectations for each department or personnel and clearly write them out and discuss in meetings before incurring costs.

Explain and demonstrate how these technology advancements are required by customers or by law (such as GAAP or SOX reporting requirements) and must be set in place for company to grow and avoid penalties.

As simple as it sounds, this was missing part for few companies hiring for ERP system implementation and no one was on board for the project including the top executives. At one situation, the owner asked if we can just input all the data from beginning to end for them, and no one stayed late to be trained though training was offered. This defeats the purpose of having a system as system is meant to be utilized by company as a whole and benefit in the long-term (and short-term) and also information is no longer real-time nor teamwork based (collaboration).

2. Research internally and externally through management team and consultants as well as technology vendors to compare and find the best industry-compatible and company-fitting system controls that would work for your company.

Many system providers will come to your office free of charge to show a demonstration and provide a free demo to test out and this step must not be skipped. One system that works for another company or department may not work out for your company or other departments as each business is built differently and has different objectives and goals.

3. Reward Performance, Incentivize.

Not everyone likes changes or policies, and many are already comfortable using pre-existing methods no matter how inefficient and more time consuming they may be in reality. Explaining clearly automation aspects of systems as well as efficiency and ease of use they will bring, in return, supporting their objectives and goals will motivate some to utilize them earlier than later.

Evaluate regularly and reward performance and incentivize them by promotion or bonus when projects are done timely and successfully as they would bring value to the company as a whole and bring more management ability to review and strategize. If #1 is about setting controls, this #3 is about motivation.

Also remembering that system utilization will automate many steps will be company-wide incentive for all. Less work, more accuracy, more time and less redundant work.

Remember that these systems and technology are built to work for you, not against you. Also if data is incorrectly input, system will generate report based on incorrect data. If you have further questions or looking to get help on finding the right system for your company, please contact us at Ask@operesuo.com for a meeting.

*This blog is researched and written by Opere Suo Group other than quotes with hyperlinks attached. All rights reserved.

*Related reading https://www.operesuo.com//post/strategy-in-the-modern-times-part-1