ERP Implementation Lesson learned
Set per customer pricing and manage by exception
A Controller I know was concerned about margins and controlling special and rogue discounts. When the company put in a new ERP, he went to IT and had them put in an approval process that would allow him to approve each and every order line item where the price differed from the standard sales price. This was easy to do and, the IT department rolled it out with the initial implementation. Things worked well on day one when few orders were entered. Unfortunately, by day six his inbox started filling up with hundreds of approval requests. He was understandably concerned that his expensive new ERP would make him a slave to an approval process.
Why the huge volume? The company had a standard price list, but most of their customers had negotiated special rates or discounts (his concern about margins was valid). During order entry the sales organization simply updated the orders to the correct price. The Controller called a meeting with the consultants and asked for a fix.
Their old ERP system had limited special pricing capabilities and couldn’t handle customer specific pricing. Also the sales department pushed back on taking the time and effort to document and enter each and every price agreement and special discount. They argued it would take too much time. Perhaps they were also a bit worried it would bring all the ‘pricing skeletons’ out of the closet and expose people to questions they perhaps didn’t want to answer. Regardless, they brought their old mindset and presumptions to the new ERP.
The solution was simple. SAP makes it easy to load and track pricing per customer. Rather than one single price list, they created a price list per customer and then instituted a price list approval policy. New price or discount agreements needed to be approved once. Any deviation from the price list would then require approval. His approval volume went down considerably. Order entry efficiency and accuracy improved dramatically as the correct pricing was auto-applied to each order line. Forcing the sales people to clearly document all their pricing agreements and formalize the process of getting those agreements approved did flush out more than a couple ‘skeletons’.
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