1. Do the legacy systems offer core functionality throughout the enterprise?
Functionality to streamline processes and systems.
Private Equity firms must assess whether the manufacturing or distribution company’s legacy system offers core functionality of processes without the need for manual intervention or additional siloed, third-party systems. In the course of a business process analysis, the PE firm should clearly understand whether the company’s current technology supports the best practices of its related industry.
One way to determine if the legacy ERP is effective is to document how many steps an order goes through before it is released to fulfillment. If it is repeatedly scrutinized outside the mapped flow of the system, it is an indication of potential waste and inefficient processes that need to be addressed. For example, operational processes such as Order to Cash and Procure to Pay should have a consistent and accurate flow of information that doesn’t include an inordinate number of exceptions.
Exceptions to the established processes should be controlled through actionable workflow and alerts which are available through good role-based dashboards or Business Intelligence alerts within modern ERP systems.
All activities that are handled outside of the core system through spreadsheets or separate databases should be analyzed for inclusion in the business case for an updated ERP.
2. Are current systems scalable and flexible to handle future growth?
Scalability for flexible growth.
When an organization’s financial sponsors expect aggressive growth, business process transformation must be the central focus to achieve eventual value creation. Thus, management must assess how well the current technology supports growth in the business. For example, leadership should determine if the existing processes are flexible enough to support easy changes in procedures in case of organic or inorganic growth.
This way, when a PE firm acquires an add-on to one of their platform companies, there is a straightforward process to incorporate the new location onto the ERP platform.
3. How accurate, transparent and visible is the data?
Lastly, we encourage our Private Equity clients to examine the new company to determine if the current ERP solution allows for accurate, real-time data about the entire supply chain and production, including warehouse management and the ability to track production and quality.
As part of ERP process improvement services, PE firms gain value when they can rely on features to increase data access and visibility, especially with custom Key Performance Indicators (KPIs). Information that is consistent across all departments and is reliable ensures that cost capture and revenue reporting are accurate and reflect an up-to-date health check on the business.
The right modern ERP technology can accommodate industry best practices while remaining scalable and flexible for future growth, all with accurate, transparent and visible data. With modern enterprise systems in place at their portfolio companies, Private Equity firms can easily acquire additional businesses or expand market potential–often through a simple matter of configuration rather than a significant system overhaul.
PE firms gain value from modern enterprise systems that provide quick, easily defined reports, dashboards, and scorecards that scale across their entire portfolio.
We’ve touched on just a few issues of note regarding PE firms and managing the profitability of their portco through current ERP solutions.