ERP Governance in Medium Businesses

You’ve gotten to be a medium sized business by being lean, focused, and fluid. You abhor a bureaucracy and would rather risk a lost opportunity than risk becoming another slow, clumsy, rules-bound organization that can’t respond to a changing market or changing economy. That’s why, when someone tries to talk to you about ERP governance, you shudder, because “governance” sounds like “government”, and “government” sounds like “bureaucracy”.

The simple truth is, whether you like it or not, you are getting big enough – especially if you want to get bigger – that you do have to worry about ERP governance. The company is already too big for you to keep up with all of the details. The integrity of your financial reports, the service levels your customers experience, and the type of customer you are to your suppliers is all determined to a large part by the ERP decisions and design that you built – or are planning to build – into ERP. Given that, who has permission to order a structural change to the way your ERP system is used?

It’s a Fine Line

For instance, suppose that you discover that you have grown large enough to begin developing inventory obsolescence problems? It wasn’t possible for this to be a problem in the past; you couldn’t afford it, and anything not moving stuck out like a sore thumb. Now you have distribution centers, storage bins, and a problem here, a problem there, just sort of accumulated. You correctly request that the problem of inventory obsolescence be addressed. What is the process by which someone can decide to have your ERP system record an inventory reserve against aged inventory? What are the accounting rules? Do you have to involve your financial auditors before moving forward? What will be the affect on your income statement? What will be the effect on your balance sheet? These questions provoke changes in ERP systems, which need dedicated governance.

Take a less obvious example. Who has the authority to change the way material descriptions are constructed within your ERP system? If you put a great deal of thought into easily indexed material descriptions that could be located quickly by customer service when they are on the phone with a customer, how do you know that your vice president of marketing hasn’t requested they all be modified so that they look more customer friendly on documentation?

Who has authority to change an alternative unit of measurement? If customers order in cartons, and someone changes the units per carton from twelve to eighteen, what are the implications the next time the customer orders ten cartons?

There is a fine line that separates healthy business control from unhealthy business bureaucracy. You don’t have to micromanage or form committees to ensure that reasonable checks and balances are in place to develop good decision making processes, ensure financial integrity, maintain service standards, and discourage unethical behavior. This is what constitutes good ERP governance, and unfortunately, you are big enough to have to worry about it.

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Phil Marshall

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Phil Marshall