PE Firms and ERP – 3 Issues Private Equity Should Consider About Enterprise Technology
We’ve talked with several PE firms over the last year or so, especially as these organizations consider merger and acquisition activities in the manufacturing sector.
Very often, a PE firm looks to assess the current state of how a manufacturer leverages enterprise technology. A pressing issue for advisors is to understand what is needed for a due diligence to study if the organizations are operating with effective operations.
Many of the key considerations related to enterprise technology involve visibility, accurate reporting, and real-time access to information.
PE firms put a primary focus on whether the manufacturing organization’s legacy systems offer core functionality without the need for manual, expensive, time-consuming stand-alone systems, manual record-keeping, limits of unreliable integrations across third-party systems, and other limitations.
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Our team of independent ERP consultants is often asked to provide insight into key questions. Does the manufacturing operation have timely and accurate financial visibility into their operations?
Other key areas of interest to the PE firms we speak with are an organization’s ability to track product quality across an entire portfolio.
Summarized here are the most common concerns we’ve seen when it comes to PE firms and ERP.
1 – Do the legacy systems offer core functionality throughout the manufacturing enterprise?
In the course of a business process analysis, PE firms should clearly understand whether a manufacturer’s current technology supporting the best practices for the industry. How many activities are being handled outside of the core system through spreadsheets or separate databases?
When looking at concerns related to PE firms and ERP, it is vital that information is consistent across departments and disciplines.
Having reliable data ensures that cost capture and revenue reporting are accurate and reflect an up to date health check on the business.
Key operational processes like Order to Cash and Procure to Pay should be focused on consistent flows of information and not built around an unreasonable number of exceptions.
Exceptions should be controlled through actionable workflow and alerts – often available through good role-based dashboards or Business Intelligence alerts.
How many steps does an order go through before it is released to fulfillment? If it is being repeatedly scrutinized outside the flow of the system – this is an indication of a potential wasteful or broken process.
2 – Are current systems scalable, flexible to handle future growth?
If the PE firm anticipates aggressive growth of the manufacturer, business process transformation will be key. How well does the current technology support growth in the business? Are processes flexible enough to support easy changes in procedures that might be needed to support a new acquisition or expansion to the sales channels of the business?
Modern technology offers some key advantages in managing process changes and enables nimbleness in both execution and reporting. With a modern enterprise system in place, integrating newly acquired businesses or expanding market potential is often a simple matter of configuration rather than expensive programming.
As the firm continues to acquire new businesses within the manufacturing sector, it should be a straightforward process to incorporate the new company onto the ERP platform.
3 – What’s the current state of reporting, data visibility?
PE firms have an insatiable need for reports, financial trend data and other mission-critical reports. Is data easily transformed into meaningful information? Modern technology has made reporting more “real time” and actionable. System controlled alerts can often predict potential problems before they occur, and role-based dashboards can be utilized to “push” information from the system rather than relying on reporting “after the fact.”
As part of ERP process improvement services, PE firms will gain value when they can rely on features to increase data access and visibility, especially with custom Key Performance Indicators (KPIs).
PE firms gain value from modern enterprise systems that provide quick, easily defined reports, dashboards, and scorecards that scale across their entire portfolio.
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We’ve touched on just a few issues of note when it comes to PE firms and ERP.
For a deeper look at the ROI delivered by modern ERP functionality, contact the Ultra team.