Decision: Go for Option-A – Retain both QAD and SAP but leverage them in an effective way.

What is the business case for existence of dual ERP here?

ABC Inc has inherited QAD and SAP across plants and divisions. Both the ERP’s are in different states in terms of maturity and life cycle.

ABC Inc, after due analysis of (1) Cost & Time and (2) Optimum TCO, presents the following compelling arguments.

1.    Take advantage of the inherent strength of QAD and SAP to meet company’s long term requirements.

2.    Realign the current model to provide best of breed business process solution across the enterprise

3.    The cost of realigning the solution in their case is more effective than complete replacement.

4.    Incorporate and implement Shared Services, Master Data Management and Best of Breed processes.

Dual ERP architecture

However, ABC will have to address the following issues:

1. Since BI / DW will be receiving data from 2 ERPs – e.g. GL coming from SAP and operational data coming from QAD, it will have to eliminate any possible reconciliation issues.
2. Introduce a MDM system which will interface with QAD and SAP to effectively address data model issues. This will address data duplication, data integrity and data enrichment requirements.

ABC Inc arrives at a revised IT ecology of

QAD for Manufacturing, Inventory, Sales and Distribution and

SAP for Purchasing and Financial incl consolidation.

ABC achieves the dual structure with 30% reduction in cost and time for execution. But how does ABC plan to achieve 30% reduction in cost & optimum TCO in this approach? It has to contend with implementation of both QAD & SAP and yet attain cost balance.

Traditional Architecture and financial reporting

Let’s consider the traditional architecture of financial reporting and the complexities that stand in the way of IFRS Implementation.

GL - Traditional Architecture

The traditional architecture revolves around sub-ledgers, ledger and extraction of reports. This architecture and more so, from IFRS perspective, creates the following hurdles.

• Difficulty in integrating structural changes  (e.g. new acquisition, business unit, product, etc.)
• User confusion on where to go for final financial information
• Large/complex Chart-of-Accounts
• Inconsistent definitions and concatenated fields
• Large amount of redundancy between financial systems (e.g. sub-ledger, ledger, CPM, etc.)
• Data latency challenges
• High number and complexity of data extracts and loads between Financial systems
• Onerous maintenance requirements
• Elongated process cycle times (Close to Report, Analyze to React, Planning & Budgeting)

Architecture for IFRS Implementation and complex financial reporting:

To address complexities, including IFRS, companies will have to look for a modular approach to how financial information is stored and processed. Companies will have to put in place a process oriented architecture to address financial data aggregation, in order to enable complex reporting in a seamless manner.

GL-New Architecture

What is the basis of this architecture and what does it provide?

• Move from “Complex GL” to “Thin GL” with streamlined CoA
• Leverage Performance Management Applications to bring together GL, Sub Ledger and Project details.
• Ad-hoc and User defined reporting with more analytical / reporting power
• Streamlined process with increased flexibility and control

Based on the numerous engagements Thirdware was involved in helping companies meet Internal Control requirements, this blog series should help explain the overall approach and execution. While many of the software vendors have provided patches or modules inside their application, unless the overall control process (both business and IT) is understood and addressed in unison, it is never complete.

Coming to the subject:

Internal Controls, for audit and certification purposes, must meet three essential conditions:

1.      Compliance and Controls must be documented

2.      Controls must be implemented and complied on an ongoing basis. It should be made part of the business process.

3.      Evidence must be available to prove compliance with the documented processes

If anyone of these elements is missing, the basic tenet of compliance is not fulfilled.

The foundation of these 3 conditions lies in the following approach

• Understanding and documenting Business and IT controls and their relationship to the financial reporting process
• Identifying risks and designing/implementing controls to mitigate risks and continuously monitoring them
• Ensure the controls are updated (Ongoing) and correspond to business process changes or the financial reporting changes impacting operations

The entire controls process lie both inside and outside the application. While, most companies have completed their initial phase in compliance, the requirement is to change SOx compliance from a project (audit compliance) based approach to that of a business process based approach.  Adopting a process-based approach to SOx compliance helps companies maintain strong internal control over financial reporting and saves money in the long-term and ensures a sustainable controls environment.

At a broad level, Internal Controls and Compliance must address the following: