The value of an ERP (Enterprise Resource Planning) system lies in the promises of better information, consistent systems, and reduced operational costs. With an ERP system, the ability to share data across applications and among different business units translated into more clearly defined business processes. The promise and the value depended on consultants who defined the current state of the business and who had a crystal ball made up of their vast experience to anticipate the future state. Companies counted on their ERP systems to accommodate growth and business changes.
As companies approach 15 to 20 years running the same systems, they are deriving less value from the system that was originally implemented. The number of spreadsheets has multiplied, many are considering a reimplementation, and there are hundreds — if not thousands — of interfaces to systems that perform similar functions, consolidate the data, or translate it so that it is useful to the ever-changing business requirements. The promise of reduced operating costs and consistent systems has resulted in a very high cost of ownership and a loss of business value.
Total Cost of Ownership (TCO) is an attempt to quantify the financial impact of operating an IT product throughout the course of its life cycle. Usually including software, hardware, and training, TCO is a metric that tries to make the true cost of robust systems tangible. More specifically, TCO generally quantifies application-specific hardware and software infrastructure costs required for support, initial implementation costs, ongoing maintenance, and operational costs associated with how the application is deployed. However, focusing only on the hard costs of ownership ignores the significant reduction in TCO that can be obtained by changing operations and business processes. Companies will be able to significantly reduce the cost of ownership of their Oracle E-Business Suite (EBS) by focusing on how the software provides value to the enterprise’s operations. Eliminating silos of information, reducing data and process redundancy, and minimizing complexity for management reporting reduces the cost of ownership for the entire enterprise. This article focuses on extending the useful life of an existing EBS environment to accommodate ongoing business changes.
Keeping these quantifiers in mind, there are four major factors that contribute to a bloated TCO. These are: multiple production instances, poor data quality, a reliance on multiple charts of accounts, and a lack of common business processes. Running multiple production instances of E-Business Suite results in higher infrastructure costs, more resources required for support, maintenance, and upgrades, as well as elevated complexity through customizations, interfaces, and application integration. A lack of focus on data quality can result in poor data governance, customer and supplier inconsistencies, and ongoing transformations required for analytics. Disparate data resulting from poor data governance produces disparate Business Intelligence, while customer and supplier inconsistencies are data quality problems that directly impact the bottom line.
Utilizing multiple charts of accounts is a practice that impacts TCO in a variety of ways, and – as we will discuss later in the paper – a practice that is no longer necessary with the release of EBS R12. The idea of having multiple active charts of accounts indicates that a single chart of accounts was not sufficient for tracking transactions. In other words, a company that uses multiple charts of accounts needed additional perspectives on the transactional data that were not available in the chart of accounts with which the business went into production initially. Such additional perspectives include dimensions needed for statutory and regulatory compliance and for reporting in multiple currencies for operations in different countries. Adding charts of accounts to provide additional information introduces financial reconciliation complexities, a long close cycle, and a general reliance on spreadsheets to get the financial information required by management. Each of these directly increases TCO of the ERP in question. Disparate business processes often go hand-in-hand with multiple charts of accounts. In addition, a lack of common business processes results in increased training costs, a lack of visibility, and redundant processes, all of which impact TCO.
Multiple Charts of Accounts
Lack of Common Business Processes
Reducing the Total Cost of Ownership of EBS
What can be done about it? Now that we know the factors and contributors to TCO, how can we reduce it? The first step to reducing TCO is to focus on value by eliminating redundant processes and data. Duplicate data creates costly problems for both companies and their customers, increasing the probability of error and annoyance. Duplicate data can mean sending multiple or incorrect statements to customers, not having a complete history of a customer’s buy patterns, having to enter information multiple times, having inconsistent terms with suppliers, keeping extra items in inventory, or paying too much in processing and maintenance costs. Cleaning duplicate data can help data exchange with other systems, assist with regulatory compliance and security, and add to the accuracy and value of E-Business Suite. Furthermore, linking initiatives to enterprise value rather than IT performance will result in higher customer retention, market share growth, and increased margins.
The next step to reducing TCO is to focus on a single instance strategy that is driven by business value rather than IT cost savings. Maintaining multiple instances across a company requires numerous patches and increases maintenance, hardware, and license costs. Consolidating into a single instance forces consistent configuration and master data across the enterprise and decreases the pain of enabling future business changes. Changes such as upgrades on a single instance only have to be completed one time. The single instance should also force the adoption of common data structures, common business processes, and centralized support.
The third step to reducing TCO is to consolidate areas of the business where possible, focusing on added value and reduced costs from the perspective of high data quality rather than from the perspective of IT footprint reduction. High quality, consolidated data provides return-on-investment (ROI) benefits due to the exposure of hidden costs or expenses that are simply unknowable without a truly consolidated system. For example, an insurance vendor consolidated previously separate renewals, cancellations, and new policy databases, and in doing so, revealed a pattern of fraudulent activity that was costing the company $14 million per year. Other benefits of high-quality data include greater confidence in analytical systems, less time spent reconciling data, a single version of truth, increased customer satisfaction, increased revenues, and reduced costs.
Leveraging the features of R12 to reduce costs
The ability to achieve a low TCO of any ERP system should be one of the major decision factors that a CFO should consider when faced with the decision of adopting a new ERP system. Companies used to purchase ERP systems just because they thought they had to, without going through the analysis of breaking down the features of a variety of systems and determining which one was the best fit for their current (and future) business. Oracle makes a convincing argument that Release 12 of E-Business Suite is an ERP system that comes loaded with tools and features that are designed for globally expanding businesses and multi-national corporations that have geographically-specific requirements to fulfill that the vast majority of businesses never even have to think about. R12 is designed to reduce TCO. You can’t just implement and run wild without the right business processes in place, but R12 enables you to design and implement the processes correctly the first time, and it provides you with the capability of ingraining change-ability in your processes at design time.
Oracle describes R12 as “the global business release”, and much of the focus has been on improving the ability of EBS to better manage complex global businesses, especially where organizations are centralizing their applications into a shared service environment. Some of the key enhancements accompany the introduction of a Common Accounting Engine with Subledger Accounting (SLA) and Multi-Org Access Control (MOAC). Adopting a single chart of accounts and a single instance facilitates the ability to leverage R12 functionality to meet globalization challenges and reduce TCO.
Ledgers have replaced the concept of sets of books in EBS R12. A ledger can have its own accounting method, calendar, currency, and chart of accounts. Ledgers can be combined into ledger sets for processing all transactions. This means that a user can enter a single transaction in the primary ledger, and by defining create accounting rules and events, can update multiple ledgers without having to reenter the same information for each transaction. Ledger sets decrease manual data entry, review, and reconciliation and thus reduce costs. A ledger set also provides better visibility into information across different parts of the enterprise, increasing management productivity, providing more consistent and accurate reporting, and reducing costs.
In R12, Oracle also introduces a single accounting engine to manage all posting activities into the general ledger. In prior releases, modules such as AR and AP contained their own rules for posting accounting events into the general ledger. The universal posting engine streamlines the close process. By applying standard accounting rules to all business transactions, SLA ensures consistent financial reporting. If the business uses a single chart of accounts, the user only needs to define the rules to create the transactions for posting to the GL or to subledgers one time, and then all the related subsidiary ledgers in a ledger set will be updated automatically. Users need to support only one set of rules, and maintenance of rules is simplified. A single global Chart of Accounts and a single global instance reduces the time spent compiling, reconciling, and consolidating financial data from disparate systems and spreadsheets and reduces the close time between the different modules and the general ledger. With a single chart of accounts and SLA, accounting policies are standardized across the entire enterprise and everyone adheres to the same set of rules and definitions. The data remains consistent, has full drill-down and roll-up capability, auditability, and visibility into all of the activity for the entire ledger set.
MOAC provides the ability to manage customers and suppliers across operating units without changing responsibilities. Users can be assigned to multiple operating units, and processes and transactions can span operating units. MOAC increases the efficiency of operating a shared service center with streamlined access, processing, and reporting across operating units. Operating from a single global instance ensures global corporate consistency and global visibility. From a single global instance, MOAC provides the ability to negotiate with suppliers and leverage purchasing power across the enterprise. A single global instance with MOAC implemented allows customers to make decisions based on complete information, even when the business crosses regions and divisions.
Remodeling or changing your EBS
Remodeling or changing your EBS to facilitate the move to R12 and take advantage of new EBS features has never been easier. As compared to reimplementing, remodeling results in a shorter project duration that requires fewer resources, which lowers your costs. You are able to get accurate and consistent results without having to worry about the different coding styles, standards, skill levels, and versions that would accompany and manual migration. In addition, there are no needs for external applications, mapping tools, or data warehouses to reconcile different businesses. Undertaking a true business consolidation by consolidating all of your production instances into a single EBS instance is the strongest path to reducing TCO of E-Business Suite.
10 tips for reducing costs and adding value
- Business Consolidation
- Single Chart of Accounts
- Data Quality Initiative
- Standard Business Processes and Operating Procedures
- Common Lexicon of Data Definitions
- Standard Reports, Elimination of Customizations
- Enterprise-wide Security, Access, and Control
- Elimination of Silos of Information
- Common Vision
- Complete, Consistent, and Correct Information
If your organization is a global one, do your best to adopt a single global chart of accounts and single global instance in order to take advantage of R12 functionality and additional cost savings. Interfaces only have to be written once, and analytics have a complete view of all the data without ETL (Extract-Transform-Load) from multiple diverse environments. While not the main focus, a smaller IT infrastructure footprint produces a lower cost of ownership. You can also gain efficiencies of operating as a single business such as a managing global view of customers and suppliers, consolidating financials, operating a shared service center, obtaining standardized pricing and discount policies, and more efficient inventory management. Your business cannot afford to miss out on the opportunities to reduce TCO with R12.
- Tips for Reducing the Total Cost of Ownership of E-Business Suite: View webinar online or download the slides
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- Contact us to set up a discussion to determine if eprentise can help your company reduce its TCO of EBS