Articles

Latest Posts

Why Don't ERP Systems Provide Sufficient Intercompany Functionality as Standard?

Enterprise Resource Planning (ERP) systems are designed to streamline and integrate the various functions and processes within an organization. They’re supposed to handle all the accounting and operational needs of any company — aren’t they? Not exactly.


Major ERP systems, like SAP, Oracle, and Microsoft Dynamics, offer comprehensive solutions that cater to a wide range of industries and operational needs. Yet, despite their extensive capabilities, they often fall short in providing functionality as standard that meets the needs of all organizations.

 

This article explores the reasons behind this shortfall and why extensibility solutions like Virtual Trader are necessary to fill the gap.

 

Why ERP Systems Fall Short

 

ERP systems are built to handle the operational needs of enterprises large and small. Given their complexity and comprehensiveness, it’s reasonable to question why additional systems are required at all. So, let’s answer that question.

 

Jack of All Trades — Master of None

ERP systems are designed to be versatile and accommodate the needs of large organizations across numerous industries.

 

This flexibility is both their strength and their limitation. By aiming to be a jack of all trades, ERP systems must cover a broad spectrum of requirements; as such, they provide solutions that cater to the majority of business scenarios but may not address every specific need in detail.

 

Essentially, ERP systems cover about 80% of the functionalities required by most companies. The remaining 20% often includes highly specialized processes — including the complex management of intercompany transactions across numerous business units.

 

As a result, standard ERP systems may not fully support the unique accounting and operational needs of every business, which is especially true in the area of intercompany accounting.

 

Expansion and Increasing Complexity

Deloitte’s Intercompany Accounting Survey involved 81 companies across various industries. The top two challenges of IC accounting cited were non-standardized processes and lack of / poor use of technology.

 

As companies expand and their operational complexity increases, ERP systems are less able to meet all of their needs — and poor technological practices are more likely to emerge. Standardization also becomes more difficult in this scenario.

 

The challenge is amplified when it comes to mergers and acquisitions, which bring together disparate systems, processes, and teams.

 

Such an arrangement introduces additional layers of complexity that standard ERP systems struggle to accommodate. For example, an acquisition could mean that a company needs to integrate different ERP systems with distinct ways of handling intercompany transactions — an operational nightmare.

 

This scenario disrupts the idealized model of having a single, unified ERP system managing all aspects of the business. Instead, companies find themselves dealing with multiple systems and the need to reconcile intercompany processes across these platforms.

 

The more complex the organizational structure, the harder it is for a standard ERP system to manage all IC transactions seamlessly.

 

Unique and Proprietary Processes

No two businesses operate in exactly the same way, and companies often develop unique and proprietary processes to gain a competitive advantage in their respective markets. These processes may involve specific operational workflows and unique reporting processes, for example.

 

Standard ERP systems are not designed to cater to every bespoke need. They provide a general framework that can be adapted to a certain extent, but they cannot accommodate every unique business process without significant customization.

 

This is particularly true for intercompany transactions where each company's internal dealings are highly nuanced.

 

The Evolution of Enterprise Software

Historically, enterprise software was frequently customized by modifying the base code to meet specific business requirements. In the era of on-premise software, companies therefore had greater control over their ERP systems and could implement extensive customizations.

 

With the advent of cloud based ERP solutions, however, the ability to modify the core code has diminished significantly. And, of course, nobody wants to go back to using legacy systems — given the many other advantages that cloud-based software brings.

 

This shift has created a gap where third-party extensibility applications like Virtual Trader become essential. These tools provide the flexibility needed to cater to custom business rules and processes without altering the core ERP code.

 

The Role of Virtual Trader

 

Virtual Trader is a prime example of an extensibility solution designed to address the limitations of ERP systems. It also works no matter how many separate ERP systems an organization is using, centralizing the data across all of them.

 

Our solution allows businesses to implement custom business rules and processes, ensuring that the organization's unique intercompany accounting needs are met. In essence, it enhances the overall functionality of the ERP system, allowing companies to leverage their existing infrastructure while extending its capabilities.

 

Some more benefits of using Virtual Trader include:

  • Automation: Companies can define and automate their intercompany transaction processes, from creation through to settlement, ensuring consistency and accuracy across all business units.
  • Enhanced reporting: It provides comprehensive reporting and analytics, helping businesses gain deeper insights into their intercompany transactions and financial health while simplifying compliance with regulations, including Pillar II.
  • Scalability: As businesses grow and their intercompany needs become more complex, Virtual Trader can scale accordingly, providing a robust solution that evolves with every organization.

 

Conclusion

 

To summarize, ERP systems are designed to be comprehensive solutions that address the broad needs of various industries. However, their role as a jack of all trades means they often fall short in providing sufficient functionality. This is exacerbated as the size and complexity of an organization grows.

 

Other issues include the need for unique and proprietary processes and the limitations of cloud-based customization. These factors highlight the vital role that solutions such as Virtual Trader have to play in intercompany accounting.

 

By integrating with existing ERP systems and offering customizable business rules, Virtual Trader ensures that organizations can effectively manage their complex intercompany processes. To learn more about how we can help your company, or to request a demo, contact us today.

 

 



REQUEST A DEMO