Master Data Management in the ERP System or Across Software? (Part 2)

Digitalisation - Publications ERP - Publications By: Dr. Harald Dreher - Oct 21, 2021

Benefit from 3 decades of experience in IT strategy, digitalisation, ERP consulting and process optimisation...

ERP Systems and Master Data management solutions undoubtedly have greater intersections. But an ERP system is not always suitable as a hub for master data management. The increasing demand for diverse, individual software solutions in the course of digitalisation often favours a higher-level master data management.

Master Data Management

ERP Systems and Master Data management solutions undoubtedly have greater intersections. But an ERP system is not always suitable as a hub for master data management. The increasing demand for diverse, individual software solutions in the course of digitalisation often favours a higher-level master data management.

This article is part 2 of a three-part series on the topic of "Master Data". Please follow the links for the other articles in this series: 


Table of Contents

  1. Where ERP Systems Reach Their Limits
  2. Master Data Management: ERP System Not Fundamentally Suitable
  3. Superior Master Data Management: Favoured By Market Requirements And the Public Cloud
  4. Centralised Master Data Management: A Pre-Requisite For Eliminating Data Silos
  5. ERP Systems & Master Data: Often Only Basic MDM Functionality Supported
  6. Summary And View of The Further Development in An ERP Selection



Where ERP Systems Reach Their Limits

It is not uncommon for companies to decide to use their own ERP system as a master data hub. On the surface, there is a certain logic to this, after all, an ERP solution is supposed to unite business processes. However, if one decides to make the ERP system the master data hub, one often experiences an unpleasant surprise. You then realise that it is always necessary to transfer master data and other data from the ERP system to other software solutions and back again. Effective master data management is primarily about getting an overall view of relevant company data that is not tied to any applications. The ERP system can be the largest component, but not the only one. Rather, the system acts primarily at the application and process level. However, master data management should be independent of specific applications so that the full potential that results from the totality of the company data can be adequately exploited.


Master Data Management: ERP System Not Fundamentally Suitable

Of course, this does not mean in principle that an ERP system is unsuitable for master data management. Depending on the business model of a company, there are situations where this may be appropriate. Above all, it should be considered when the number of specific software solutions in the company is manageable or the data there is less relevant for an overall view. A connection or integration of the individual software solutions - with an ERP system as the master data hub - can be the means of choice in this case.


Superior Master Data Management: Favoured By Market Requirements And the Public Cloud

However, companies often obtain important information from several data sources right from the start. In addition to an ERP system, there is also a CRM system, special software solutions within the departments - such as HR software - or an MES system. In addition, there is data that is kept in Excel spreadsheets for one reason or another. If subsidiaries and bought-in companies also have their own ERP systems, the whole thing becomes even more complicated. The rapid developments in the course of the digital transformation also contribute to the problem. In specialist departments, special software solutions from the public cloud are becoming increasingly important. The current discussion and problems about the increase in shadow IT in connection with software-as-a-service offers underlines this trend. Indeed, it should be assumed that the number of special solutions within departments will continue to increase significantly with the spread of public cloud computing. Many smaller companies can now afford software that was previously only available to large companies. The low economic barriers to entry and flexible deployment options make this feasible. In addition, market demand for ever more finely adapted and graduated products and services is increasing in many sectors. These requirements can often only be realised with the help of special software.


ERP Systems: Despite Growing Performance, Not All Requirements Can Be Met

ERP systems are, of course, constantly being developed further - and they can now come up with functionality that goes far beyond the basics. Leading ERP manufacturers already offer access to such advanced technologies as business data analytics, machine learning or blockchain as part of their ERP systems. However, ERP software - not least because it pursues other focal points - will probably never be able to map all market- and industry-specific requirements in adequate breadth and depth.


Master Data Management: Increase in Unstructured Data Favours Higher-Level Instances

Structured data is data that can be systematically prepared relatively easily. This includes customer or supplier addresses or product characteristics. Unstructured data, on the other hand, is data that cannot be easily processed (by machine). In this case, appropriate criteria must first be defined according to which the corresponding information is to be filtered out. This data can be contained in texts, videos or audio files. According to various estimates, about 80% of company data is unstructured - with an increasing tendency.


Unstructured Data Crucial For Business Success

However, unstructured data is becoming increasingly important. They often contain valuable additional information that can significantly enhance master data. They enable products and services to be fine-tuned to target groups and to react more quickly to trends. If you take a closer look at company-related mishaps and disasters, it quickly becomes clear: many of them do not come spontaneously, but have been announcing themselves for some time. The real problem is often that the signs are not noticed in time. Conversely, this also applies to entrepreneurial opportunities. Companies that perceive finer market signals due to better data are put in a position to develop profitable businesses and niches earlier than the competition. However, unstructured data already plays an important role in this. This can be, for example, an increase in critical tweets about one's own product or service, or timely reports about severe weather warnings in the area where important suppliers are based. In order to realise the advantages that unstructured data brings, it should be linked to the corresponding master data after preparation. In addition, the master data should be complete and quickly accessible from anywhere. If the data is fragmented, if it is available several times in different formats and levels of detail, a quick and comprehensive assessment of the situation and a timely reaction is not possible. Because, as has already been explained, many companies have a growing number of data sources in addition to an ERP solution, only comprehensive master data management can provide an effective remedy.


Centralised Master Data Management: A Pre-Requisite For Eliminating Data Silos

In many organisations, the realisation is gradually gaining ground that overarching cooperation between IT and the business unit is very important in order to cope with the new requirements in dealing with data. In the area of software development, the term DevOps has become established in this context. This is about a change in working culture and approaches that are intended to ensure successful cooperation between software developers and IT operations. The same increasingly applies to cooperation between the company's own IT and other areas. However, in order for the cooperation to work, it is important to first bring order to the master data world. After all, cooperation can only function smoothly if everyone involved has access to complete, up-to-date data.


Master Data: Departments Have Different Perspectives

In addition, each specialist department has its own perspective on customers, suppliers, products and other master data. This determines the information and contexts they need and consider relevant. This in turn leads to different or differently complete data records being created about the same product, customer or supplier. For example, a customer is interesting for sales because he is a potential (re-)buyer. Accounting, on the other hand, is more interested in the creditworthiness of the same person. This affects the focus of the data created, which often overlaps and is incomplete and redundant. In addition, each department may use other special software solutions or Excel tables in addition to the ERP system.


Overarching Master Data Management Ensures An Overall View in Specialist Departments

This is where the advantages of comprehensive master data management become clear. If data is prepared in a master data management system (MDM system), every department has access to the same information, to the same extent. This way, employees from each department can see the data in a company-wide context and thus make better decisions. For example, customer service could link the relevant product master data in the MDM system with information relevant to other departments. For example, according to user feedback, some programme functions can no longer be found intuitively in the new software user interface. Development and production would have access to this and could react promptly. In another case, employees in the development department could immediately see that the supplier has already replaced the preliminary product needed for planning purposes with a successor version. Cross-software master data management would provide a comprehensive view, regardless of whether the data source is an ERP system or other software.


ERP Systems & Master Data: Often Only Basic MDM Functionality Supported

The scope and depth of the functionality of ERP systems is continuously increasing over time. However, it is also often the case that ERP solutions - there are, of course, differences here from manufacturer to manufacturer - only map the basic features of the tools required for master data management. The search process for finding duplicates could serve as an example here. If the search function of an ERP system only allows a search for exact terms, master data records with alternative spellings or in other formats are very often not found. Furthermore, this also increases the likelihood that duplicates will be created. In addition, many ERP systems often do not master the subtleties when it comes to access authorisations and traceability of data. However, such functionality and more can be implemented in a company-wide master data management solution.


Summary And View of The Further Development in An ERP Selection

The discussion has shown that in many cases it can make sense to set up master data management not in the ERP system, but across software. This is becoming even more important because of the increasing data sources in organisations due to the currently rapidly growing amount of data. The importance of ERP software will not diminish - at least as far as can be foreseen. On the contrary, ERP systems - especially from leading manufacturers - are coming up with numerous technological innovations - such as data analytics, machine learning or blockchain. The number of (sub-)modules and functionality is also increasing, mapping industry-specific requirements in ever greater breadth and depth. At the same time, however, the scope for specific software solutions is also growing. The advantages of higher-level master data management in the age of rapidly growing data volumes can perhaps be compared somewhat to a freshly prepared yeast dough for a cake. Later, each individual piece of cake benefits from the increasing dough volume - it becomes correspondingly larger. In this comparison, an ERP system would comprise several individual pieces of cake. With regard to a system- and software-neutral master data management, all company-relevant software solutions would therefore win - the ERP systems, however, proportionately more.



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We hope you find this publication useful. If you have any further questions on this topic, we look forward to hearing from you." - Dr Harald Dreher