This post was contributed by Joshua J. Morrison, Financial Operations Subject Matter Expert
The landscape for processing corporate financial transactions is quickly evolving. Cloud software is becoming more common for handling financial operations transaction processing, specifically within Accounts Payable and Purchasing. Many U.S. companies have made significant capital investments in corporate enterprise resource planning (ERP) software to manage these transactions and look to leverage the ERP as much as possible to maximize the value from their associated sunk costs.
This is understandable, given that the average ERP implementation across all industries costs nearly $10 million; this is even higher for manufacturers where the average costs reach almost $11.5 million. Of these implementations, more than 85% of end users manage their ERPs completely on-site. So how do business practitioners maximize returns on sunk ERP costs and reduce internal resource requirements? Consider taking financial transaction processing outside the ERP and into the cloud.
There remains not only a heavy reliance on company ERP platforms for transaction processing, but a high cost to manage the platforms and to change providers as well. While processing financial transactions directly within the ERP was once considered the best solution to centralize company data, many businesses now struggle to maintain their ERPs to stay current with release updates and patches, as well as take advantage of best practices and new technologies in the industry. As business becomes more global and geographic restrictions continue to dissolve, it becomes more imperative for businesses to employ a solution that will provide a consistent, controlled, cost-effective, and fluid approach to managing financial transactions. This is where SaaS can help.
SaaS will not replace the ERP, rather it will compliment it through the integrated exchange of transactional data to feed ERP and support enterprise planning, reporting, and analytics. Remember planning, reporting, and analytics? This is what ERP was intended to do, not to handle transaction processing! Knowing this, major ERP providers are taking steps to move into the cloud SaaS space through acquisition and portfolio expansion. However, I expect that they will be slower to adapt to customer demands and bring new deliverables to market given their large and segmented structures. At the same time, there has been a significant increase of third-party SaaS provider offerings to address this space. It is becoming a best practice to migrate the processing of financial transactions with supply chain partners outside of the ERP and into the cloud. A slowed ability to respond to best practices and new technologies is not the only place where major ERP providers may fall short. There are several key reasons to consider employing a third-party SaaS provider to integrate with your existing ERP.
First, given the high price tag and intensive implementation and administration resource requirements, major ERP solutions are generally not a viable solution for most small and mid-sized companies. In these cases, a third-party service provider may be able to offer an affordable solution that can be scaled to accommodate smaller businesses. Next, transaction processes in ERP platforms are designed based on the specific vendor’s idea of what the best practice is; this is not always consistent with industry standards or business needs and often configuration, or worse customization, may be necessary. In addition, ERP processes tend to be rigid and inflexible and require end users to learn cumbersome processes that support the system rather than the job being performed. SaaS firms generally offer solutions that are more flexible and adaptable to user needs.
Now let’s look at creating new ROI. Changes or additions to a process within an ERP normally require extensive testing and approval. Moreover, transaction management accounts for about 80% of ERP implementation time with the remaining 20% focused on data management, reporting, and analytics. A major advantage in moving transaction processing to a SaaS provider is that the cloud software can usually be secured, configured, and ready to use within weeks or even days. Considering the average implementation costs upwards of $10 million, saving 80% of resource time and cost is quite significant. A large part of implementation time is also spent bridging gaps between transactional business requirements and system capabilities. This is where system customizations often come into play. If a cloud SaaS provider is utilized, the end-user organization can eliminate the need for most ERP customization as these tend to be to support transaction processing and not analytics or reporting.
There are still more returns to be realized. ERP providers are always releasing new software versions, updates, and patches. Business practitioners can streamline new updates and patch applications if they limit customizations and move transaction processing to the cloud. Considerable IT resources can be saved and companies can mitigate end-user downtime and breaks in business continuity. Depending on the SaaS offering selected, organizations can also minimize manual in-house processes such as data capture and workflow allowing team members and managers to devote their time to strategically managing the business rather than just its transactions.
Finally, further returns can be found through better interaction with supply chain partners. A company can improve supply chain relations and negotiation position for discounting, pricing, and terms with enhanced communication via cloud networks and improved visibility and control over working capital for both customers and suppliers. And with processing in the cloud, more time can be dedicated to accessing company data to support SRM activities, drive continuous improvements and error reductions, and develop strategic supplier relationships to grow revenues and profitability.
Don’t get left behind. Get your head in the cloud and see what it has to offer!