Getting the Most Out of
Should companies combine operations or run divisions independently after a merger? With today’s enterprise software solutions, either
approach can be successful.
Mergers and acquisitions continue to impact the metal service center industry resulting in larger, more geographically diverse and sometimes international companies. To efficiently accommodate such growth, a company’s ERP system must be able to handle the various and complex business, operational and IT requirements that are brought on by expansion. Failure of the ERP system to handle such growth can limit a company’s efficiency and productivity and make it difficult to realize any expected synergies.
The two dominant strategies for incorporating new acquisitions into a corporation include integrating them into a common enterprise or, alternatively, to create a network of independently operated companies. Both strategies have been successfully implemented by some of the leading metals service centers. Each strategy brings with it different operational and information technology challenges as enterprises strive to gain as many synergies and benefits as possible.
This option creates one large enterprise where all acquisitions are folded into a single database. Some of the more critical ERP issues to consider under this approach are:
• Scalability—Incorporating acquired companies into a single operation can push an ERP system beyond its capacity as user counts can grow into the hundreds or even thousands. Larger enterprises require a system that has the necessary scalability so it does not come to a crawl as new companies are added. A system that can handle 100 users cannot necessarily accommodate 300, 500 or over 1,000 users at the same time, no matter how much hardware power is thrown at the problem.
• Multi-level organization—In some cases, the newly acquired company may continue to operate with a certain degree of autonomy and occasionally want to appear to their customers as independent. Therefore, the ERP system must have the necessary security and organizational structure to add newly acquired divisions into the central database, yet allow or prevent users from other divisions to selectively view their stock, orders or other information. In addition, a multi-level organizational structure is required to provide the necessary reporting layers of a Division, Region, Branch and Warehouse.
• Personalization—The software should enable each division to have its own logos so that any documents, e-mails or faxes sent by the company have their own unique “storefront,” no matter where the order is shipped from. For companies that want to go further, the system should enable the format of documents such as sales acknowledgements or invoices to be modified to support company branding.
• Security—A multi-branch environment also requires additional security functionality to prevent users from one branch location from viewing or accessing information from another location. For example, a company may desire that a salesperson working in branch location A should not be allowed to view or access orders from location B, perhaps because it prefers the sales teams to compete with each other. Similarly, a salesperson working in branch location A may only be allowed to view stock in branch location A and perhaps B and C, but not location D.
• Operational variances—A smaller location may need to operate differently than a larger location. Therefore, the ERP system should provide options to tailor the overall flow and functionality at the branch or warehouse level. For example, location A may not require Production Scheduling functionality since orders are sequenced on the shop floor by the operator, while location B may require more process control and management of orders by a supervisor.
When acquired companies are run independently, or are located in other countries, the challenge is to make it easy for these companies to deal with each other and take advantage of the inventory across the enterprise. Access to sister company stock for replenishment purposes, buyouts or special items can increase sales, improve margins and maximize the enterprise’s inventory.
Several key ERP features are required to make it easy, fast and reliable for the individual companies within an enterprise to deal with each other. These features include:
• Consolidated stock inquiry—Checking stock in each company becomes increasingly difficult, if not unfeasible, as the number of independent companies added to the enterprise increases. To streamline this process, a single consolidated inquiry is required, so sales and purchasing staff can view stock and incoming material across the entire enterprise.
This inquiry should have the following features: The consolidated stock inquiry needs to be in real-time, as opposed to batch updates. It must include both stock and incoming material, and offer detail on mill, heat, specification, etc. It must provide costs based on intercompany pricing schedules. And it should accommodate multiple currencies so that stock is displayed in the user’s denomination. Such an inquiry makes it easy for sales staff to locate the material they need in a single glance, thereby helping them make a sale and improve the utilization of the enterprise’s inventory.
• Intercompany transactions—It is sometimes more work to buy from a sister company than from a supplier! Enterprise ERP systems need to streamline and automate in-house transactions where the companies exchange business using independent sales, purchasing, shipping and receiving functions. The process needs to be simple, to encourage intercompany business and reduce the overall administration required.
An automated intercompany system should have the following features: It should accommodate buy-out sales. It should be used for stock replenishment transactions. It should handle multiple currencies and multiple languages, as the currency and speech of the buy and supply companies can be different. And it should fully automate the transfer of mill test certificate documents and heat information from one company to the other.
Whether assimilating acquisitions or creating a network of independent companies, having the right ERP functionality is essential. n
Editor’s note: This article was contributed by the experts at Invera.
Invera, Newtown Square, Pa., offers the STRATIX enterprise management system designed specifically for metal service centers. For more information, visit www.invera.com.