Manufacturers spend hundreds of thousands of dollars to integrate and maintain their ERP systems, and thousands of hours gathering functional requirements and making blueprints of internal business processes to effectively maximize their investments. However, external requirements, particularly business-to-government mandates, are often underestimated during implementation, resulting in business disruptions and increased costs as issues arise. In this article, we will examine why business-to-government requirements are an integral component during ERP implementation, and how a hybrid cloud solution eliminates on-premise ERP customizations with the benefits of cloud-based services to offer economies of scale.
Business-to-Government Requirements: The Overlooked Cost Driver of ERP Maintenance
Business-to-government requirements are one of the most underestimated costs affecting both implementation and ongoing maintenance of ERPs for manufacturing companies. These mandates are often an afterthought, if not overlooked altogether, being quickly addressed in the final phase of an ERP implementation. The problem with that approach, however, is that government regulations are rapidly growing in complexity, and ineffective or incomplete ERP integrations leave manufacturers at risk for operational shut downs and significant fines.
This challenge is of particular concern for manufacturers with operations in Latin America — a hotbed for business compliance legislation with 10 countries mandating electronic invoicing and associated tax reporting. Plus, as Manufacturing Business Technology has previously explored, such requirements are rapidly expanding across the globe, with European Union countries, Turkey and Vietnam all enforcing similar legislation for business-to-government transactions.
There are several risks involved with overlooking the importance of these mandates and proper integration within the ERP.
- Addressing the issues that will undoubtedly arise if compliance is not strategically integrated into the ERP will take valuable IT time and resources.
- Errors affect manufacturers’ ability to ship products and receive supplies — shutting down deliveries, and potentially production. In many Latin American countries, for example, the government requires a valid, verified e-invoice to accompany all shipments in order for goods to be shipped or received.
- This same e-invoices are required to verify the accuracy of tax deductions. Without them, manufacturers can’t take value-added tax deductions, and instead can be penalized and fined for tax reporting errors.
- As government processes insert additional government validation and oversight into receiving goods and paying suppliers, manufacturing costs to address these requirements rise.
These increased costs and business disruption risks make it critical to address government edicts early in ERP implementation and ensure that ERP maintenance plans include processes to review and update compliance needs.
The Rise of the Hybrid Cloud in ERP Implementation and Maintenance
A hybrid cloud management solution — one that eliminates the headache of on-premise ERP customizations combined with cloud components to maintain compliance as a service — is the best way to address the issues associated with business-to-government requirements.
The integration effort, ongoing support and maintenance required to manage a purely cloud-based system and effectively tie it to the highly customized internal ERP system is expensive and time intensive. Likewise, an on-premise solutions requires constant maintenance and internal compliance experts to maintain the proper business-to-government processes. A hybrid cloud approach eliminates these drawbacks and elicits several efficiencies:
- Economies of scale. A hybrid cloud model for business-to-government mandates allows manufacturers to focus on their businesses while the compliance requirements are updated and managed in the cloud. Why try to master a process internally that is virtually the same for all companies? While on-premise applications were once the only option, manufacturers are realizing that this model can be 80 percent more expensive to maintain than the hybrid cloud model.
- Streamlined compliance updates. Manufacturers, especially those running single instances of their ERPs, do not want to constantly update their core system. Yet government mandates change frequently – requiring changes to data extractions, potential extended attributes, unit of measure transformations, master data transformations, etc. A hybrid cloud architecture absorbs the changes eliminating internal ERP adjustments and connection difficulties.
- A single, simple interface. A hybrid cloud solution lets manufacturers monitor compliance inside their ERP. All of the data and interactions with the cloud and corresponding government servers are done directly from within ERP management consoles. This means that an end user doesn’t have to check multiple systems to do their jobs or resolve errors.
- Real-time compliance with on-premise contingencies. With a cloud-based mode, if the network goes down, then entire compliance operation shuts down — meaning manufacturers can’t print and submit the required documents for shipping. A hybrid cloud model allows for on-premise contingencies in the case of network outages, allowing operations to continue to run smoothly.
By providing the best of both worlds, manufacturers are turning to this hybrid cloud implementation model to manage business-to-government transactions. Not only does this strategy allow for the unique configurations of an end user’s ERP system, it also buffers the centralized ERP system from forced upgrades when the government announces changes and relieves the IT team from having to understand, interpret and implement the local changes into the corporate accounting systems. Plus, the guaranteed compliance and economies of scale provided ensure business continuity and reduces the risk of fines and penalties, ultimately resulting in reduced costs and improved operational efficiencies. As more and more business-to-government requirements emerge world-wide, now is the time to evaluate a hybrid cloud compliance models to ensure your ERP system maintains compliance with evolving legislation.
Scott Lewin is President & CEO of Invoiceware International.