Consolidation of data is a primary concern for enterprises, and their ERP is not the right tool
Enterprise Resource Planning (ERP) systems serve as fundamental pillars in data management for businesses, providing critical insights into inventory, sales and customer interactions.
However, as companies expand globally and engage in acquisitions, challenges arise, necessitating the integration of Master Data Management (MDM) to augment the capabilities of ERP systems. This article explores the intricate relationship between ERP and MDM, shedding light on their differences and illustrating the necessity of adding master data governance on ERP functionality.
Understanding ERP and its limitations
The ERP's primary function is to manage transactional data and provide snapshots of essential resource information. However, as businesses operate across multiple countries or acquire different brands and companies that use different operating standards, maintaining data accuracy becomes challenging if each business unit or brand uses its own ERP instance.
Information held in the ERP often needs to comply with local regulations and geographic variances the diversity of which can result in proliferation of multiple ERP instances, each managing master data independently. The consequence is a fragmented data landscape with no unified visibility across the enterprise. Hence, it gets difficult to trust the accuracy of the information provided by individual ERP systems without firm knowledge of which one has the master record.
Your ERP is a pillar of data management, offering a comprehensive view of stock keeping units (SKUs), inventory movements, sales transactions and invoicing, but it is important to understand two inherent limitations that impede its effectiveness:
- Limited data governance capabilities: ERP systems may struggle to enforce standardized data governance protocols across diverse markets and business units. While different ERP instances may be necessary to serve different markets, they also lead to siloed data management, inhibiting enterprise analytics and operational efficiency. Large enterprises need 360-degree views of customers, suppliers, locations, and assets. Lack of visibility across markets makes it challenging to analyze customer behavior or identify suppliers serving multiple markets at different price points. In essence, ERP fails to be the single source of truth.
- Lack of enrichment capabilities: ERPs are designed to capture transactional data but often lack the ability to incorporate enriched data required for sales, marketing and other customer-facing applications. ERPs are poor in support for sales and marketing. Ecommerce, marketing channels, catalogs and points of sale require different information than that needed for purchasing, including long product descriptions, digital assets, sustainability information, translations and GDSN data.
Enter Master Data Management (MDM)
While ERPs hold master data and depend on clean master data, they possess only rudimentary master data management capabilities. MDM, as a separate discipline, on the other hand, focuses on describing products and assets uniformly. MDM consolidates and enriches data to ensure a single source of truth, serving as a high-quality, consistent master data source for various systems, including ERP.
MDM excels in data governance, ensuring quality, consistency and seamless integration.
By the power of data governance capabilities, such as defining data ownerships, matching and merging records, synchronizing data and establishing business rules and data stewardship for validation, MDM enforces data quality standards, reducing errors and data duplication.
In other words, MDM supports various ERPs and serves as a single source for product descriptions shared with local ERPs. A multidomain MDM covering various master data, such as customers, suppliers and locations, can support ERPs with multiple modules and ensure that all functions are always up-to-date and synchronized.
Regarding enrichment, MDM is designed to be the data foundation for customer-facing applications, offering capabilities for rich content, including translation and digital asset management integration, enabling long product descriptions and sustainability information.
In essence, Master Data Management is fueling all downstream systems with data that can be trusted and is fit for purpose.
Get the comprehensive overview of What is Master Data Management
Integration is a strategic challenge, not a technical problem
It's an easy setup if you have only one ERP, one MDM and some downstream systems. Things get complicated if you have multiple ERPs.
What do you need to consider when integrating?
Your data integration starts with pen and paper; it’s a strategic process. The technical integration is the smallest problem. You need to decide where you create the product and who owns the data. This process of consolidating data is also a consolidation of processes and power in the organization.
Who's the sponsor? Who owns the process? Who owns the changes?
Streamlining data processes also involves change management.
Migration to SAP S/4HANA
The consolidation capability of Master Data Management has proven to be especially useful for companies migrating from legacy ERPs to SAP S/4HANA. SAP customers must complete this transition by 2027 to stay within standard support.
Large multinationals face complex migrations due to organic growth and mergers, resulting in a patchwork of siloed ERP systems. For some, the migration to S/4HANA will take years.
To maintain business operations during the migration to S/4HANA, MDM can help by linking multiple record structures for the same customer or supplier, thus enabling synchronization with legacy systems, as well as generating golden records for S/4HANA.
After configuring relevant data models, automated match and merge can be done within or across record sources, followed by subject matter expert review. The result is turned into a golden record for the destination system.
Because new suppliers and products keep coming into the system, ongoing deduplication and data consistency across systems are crucial during migration, requiring continuous data governance.
MDM empowers migration teams by providing governance, keeping legacy systems synchronized, and feeding SAP S/4HANA golden records across all data types and domains.
MDM enhances data quality and business value throughout the migration process.
