Author name: Shrestha Dash

ERP contracts are not as straightforward. Depending upon the engagement structure (and different parties involved), the arrangements could vary, with serious implications on the outcome. These agreements include various elements, such as relationships and obligations of different parties involved, including licensing, pricing, implementation, support, and maintenance. They set the tone for your ERP initiatives.

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Misunderstandings start with the misalignment in expectations. Even if different parties claim to be aligned, they might still arise because of the language used. The same keyword could mean different things in different contexts. For example, customers might expect ERP vendors to do the heavy lifting. However, vendors might expect their role to be just advisory due to the limited budget. Even if contracts might include detailed RACI charts, there might still be layers that might cause confusion and disagreements.

Moreover, customers struggle with ERP contracts due to their myopic focus on hourly rates, pricing, and discounts, and because of this, they lose sight of details. The problems with contracts are very similar to any complex project, especially with scheduling. Because customers underestimate the complexity and expertise required to read between the lines. This article will explore the top five types of ERP contracts, discussing their nuances, benefits, and potential drawbacks.

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1. Software License, Implementation,  and Support on OEM Papers

In this ERP contract arrangement, you enter into multiple contracts directly with the software OEMs. In the ERP industry, the OEM would be software publishers such as SAP, Oracle, or Microsoft. The software OEMs would not only provide the software and product support, but they would also use their professional services to help with implementation. These contracts are usually segregated into software, service, and support agreements, each serving a distinct purpose and carrying different legal obligations.

The software agreement encompasses an End User Licensing Agreement (EULA), which defines the terms and conditions for utilizing the ERP software and the accompanying IP rights. On the other hand, the services agreement focuses on the services related to implementing the ERP software. This typically includes information about the skills required, the methodology for implementing the software, project timelines, and the roles and responsibilities of both parties involved.

The support agreement specifies the support services provided for the ERP system. It often categorizes support into different tiers based on the severity of issues, sets timelines for issue resolution, and may define billing rates for additional services not covered by the initial support agreement. This agreement may also contain provisions related to warranties.

Key points to remember: OEMs are generally cautious in their consulting and support recommendations. The caution arises because any help or recommendations they provide in areas not explicitly defined in the contract may affect their obligations under the software agreement. By assuming too much risk in these areas, the software company may potentially jeopardize its software contract so they may be conservative in their approach.

2. Software Licenses on OEM Papers; Engagement with a Reseller

In this arrangement, the software contract is still with an OEM, but your primary engagement will likely be with a reseller. These resellers typically have access to the OEM’s quoting software and can provide a quote on official OEM documents.

In this arrangement, the OEM works in the background. They may not actively engage with the customer unless specific issues arise that may require their involvement, particularly if the customer’s relationship with the reseller becomes problematic. In such cases, the OEMs generally take over the reseller and might suggest switching to another reseller. In this arrangement, there are potential issues to consider:

• Discounts and Costs: The discounts and costs associated with the ERP software may change based on new resellers’ tier status. 
• Reseller Commissions: Switching to a different reseller might affect the commission structure, potentially leading to a loss of existing discounts or benefits.
• Support Costs: If the company decides to switch back to the OEM for support, this may be more expensive than receiving support from the reseller.

Key points to remember: The support for the ERP software in this arrangement can vary. Sometimes, the software OEM may still provide support directly, or the reseller might handle the first level of support. The reseller will collaborate with the OEM if more advanced support is required. Implementation contracts with resellers are usually easier to switch unless the reseller has used proprietary intellectual property (IP) in the implementation. In such cases, changing resellers can be more challenging, as the new reseller or the OEM may not possess the specific industry-specific IP needed for the system to be useful for the customer.

3. Software Licenses on Reseller’s Papers 

In this arrangement, the software vendor (OEM) transfers the legal responsibility for the software to the reseller. This means that the reseller becomes primarily accountable for the software sales, support, and any legal issues that may arise. The relationship between the OEM and the reseller remains transactional, meaning the OEM would still transact with the reseller for each transaction rather than buying in bulk. The reseller earns a commission for each sale it makes. 

However, the OEM does not control (at least not directly) the final selling price the reseller offers to customers. The OEM provides the software to resellers at a wholesale price. This wholesale price is typically lower than what end customers pay. In this arrangement, the reseller can determine the final selling price to customers. 

Key points to remember: The legal responsibility for the software product is entirely shifted to the reseller. In other words, if any legal issues or disputes arise related to the software, the reseller is held accountable. The reseller is also responsible for providing customer support for the software. Customers may contact the reseller for assistance, and the reseller is expected to resolve any issues. Additionally, the reseller may be able to customize the software to meet industry-specific needs.  It’s common for resellers in this arrangement, especially those dealing with horizontal software platforms such as SAP, Oracle, NetSuite, or Microsoft, to have their own Intellectual Property (IP) that enhances the core software. This IP may provide industry-specific functionalities that cater to the unique needs of specific business sectors or verticals.

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4. Software Licenses Sold in an OEM Relationship by Software OEMs

This is a special arrangement with resellers and might be reserved only for certain territories/geographies or for very large resellers. In this arrangement, the resellers acquire licenses from their software publishers (or software OEMs) in an OEM arrangement. This agreement might be based on a volume purchase, which means the reseller commits to buying a large number of software licenses. 

In this scenario, the reseller could substantially change the software’s code, including selling under a completely new brand in a white-label arrangement. This can include customizing the software to meet specific needs, adding new features, or altering the software’s appearance. 

Key points to remember: In this situation, the reseller OEM primarily acts as the software platform provider. They focus on creating and maintaining the core software product. You might have limited or no direct interaction with the software OEM as a customer. Instead, your dealings would be mainly with the reseller OEM. Since you’re primarily dealing with the reseller OEM, you may not have access to the software OEM’s support and resources. If you encounter issues or need assistance, you typically contact the reseller OEM. If the reseller chooses to white-label the software, they may establish support and implementation services. This means they’ll provide customer support and help with the software’s deployment independently of the software OEM. They might have their dedicated support team and resources to assist you.

5. Software Licenses Sold in a Master Distributor Relationship

In this arrangement, the software OEMs may have several layers of master distributors with their respective channels to distribute the licenses. This arrangement is similar to the reseller OEM relationship in #4, where the software OEM will likely be least involved with the licensing and support. And for the most part, you are likely to deal with a master distributor. 

Key points to remember: This arrangement is especially common with companies selling hardware, but software vendors like Microsoft will likely have similar relationships even for their ERP channel. Due to the nesting of relationships and contractual dependencies, this is perhaps the most convoluted arrangement where understanding the roles and responsibilities of each party might be harder, even for ERP experts.

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Conclusion

Understanding the legal obligations of each party involved is essential for the project’s success. Otherwise, get ready to face the financial and legal surprises. These relationships and arrangements can challenge even the professionals tracking the space daily. So, don’t underestimate the expertise required to understand these contracts. Hire the advisors at least for negotiation before creating a million-dollar disaster by not fully understanding what you are signing up for.

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FAQs

The list of ERP business processes is endless and can seem overwhelming. However, not all these processes hold equal importance and can vary significantly depending on their interaction with the ERP system. While core processes tend to be consistent across most solutions, non-core ERP business processes vary considerably.

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Various factors influence whether a business process qualifies as core or non-core. Typically, core processes are hosted within the ERP system, while non-core ERP business processes may often reside in external systems. For instance, the order-to-cash process is a classic example of a core ERP cross-function business process commonly integrated into the ERP system. Other processes like Dispatch-to-deliver and Issue-to-resolution demonstrate high levels of integration with ERP systems but may vary based on business models.

Cross-functional business processes can also undergo significant transformations depending on the industry they serve. For instance, the order-to-cash process for a manufacturing company can differ substantially from that of a transportation company, with the latter possibly residing in a Transportation Management System (TMS) rather than the ERP. Understanding these non-core ERP business processes is essential for making informed decisions about system selection and architecture, as the line between integrating them into the ERP or opting for a best-of-breed solution can be quite thin.

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1. Dispatch-to-deliver

The dispatch-to-deliver business process initiates when a shipment is ready to dispatch from the facility. It involves several steps, like planning and coordinating various stages in the supply chain. It is to ultimately deliver goods to the customer and obtain their signature as proof of receipt. This business process primarily falls under the responsibility of the supply chain execution function. 

Typically, ERP systems do not include the dispatch-to-deliver process as an integral part of their functionalities. Instead, specialized systems like WMS(Warehouse Management System) or TMS(Transportation Management System) generally facilitate this process.

However, some systems available in the market offer an embedded experience for the entire dispatch-to-deliver process. Therefore, when deciding how to manage the dispatch-to-deliver process within your organization, you should consider transaction volume and architectural requirements. Depending on your specific needs, you can incorporate this process within your ERP system or introduce a dedicated WMS or TMS system into your architecture.

2. Hire-to-retire

The HR department primarily manages the hire-to-retire process. It begins with the recruitment of candidates, their onboarding, training, and monitoring of their job performance, and concludes with the necessary procedures when the company either terminates them or they leave voluntarily. 

In most cases, an HCM system facilitates this process. Generally, ERP systems do not have the functionality to host this process. However, there are instances when the hire-to-retire process interacts with ERP systems in industries where specific skills and certifications are integral to the operational processes. 

In such cases, ERP systems tailored for these industries may incorporate certain elements of the hire-to-retire process. This integration ensures that HR-related data, like employee skills and certifications, is seamlessly integrated into the broader ERP system, enabling better workforce management within the company’s overall operations.

3. Issue-to-resolution

The issue-to-resolution process is a fundamental customer service procedure that companies follow to address customer concerns and ensure the smooth functioning of their products or services. It typically commences when customers reach out with specific issues related to their equipment or services. Upon receiving the customer’s call or inquiry, service teams assess whether the equipment or service is still under warranty coverage as the first step. This can significantly impact the resolution process.

If the warranty covers the equipment or service, the service team provides the necessary services to rectify the issue. In cases where the warranty has expired or does not apply, the service team may initiate the process of issuing a purchase order for any required replacement parts or services. This process may sometimes involve physical visits to the customer’s location, especially if there is a need for on-site repairs or inspections.

Managing this process is essential for customer satisfaction and operational effectiveness for companies. They often host this process inside CRM or a best-of-breed field service system. Depending on their specific needs and preferences, some companies integrate this process with their ERP systems, initiating the flow with a service order or a GL entry. 

4. Lead-to-quote

The lead-to-quote process is integral to pre-sales and marketing automation workflows, primarily hosted within CRM systems. It commences by creating leads, which are potential customers, through various channels such as physical marketing campaigns or digital initiatives. 

These leads then move through the funnel using a series of interactions, which involves estimating the required services, if necessary, engaging in engineering activities to tailor offerings to the customer’s needs, and, finally, releasing the quote. 

It’s important to note that in most cases, this process remains within the confines of the CRM system and does not typically involve an ERP system. However, exceptions exist, particularly when engineering processes require access to product data or when configuring complex product quotations (CPQ), necessitating a connection to the ERP system.

5. Campaign-to-lead

The campaign-to-lead process is a fundamental aspect of marketing and sales operations within a business. It is a crucial precursor to the lead-to-quote process or can function as a subset. 

This process begins with the initial design of marketing campaigns, which can be either physical, such as print advertisements or billboards, or digital, including online ads and social media promotions. After campaign planning, the next step involves executing these marketing initiatives. Subsequently, it necessitates the measurement of campaign results to gauge their effectiveness.

A key component of the campaign-to-lead process is capturing potential customers’ interest and guiding them through the sales funnel until they convert into leads. It’s important to note that, in most cases, this process operates independently of the company’s ERP system. ERP systems typically come into play much later in the customer journey, mainly when leads are qualified and have the potential to translate into financial opportunities for the company.

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6. Contract-to-enroll

Companies involved in multiple enrollment campaigns commonly use the contact-to-enroll business process, particularly for subscription-based services like educational courses or paid events. This process guides potential participants from initial contact to successful enrollment.

It begins with identifying specific programs or offerings the organization wants to promote. Once they identify the programs, the next step involves crafting targeted marketing campaigns to generate interest among potential participants. The process also involves nurturing these prospects through a sales or enrollment funnel. This may include various stages, such as providing information, addressing queries, and guiding them to the enrollment step. 

These programs may be paid or unpaid depending on the organization’s objectives. It’s important to note that unless there is a specific requirement for integrating financial aspects into the organization’s ERP system, this contact-to-enroll process typically operates independently from the ERP, focusing solely on the enrollment journey of potential participants.

7. Expense-to-pay

Expense-to-pay is a crucial component within an organization’s time and expense workflow. In this process, an employee initiates the workflow by reporting expenses incurred during client visits, projects, or events. These expenses may include a wide range of items, such as travel costs, accommodation, meals, and other related expenditures. 

The primary goal is to accurately document, validate, and eventually pay or bill these expenses, depending on the specific circumstances. Depending on company policies, some expenses may need to be billed to clients for reimbursement, while others may be eligible for direct reimbursement to the employee. Additionally, organizations often need to oversee and control budgets associated with employee expenses, ensuring that expenditures remain within predefined limits. 

Employees who have received company credit cards to facilitate expense transactions manage these cards, including monitoring transactions and ensuring timely payments. Companies may host this complex process within a specialized T&E software or utilize the T&E module within their ERP system.

8. Recruit-to-hire

Recruit-to-hire is a fundamental process that lays the foundation for an organization’s workforce. It is a precursor to the hire-to-retire process. First, it all starts with creating job descriptions that outline the roles and responsibilities expected from potential candidates. Once these descriptions are in place, the process shifts towards identifying the most suitable channels for sourcing potential candidates. This could involve posting job listings on websites, utilizing recruitment agencies, or leveraging social networks.

Following candidate sourcing, a critical aspect of recruit-to-hire is conducting evaluations and interviews. This entails assessing candidates’ qualifications, skills, and cultural fit within the organization. Organizations often perform background checks to ensure the correctness of a candidate’s claims and protect the company’s interests.

Finally, once a candidate is selected, the recruit-to-hire process culminates with signing offer letters, solidifying the employment agreement. While it rarely touches ERP, companies often use various systems like Applicant Tracking Systems (ATS) or Human Capital Management (HCM) software to streamline and manage these tasks efficiently.

9. Return-to-refund

The return-to-refund process is an integral component of the overall return procedure within a company. This process typically begins with the initiation of a return request by the customer. Once initiated, the company handles various steps, including processing the return, providing appropriate packaging and labels, and receiving the returned inventory. 

They perform a crucial quality check at this stage to ensure the returned items meet the necessary standards. Subsequently, the respective vendors might receive the inventory back, and they may manage the warranty process if applicable. Finally, the company issues the refund to the customer, thus concluding the transaction. 

To host the return-to-refund process, companies commonly integrate software systems, such as eCommerce platforms, POS systems, or ERP software. Moreover, the return process frequently interfaces with other essential systems, including WMS, OMS, and CRM tools. Within an ERP workflow, the process can start by directly capturing the return request within the ERP system or by interacting with it to process the necessary General Ledger (GL) entries.

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10. Market-to-order

Market-to-order is a comprehensive business process that serves as a superset of lead-to-quote and the precursor of order-to-cash. The process begins with formulating and maintaining a well-thought-out marketing plan, which includes strategies and tactics to reach the target audience effectively. Once the plan is in place, the next step is the design and execution of marketing campaigns, aligning them with the established budget.

Throughout the marketing campaigns, monitoring their performance and effectiveness is crucial, ensuring that they yield the desired results. As part of this process, leads are generated and captured. Managing these leads involves guiding them through the sales funnel, where they are nurtured and engaged until they reach the point of conversion into actual orders. This conversion marks a critical transition from marketing to the subsequent stages of the business cycle.

In most cases, Market-to-order operates independently of an ERP system. However, in some situations where quoting, estimation, and engineering processes are tightly integrated into the company’s operations, they might be hosted within the ERP system. Alternatively, if the quoting and estimation functions are part of the ERP, the integration may occur even earlier in the business cycle.

Conclusion

In conclusion, distinguishing between the core and non-core ERP business processes is necessary to navigate different business processes smoothly. The nuances of ERP systems and diverse industry requirements often complicate this task. While core processes are consistent and typically integrated within the ERP, non-core processes can exhibit a broader spectrum of possibilities, including integration with best-of-breed solutions or residing in external systems. Recognizing the distinctions and dependencies among these non-core processes is crucial for making informed decisions about system selection and architecture.

FAQs

ERP systems play an important role in streamlining the operations of a business. At the heart of these systems lie the core cross-functional business processes. Also, catering to the needs of different departments, these business processes are like building blocks for the organization to work smoothly. They include sequential activities across different departments to complete a financial or operational workflow. However, unlike ERP modules that you can choose individually, these core tightly integrated business processes rely on each other. In other words, implementing one process also entails addressing its underlying dependencies on other ERP business processes and modules.

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Yet, the challenge many businesses face is understanding the significance of these core ERP processes. Without this essential knowledge, companies often encounter operational roadblocks and inefficiencies. Departments might function in isolation, lacking the interconnectedness needed for streamlined operations. This is why understanding these core cross-functional business processes is very important.

In this blog, we will talk about the top 10 core cross-functional business processes that bind different departments together.

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1. Order-to-cash

The order-to-cash process is a complex business operation that includes various departments within an organization, such as sales, operations, and finance. From its initiation to the collection of payment, this process involves the entire lifecycle of a customer order. When a customer places an order, the process begins. Sales teams are responsible for capturing the order details, including product or service specifications, quantity, pricing, and customer information. 

Upon capturing an order and validating it, it moves to the operations department for processing. Operations personnel check inventory levels, product availability, and service delivery schedules if applicable. To fulfill the customer’s requirements, they also create picking lists, work orders, or service orders. This step in some industries, such as manufacturing or service-based businesses, ensures that the products or services meet the order specifications. After order fulfillment, the finance department generates an invoice based on the order details. Upon issuing the invoice, the finance team tracks and manages payments from the customer. 

Depending on the organization’s architectural boundaries, some companies host this process on one or multiple. Sometimes, the boundary of an ERP system may start from an invoice or GL. In other cases, the whole process happens within the ERP system. Therefore, when you choose an ERP system, define how much order-to-cash you would host inside the ERP. This will also help you find the right ERP system aligned with your business needs. 

2. Procure-to-pay

Managed within an ERP system, the procure-to-pay process is among significant cross-functional ERP business processes. Generally, this process encompasses several stages and involves different departments within an organization, including procurement, warehouse management, finance, and accounting. The process begins with the procurement department capturing a purchase order. 

Upon capturing the purchase order, the warehouse receives the inventory. After this, the finance department receives the vendor’s invoice, which includes the billing details for the delivered goods or services. Then, they would match an invoice against the corresponding purchase order and receipt information in the ERP system to ensure accuracy. The finance department initiates the payment process after the invoice is verified and approved. 

The degree of integration with the P2P process into a single ERP system can vary among organizations. Some may handle the entire process within the ERP, starting from the purchase order, while others might use additional specialized systems for certain steps, like procurement software for purchase order management.

3. Plan-to-produce/Plan-to-inventory

The plan-to-produce/plan-to-inventory business process is particularly relevant for industries that require accurate forecasting and planning of inventory before production. Commonly seen in consumer-centric and commoditized industries, the process begins with S&OP analyzing historical sales data, market trends, customer demand, and other relevant factors to forecast the demand for their products. 

After forecasting demand, the next step is supply planning. In this phase, companies determine how they will meet the anticipated demand. It involves assessing the available resources, production capacity, and procurement capabilities. Once the supply plan is in place, the procurement department comes into play. Their role is to source the necessary materials, components, and resources required for production. This might involve negotiating with suppliers, placing orders, and managing the procurement process efficiently to ensure that materials are available when needed for production. With the materials procured and the supply plan in hand, the production and manufacturing teams swing into action. To produce the goods in line with the forecasted demand, they use the production schedule generated during supply planning. 

Some companies might host the entire P2P process within their ERP system. In such cases, the ERP system handles everything from forecasting and planning to procurement and inventory management. However, others may use a separate S&OP system for initial demand forecasting and supply planning. In the latter case, the S&OP system feeds planned forecasts and supply plans into the ERP system to execute the production and inventory management processes.

4. Record-to-report

Primarily managed by the finance department within an organization, the record-to-report process is a critical business process. Its main purpose is to handle non-operational transactions accurately. In many organizations, ERP systems play a central role in managing financial data. However, ERPs may not offer automated recording of all financial transactions as some are non-operational and might require manual recording. The process begins with the finance department recording financial transactions. 

After recording transactions, finance professionals reconcile accounts. This step is crucial for ensuring that the recorded data is accurate and that there are no discrepancies or errors. Reconciliation involves comparing various financial records and ensuring they match. While the core of the record-to-report process resides within the finance department, it might require multiple systems to manage it. For example, they might use the ERP system to capture and initial transaction reconciliation. Still, they may transfer GL data to a separate FP&A software system. Before generating final financial reports, finance teams might sometimes consolidate data in the FP&A software. This step is essential for producing accurate reports, especially for larger organizations with multiple subsidiaries or divisions. 

The ultimate goal of the record-to-report process is to create financial reports. These reports provide a snapshot of an organization’s financial health and performance over a specific period, such as a month, quarter, or year. Before finalizing and distributing financial reports, finance professionals often analyze the data to identify trends, anomalies, and insights. The record-to-report process also plays a significant role in ensuring compliance with financial regulations and standards. Organizations may be subject to internal and external audits to verify the accuracy and legality of their financial statements.

5. Source-to-pay

The source-to-pay business process is one of the workflows within an ERP system that encompasses activities related to sourcing and procurement. Organizations follow a series of steps to effectively manage their procurement cycle, from identifying and building consensus on the need to identifying qualified vendors and finalizing payments. The process usually starts with identifying the organization’s need for certain goods or services.  

Post that, it often requires consensus-building within the organization among various stakeholders. This step ensures the procurement aligns with the organization’s goals and budgets. After obtaining internal consensus, the next step is to identify potential vendors or suppliers who can fulfill the requirements. Upon identifying potential vendors, the organization conducts a thorough vetting process to assess their capabilities, financial stability, and adherence to legal and ethical standards. This step helps in ensuring that selected vendors are trustworthy and capable. After vetting the vendors, the organization awards a contract to the selected vendor(s). This contract outlines the terms and conditions of the procurement, including pricing, delivery schedules, and quality standards. This step formalizes the relationship between the organization and the vendor. 

With the contract in place, the process proceeds with all the steps of the P2P process. Depending on the complexity of the sourcing phase, there might be several systems, and the ERP flow might start with a purchase order. The other companies might host RFQ comparisons, etc., inside the ERP.

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6. Idea-to-Offering

The idea-to-offering business process is essential to new product development within a company. This process involves multiple stages and activities, from marketing to operations, figuring out go-to-market fit before a product is ready for production. The process starts with extensive market research and analysis to understand the potential demand for the product. This includes studying customer needs, preferences, and market trends to refine the concept and make it more customer-centric. 

After gaining insights from customer research, the company begins the engineering phase. This involves designing and developing prototypes or mock-ups of the product to test its feasibility and functionality. In parallel with engineering, the company starts the procurement process. This involves sourcing the necessary materials, components, and resources for the product. Procurement also includes negotiations with suppliers for pricing and terms. The company works closely with its suppliers and partners during the design and sampling phase to ensure efficient manufacturing of products and meet quality standards. Simultaneously, the operations team strategizes the go-to-market plan. This involves deciding on pricing, distribution channels, marketing campaigns, and other factors essential for successfully launching the product. 

At this point, some companies may host this process in different systems. For instance, They might use a PLM system for program and idea management, CAD/PDM tools for engineering, and P2P systems for vendor collaboration. When all preparations are in place, the ERP system takes over. With the product now in the ERP system, production can begin. Some companies may host the entire idea-to-offering process within their ERP system, consolidating all stages and data into a single integrated platform for more streamlined management and control. 

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7. Count-to-reconcile

The count-to-reconcile among ERP business processes is an integral part of managing inventory within an ERP system if it is the main source of truth for inventory. It’s a systematic procedure that usually begins with the planning phase for inventory reconciliation. This involves deciding how often inventory counts will occur (e.g., daily, weekly, monthly) and which inventory items, warehouses, or locations will be included in the counting process. To prioritize inventory counting efforts, items are often categorized into different classes based on their value, criticality, or other relevant factors. The ABC classification system typically consists of: A-Class: High-value or critical items, B-Class: Moderately valuable items, and C-Class: Low-value or less critical items. 

Once the items are categorized, specific items, warehouses, or locations are identified for counting based on the inventory reconciliation plan. A pick list is generated to guide the counting process. Depending on the organization’s technology and preferences, the counting can be done using handheld devices. Discrepancies between the physical count and the ERP records are inevitable. If found, adjustments are made. Once all items have been counted, adjustments are posted. It reconciles any discrepancies identified during the counting process. 

Depending on the organization’s technology landscape, inventory and location information might be stored in various systems like WMS, eCommerce platforms, or OMS. In many cases, the ERP system is the central source of truth for inventory management. This means that all inventory-related information and adjustments are primarily handled within the ERP. Therefore, the Count-to-Reconcile process plays a critical role in maintaining the accuracy of inventory data within the ERP system.

8. Forecast-to-monitor

The forecast-to-monitor business process plays a significant role in the budgeting and financial management of an organization. It involves a series of steps designed to ensure that an organization effectively plans, tracks, and manages the budget of each account and department. The process begins with planning various financial scenarios. 

Once done, historical trends for each account are analyzed to create accurate budgets. This involves looking at past financial data, such as revenue growth, cost patterns, and other relevant financial metrics. The key aspect of this business process is collaboration. Teams from various departments within the organization need to work together to develop a comprehensive budget. Each department will have its budgetary requirements and contributions to the overall budget. Collaboration ensures that all stakeholders’ input is considered in the budgeting process. After considering different scenarios, analyzing historical trends, and collaborating with teams, the organization sets its budget for the upcoming year. Once the budget is set, it’s crucial to monitor and manage it throughout the year continuously. 

Depending on the complexity of the budgeting process and the data requirements, organizations may choose to manage this process within their FP&A department or directly inside their ERP system. If they opt to use the ERP, it typically involves entering budgeted numbers into the ERP system to track yearly performance.

9. Inspect-to-comply

The inspect-to-comply business process is part of the quality management process. The workflow usually begins with the creation of a detailed test plan. This plan outlines the specific quality criteria and standards that need to be met for the product or material being tested. It specifies what aspects will be inspected, which tests will be conducted, and the testing methods to be used. 

Once the plan is in place, the next step is to identify the test cases. Test cases are specific scenarios or conditions that are designed to evaluate the quality of the product or material. These test cases are based on the requirements outlined in the test plan. After identifying the test cases, the next step involves identifying and selecting inventory items that need to go through the quality inspection process. Once the inventory items are identified, the next step is to execute the test steps according to the predefined test cases. During the execution of test steps, all relevant data and test results are recorded and documented. In some cases, materials may not meet the quality standards initially. When this happens, a material review process is initiated. 

Finally, the process involves preparing all necessary documentation to ensure compliance with quality standards and regulations. This documentation may include test reports, certificates of compliance, and other records that demonstrate that the items have met the required quality criteria. Depending on the organization’s setup, the quality management processes can be integrated into their ERP system, typically in a dedicated quality module. Alternatively, some organizations may use external quality management software that works in conjunction with their ERP system to handle these ERP business processes efficiently.

10. Cradle-to-grave/Acquire-to-retire

The cradle-to-grave/acquire-to-retire process is a significant approach to managing an organization’s entire lifecycle of assets. This process includes several stages, from the initial acquisition of assets to their eventual retirement. It usually begins with the acquisition of new assets within an organization. During acquisition, the organization typically creates purchase orders, negotiates contracts, and records the financial transactions related to the asset procurement. 

After acquisition, the assets are integrated into the organization’s financial system, often within an ERP system. The financial process among ERP business processes includes recording the asset’s value, computing the depreciation lifecycle, and accounting for related expenses such as maintenance, insurance, or licensing fees. This often leads to the steps of generating reports and retirement of assets. Reporting is crucial to monitor asset performance, maintenance costs, and compliance with accounting standards. As assets reach the end of their useful life or become obsolete, they are retired from active use. 

Depending on the organization’s industry and the complexity of asset management, the entire process may be handled within a single ERP system. Alternatively, some companies may use a combination of systems, with the ERP managing financial aspects and Enterprise Asset Management (EAM) or Manufacturing Execution Systems (MES) handling maintenance and operational aspects.

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Conclusion

To summarize, the top 10 core cross-functional ERP business processes are essential components that help organizations operate efficiently. These processes connect different departments of a company and are vital for various tasks, from managing customer orders to handling procurement, forecasting demand, maintaining financial records, sourcing, and developing new products.

Understanding and improving these ERP business processes is not optional; it’s perhaps the first step for organizational integration and finding synergies across departments. These processes align departments in how they will be processing transactions and what will be their roles and responsibilities in facilitating that. Whether fully integrated into ERP systems or supported by other software, these processes are fundamental to improving efficiency and effectiveness in diverse industries.

FAQs

One misunderstanding that is prevalent among business owners is a simplified view of business transformation: choose a technology and implement it. How hard could it be? Well, as long as you know which technology will produce tangible business results. Most importantly, how to get there. But let’s not get too far, as most companies struggle to agree on the definition of ERP. They might not appreciate the value of organizational readiness for ERP implementation.

Let’s look at it from another perspective. Most people talk about ERP implementation failure, but they rarely have a good handle on the root cause. It’s most certainly not what they think it is, as projects fail before they even start. They fail because of the misalignment in the expectations. The misalignment could stem right inside executives’ heads. They might have different expectations from the system, completely off from the ground reality. They might struggle to articulate their thoughts to the extent that they might feel overwhelmed and confused. This is where a well-defined roadmap and blueprint could streamline the thought process and build consensus among teams.

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Yet another perspective is related to everyone’s estimation of their own capabilities. Let’s face it. Most of us like to overclaim our capabilities because we have a tendency to figure things out given enough time. Unfortunately, this tendency leads to a snowball effect with the consequences as severe as the ERP project not even being recoverable. Going through the formal processes aligns expectations and removes these barriers, helping them understand why they need to think through their decisions. Organizational readiness is very similar to therapy sessions for the entire team and comprises the following six fundamental components:

1. Strategic and Executive Alignment

The problem starts at the top. Most business transformation initiatives, such as ERP implementation, require business model changes. Unfortunately, these business model changes are not as simple as moving a warehouse from one location to another. Instead, they are like performing heart surgery for the business. The issues are especially challenging as the business model changes would be nearly impossible with the amount of disruption they may cause. For this reason, most executives end up choosing the path of solving them technically just because they can’t visualize the technical implications as well as they do the consequences with physical processes.

Getting everyone on the same page about how the transformation initiative will change the business is significant. It should start with your leadership crafting a goal statement that may include the business value of the transformation initiative and forecasting potential changes required to make the initiative successful. You might want to ask questions such as:

• Does your organization have clear expectations on the outcome of business transformation?
• What objections are you likely to get in making business process and model changes?
• Does the executive team have the necessary skills and experience to be able to foresee financial and technical risks because of these initiatives?
• How is your current compensation structure, and how might that influence political forces among different functions and business units?

Communicating these strategies is a big part of aligning with the organization’s business model. Just like therapy, you need to have different strategies depending upon the needs of each stakeholder, with several tools and workshops tailored to their needs until they internalize the process and feel mentally conditioned to go through such a rigorous routine.

2. Operational Readiness

Mental conditioning is just the start. Operational readiness is like a physical sketch of your entire journey, where you are today and where you are headed. The process starts with getting the mental models on a piece of paper. So they can see where everyone’s heads are. It also requires developing a common language for every term that is likely to throw off the model. It’s almost like developing a language, or their mental state is likely to be far off from the ground reality. 

Once you have the common language built, it’s much easier for everyone to visualize the to-be state and why the changes requested are pivotal for the success of the program. The concept of operational readiness revolves around preparing specific functions and business processes for the change. It aims to answer questions that pinpoint the practical aspects of readiness. You might ask questions such as:

• Does your team understand the current processes? Do they understand it well enough to draw them on a piece of paper?
• Do your stakeholders have different versions of the same process in their heads?
• Which business processes would require re-engineering that would streamline the technical implementation? 
• Can business processes be re-engineered without causing major disruptions to the core operations? 
• How would the changed business processes be rolled out? 

The physical sketches substantiate the mental models and help build consensus on the operational state both today as well as in the future. Bringing technology earlier in the conversations generally leads to biased conversations about technology and stakeholders jumping to conclusions without fully understanding the consequences.

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3. Data Readiness

One factor among organizational readiness components often overlooked is data readiness. In general, the role of data in the context of systems is to take a piece of connected information from one step to the next. However, not many people realize how data and ERP work together. The absence of data readiness can drive process over-engineering and, in turn, can lead to system bloatedness. 

There are several reasons why companies delay this step to the point where it’s too late. First, while most business consultants might understand process state, data issues require deep implementation experience. Also, during the selection and strategy phase, it’s much harder to visualize the data hierarchy without access to a system to be able to see and feel the changes. So, the data issues tend to get postponed to the implementation phase. But once the contract is signed and if the data model is too off, it can throw off the entire implementation. The questions you should ask related to data re-engineering are as follows:

• How is your current master data modeled? Have you done any customizations to your processes because of data issues?
• Have you had multiple disconnected instances of master data records in the system?
• Do you have data governance issues where the model does not seem to follow any logical structure?

An information model is very similar to a mental model, with the only exception that this state lives in your system’s head. If you overcomplicate the way you register information or don’t simplify, your system might not only experience “brain farts, ” but it might overcomplicate everything else that touches it.

4. People Readiness

Wherever there are people, there will be problems. Several factors drive people-related issues. It could be behaviors influenced by your current compensation structure or power struggle. These behaviors lead to “passive-aggressive” responses to issues without being explicit about them. People readiness among organizational readiness components requires a deep understanding of current behaviors and how that may impact their willingness to change business models or business processes critical for the success of business transformation initiatives. This can be even more challenging if the teams don’t have the right skills. Even small data and process changes might require corporate alignment and intervention from influential stakeholders. 

The biggest challenge with these initiatives is that they are harder to visualize, with the implications challenging to internalize unless you’ve been through these cycles multiple times before. Most people find it easier to trust complex concepts that they’ve seen work firsthand. The questions around people readiness you should be asking are as follows:

• Are you currently experiencing a power struggle in the organization, and if so, do you deeply understand what may be influencing that?
• What does decision-making feel like for cross-functional issues? Do you feel tension with conversations and that people are not willing to open up for underlying issues?
• Do you feel that specific executives have a need for control and that other executives might not open up as easily when they might be around?

People issues are very similar to a board of a company. And unless you have a team that works together really well and trusts others around them to be able to share their feelings, you might require help with people readiness before you undertake your business transformation initiatives. 

5. Technical Readiness

While businesses overemphasize the importance of business and process re-engineering, technical readiness is just as important. It’s an alignment of business users’ and technical teams’ mental models. Both of these teams care for different things, and their heads are wired differently. So, this alignment is even more critical. The technical teams must understand the business vision and must be involved in making critical implementation and change decisions. With them running in trenches, they can see potential financial and technical risks that businesses might ignore. They might code and configure things not aligned with the business vision. 

Most companies take exactly the opposite approach with technical teams. They don’t involve them during the decision-making process, and then when things go south, they are the first ones to get blamed. Technical issues will always require business model changes, and if their voices are not incorporated in the decision-making, there will always be issues, especially if the business teams have a limited technical background. Also, even business executives who might claim to be technical experts rely on technical teams to make decisions for them. Here are the questions you should ask related to technical readiness:

• How are your technical teams? Do they seem to overstate their capabilities? 
• Do they seem to always solve problems through programming?
• Do you have any proprietary systems? How about documented architecture along with process and information models?
• Do you have access to enterprise-wide master data governance and reconciliation flows?

To guide this process, having a detailed technical plan is very helpful. This plan helps the technical teams code and configure things aligned with the business vision. 

6. Project Governance and Planning

After you have the state of your initiatives defined from all perspectives, the next step is to plan how to execute them. System integrators and OEMs generally expect their clients to do 90% of the heavy lifting. There are several factors that drive this behavior. First, the client has unreasonable expectations but limited budgets. So, they leave vendors with no choice but to commit only to a fraction of the work. Second, their software might get blamed because of their involvement or recommendations with data or processes. Finally, the OEMs mandate prescriptive methodologies to their clients and resellers. Equally challenging is managing schedules with ERP projects because of the unavailability of key resources, especially part-time ones.

Project planning involves more than just digital processes. It also means figuring out how physical processes will change and how you’ll communicate these changes to everyone inside and outside your organization. This plan should include a roll-out strategy for introducing these changes in a way that makes sense technically and financially. It should also have KPIs that can help you stay on track. 

It’s not just about making schedules; it’s about organizing resources, communicating well, and ensuring your plan matches what’s happening. As you get ready for this big change, remember that careful planning and smart management are the keys to making your ERP system work well for you.

Conclusion

Each of these perspectives is equally critical. They’re like puzzle pieces that fit together to create a complete picture. Giving too much importance to the technology part and ignoring the people and process parts can cause problems. The technology might not work well with how your team works, making it hard for them to use it properly.

On the other hand, if you don’t pay enough attention to the technical side, you might face technical issues, and the system might not work as it should. Neglecting the organizational readiness and cultural side can result in resistance to changes and difficulty managing the transition.

Success comes from finding the right balance between these different viewpoints. Remember that all six components are important when assessing organizational readiness for ERP implementation. By understanding and considering each part properly, you’ll be on the right track to making your ERP project successful.

FAQs