ERP consolidation in corporate groups: Which strategy suits you?

When companies expand, they often add new locations and subsidiaries at home and abroad. The question then quickly arises as to how the IT infrastructure can map the merger of several companies as efficiently and flexibly as possible.

The top priority here is ERP consolidation. This is because without any connection to the parent company, there will be media disruptions that cause the data flow to stall and prevent access to reliable key figures. However, complete consolidation is not always the best idea.

In this article, you can find out which ERP consolidation strategy is right for you and how you can map it optimally in the ERP system.

Which ERP consolidation strategy is the best?

Complete ERP consolidation: ideal, but not always feasible

In corporate groups, it is common to manage all companies via a large, central ERP system. A fully consolidated ERP landscape is the ideal situation for any group of companies, as it:

• enables smooth data exchange,
• ensures uniform and optimized processes,
• regulates the Group-wide exchange of information without interfaces,
• lower costs for maintenance and care of the system,
• relieves the burden on IT in the support area,
• reduces the coordination effort and
• makes the group of companies easily expandable on a technical level.

However, complete ERP consolidation based on a single cross-company software solution is not always realistic. Only a few corporate groups are so homogeneous that they can perfectly map the entire group structure with just one ERP.

As a rule, there are sub-organizations whose requirements differ significantly from those of the rest of the Group. Internationally active companies in particular often have to contend with complex coordination processes.

For example, many subsidiaries have different requirements:

• industry-specific processes,
• Range of functions,
• Customization options,
• Niche functions,
• Languages,
• Currencies and
• legal framework.

In addition, large, group-wide ERP systems are relatively sluggish. They are designed to manage huge organizations. Although this makes them robust, they can only react slowly to market changes. As a result, they do not support rapid changes of direction and thus automatically reduce the flexibility and competitiveness of the entire group of companies.

Advantages	Disadvantages
Smooth data exchange	Inflexible and difficult to customize
Less time and cost expenditure	too sluggish in a dynamic market
Technically simple addition of further companies	Needs of sub-organizations are not taken into account

ERP partial consolidation: the realistic middle way

On the one hand, your group of companies wants an ERP infrastructure that is as uniform as possible in order to keep financial costs low and benefit from synergy effects. On the other hand, however, an unsuitable group-wide ERP system can impair the efficiency of your company. So what should you do?

An alternative approach is for individual or even all subsidiaries to use their own ERP solution, while still exchanging data with the parent company and other sub-organizations. ERP systems with a different range of functions – for example, specialized industry solutions – are also no problem as long as the connection to the group IT is guaranteed.

The advantages of partial ERP consolidation are obvious:

• While it is not so easy to adapt a group-wide ERP system, the niche solution of a medium-sized company can be reconfigured with relatively little effort.
• This brings the needs of the subsidiaries to the fore, as they can react more quickly and flexibly to market changes.
• The entire group of companies gains security for the future.

However, partial consolidation also has disadvantages:

• The group of companies accepts that its ERP landscape will remain partially segmented.
• The workload for the IT department increases as it has to spend more time on maintenance, servicing and software updates.
• The higher workload in turn increases costs.
• The transparency of the corporate group decreases, as there is no longer a data network that spans the organization without gaps.

Advantages	Disadvantages
Very flexible	ERP landscape remains partially segmented
Requirements of each sub-organization can be met	the workload for IT increases – and with it the costs
	Decreasing transparency

Which ERP consolidation strategy should you choose?

The ideal ERP solution for your group of companies depends on the nature of your organization. The size of your organization can have just as much influence on the decision-making process as the distribution of locations and governance.

The goal of every ERP consolidation is the complete standardization of the ERP landscape. Sometimes, however, it makes sense to deviate from this goal in order to support individual subsidiaries.

Elisabeth Sterlich-Janus, Asseco Solutions

You should therefore take a close look at both ERP consolidation strategies and weigh up the advantages and disadvantages of full or partial consolidation. It may well make sense to make the group’s ERP landscape somewhat less efficient in order to relieve the burden on individual subsidiaries. ERP structures for international corporate groups in particular usually take into account the country-specific needs of the sub-organizations.

How can the ERP strategy be technically implemented in corporate groups?

So how do you manage to implement your ERP consolidation strategy technically in such a way that you derive the greatest benefit from it? You may have heard the buzzwords “multi-client capable” and “multisite”. Both terms are important criteria for distributed companies, but are often confused or used incorrectly.

First things first: the terms multi-client capable and multisite do not mean the same thing and are not opposites. They are simply different features of an ERP system. Software can therefore be either multi-client capable or multisite capable or both or neither.

Let’s take a closer look at the meaning of the two terms:

1. multi-client capability in the ERP system

Let us first address the question: What is a client? In the ERP context, this term refers to an independent business player. This can be a company or a subsidiary, for example.

An ERP system is multi-client capable if it is able to manage several clients in parallel on one physical system. Each company has its own system instance that is tailored to its individual process structure. In simple terms: each player has its own ERP instance.

Multi-client capable ERP systems are particularly suitable for organizations that consist of several autonomous sub-organizations. However, this does not mean that there is no cooperation between the members of such corporate groups. On the contrary: data exchange and process interactions across subsidiary or company boundaries are virtually standard in corporate groups.

Let’s look at an example:

Subsidiary A orders preliminary products from subsidiary B. B creates a sales order, then a production order and finally delivers the goods. This leads to goods receipt at company A. Company B then writes an invoice, which company A settles.

Subsidiary A	Subsidiary B
order
	Sales order
	Production order
	Outgoing goods
	Outgoing invoice
Incoming goods
Invoice receipt
Settlement of accounts

Such intercompany transactions are commonplace in corporate networks and groups. It would therefore be unfavorable if data had to be exchanged between different ERP systems for every transaction. What you really want is synchronization within a single system, as this minimizes frictional losses.

Actions in company A should be able to automatically trigger processes in the ERP instance of company B and vice versa. This is why modern ERP solutions are also able to exchange data between independent clients – without clunky interfaces. Multi-client capability is therefore not synonymous with silo thinking – flexibility is the be-all and end-all here too.

2. multisite in the ERP system

Multisite capability focuses on a completely different issue: location orientation. In multisite structures, a single ERP system is used, but it covers several locations simultaneously. Each branch has access to the data of the entire company (capacity utilization, stock levels, etc.).

In addition, multisite ERP systems are able to map complex, cross-location organizational structures. For example, the system can identify stock shortages at different locations and reorder material centrally. Infrastructures without multisite capability would have to regularly exchange status reports on their stock levels.

A multisite system therefore does not treat the company as a combination of independent units, but as a joint organization. The individual elements of this overall organization are in turn linked by means of overarching functional processes. However, these are not intercompany processes. The individual sub-areas are not legally separate players and therefore not clients.

It is also possible to manage and analyze individual locations separately. In some situations, it may be relevant to view a branch separately from the overall organization. For example, a company can manage individual branches as profit centers with their own profit and loss account. However, this is only possible if separate data is also available for this location.

3. summarized: multi-client capable vs. multisite in the ERP system

Multi-client capable	Multisite
Each independent organization has its own ERP instance.	A single ERP instance manages and controls several locations of an organization in parallel.
The ERP system can run multiple instances on a single physical platform.	Individual branches can nevertheless be viewed separately from the overall organization.
Data exchange and process interactions with other subsidiaries are possible.	Each branch can be granted access to the data of the entire company, e.g. stock levels and capacity utilization.

Important to know:

In practice, the two capabilities are not strictly separated, but can exist together in one and the same system. For example, multi-client capable systems also exchange information between the individual clients – although these are actually managed separately. And multisite systems can also view locations as a kind of client, detached from the overall organization.

Tips for successful ERP consolidation

1. clarify important questions

As the article has shown so far, ERP mergers in corporate groups are anything but a trivial matter. At both a strategic and technical level, it is likely to be difficult for non-experts in particular to make the right decisions.

You should clarify the following questions before making your choice – preferably by talking to experienced experts:

• Which units should be integrated and to what extent?
• How much do the processes at the individual locations and individual clients differ?
• Is it possible to standardize different processes?
• Who is responsible for master data, processes and the IT infrastructure?
• Which master data can be used together and which must be different?
• What are the legal, linguistic or regulatory requirements?
• To what extent must comprehensive reporting be possible?

2. avoid tripping hazards

You will also face challenges during and after implementation that can jeopardize the success of the project, including

• different master data structures and process landscapes,
• heterogeneous IT landscapes and legacy systems and
• Resistance from subsidiaries.

Always remember:

If a company refuses to introduce a group-wide ERP solution, the software is not always to blame. Sometimes employees refuse because they don’t want to change their familiar processes. In such cases, good change management can help.

Practical use case:
Robatech relies on multi-client capability

Robatech GmbH has opted for a central ERP system with a client structure in order to make its cross-border collaboration more efficient. The Dutch subsidiary was technically integrated into the system of the German sister company.

The multi-client capability of APplus allows Robatech to operate legally independent units on a central infrastructure and still manage them separately. In this way, central maintenance of article master data is possible, while languages and processes can be adapted locally.

Since its introduction, Robatech GmbH has benefited from the following advantages, among others:

• Transparent processes
• Browser-based working at any location
• Reduction of language barriers and improved cooperation
• Optimized warehouse logistics through digital warehouse and vehicle mapping as a service warehouse
• Less time required for stocktaking

Even though the introduction of APplus initially met with resistance from the workforce, the benefits of the solution quickly won over the entire team.

Read full case study

Conclusion: The ERP strategy must fit your organization

Choosing the right ERP consolidation strategy is a complex balancing act between standardization and flexibility. Full consolidation can slow down individual subsidiaries, while partial consolidation increases the workload and can reduce transparency.

Thinking strategically about ERP consolidation from the outset saves time and money in the long term and avoids unnecessary frustration. A clear target picture that is optimally tailored to the needs of your corporate group is crucial.

However, even the world’s best ERP infrastructure only provides added value if it is implemented properly from a technical perspective. Important ERP functions such as multi-client capability and multisite should therefore not be missing from your specifications.