The State of ERP in Vietnam

shutterstock_2198972

Vietnamese companies are increasingly looking for ways to make their operations more efficient and effective. Research has found that a successful Enterprise Resource Planning (ERP) system has the ability to reduce inventory by as much as 45 percent.  Until recently, ERP was out of reach for many Vietnamese companies as the investment was just too large for small and medium sized enterprises (SMEs) to justify. Many local companies did not consider ERP as a viable option. Today, however, SMEs are looking at ERP in a different light, as more affordable options become available.

Vietnam’s ERP market is still relatively small, but it is a growing market that has changed dramatically the last five years. “In Vietnam the local market is growing fast as companies recognize the benefits of ERP,” said Nguyen Chi Duc, General Manager of Exact Software Vietnam, a specialized ERP software provider. In Vietnam, Nguyen added, recent entry into the World Trade Organization (WTO) has put increased pressure on local organizations preparing to compete against a feared international onslaught. Nguyen said that companies in Vietnam are no different from their counterparts in the US and Europe. They are searching for vendors that can provide the required functionality and service quality that companies expect.  Finding relevant data to determine the size of the market can be challenging. Most companies continue to work on rough estimates to determine the size of the market and individual market segments.

ERP misconceptions

The Vietnamese economy has progressed a lot over the last five years. However supply chain management is still a relatively new discipline. “There is a misunderstanding of what supply chain is,” explained Long Chandara, Country Manager of Tectura, an ERP service provider with a Country Office in Vietnam. Chandara highlighted the need for vendors to manage their customers’ expectations of what ERP can and cannot deliver. For example, a Vietnamese company might be interested in a payroll package and expect ERP to provide the same functionally and benefits as best of breed software.  This represents a misunderstanding of ERP. ERP is not a magic bullet to replace all best of breed software in the organization.  Another challenge can be getting senior management on board.  Nguyen succinctly summarized, “Some senior management don’t see the benefits of ERP”.  For ERP to get senior management buy-in, time needs to be invested in developing a clear understanding of ERP and its potential benefits for SMEs.

ERP readiness

Many Vietnamese organizations are increasingly looking at ERP implementation to drive organizational change. However, in Vietnam, ERP readiness is a critical point to consider for any project team prior to implementation. “Companies in Vietnam don’t always have an ERP culture”, said Chandara.  For example, simplifying and standardizing business processes is an important part of any ERP implementation. However, many companies in Vietnam lack the required business processes to do this. Similarly, evaluating business processes is critically important. “There is a [misplaced] belief that automating existing business processes will result in optimized business processes,” said Abesolom Abby Fidel, an independent SAP consultant based in Vietnam. Vietnamese companies need to invest more time in evaluating best practices than is currently done.  That said, with limited data available, identifying best practices can be a challenging undertaking. Vietnamese companies need to institutionalize performance metrics and be clear how performance will be measured. Something that doesn’t always take place.

Limited collaboration

Collaborating and sharing information among supply chain partners is not yet a common business practice in Vietnam. “Companies have a problem with sharing information,” Chandara said.  Nguyen echoed this view,” There is limited supply chain collaboration in Vietnam.”  Poor interdepartmental collaboration and conflict can severely affect the success of ERP implementation. Poor collaborating in the supply chain is leading to poor visibility along the supply chain. Business relationships in Vietnam are sometimes less trustful than one finds in more developed markets, which limits the amount of data companies are willing to share. On a more positive note, Nguyen noted that with the current economic crisis and WTO entry he is seeing more companies collaborating and sharing information.

Implementation challenges

Companies in Vietnam are facing a number of challenges when implementing ERP systems. One of the big errors companies make is to rush implementation schedules.  “ERP implementation in Vietnam takes much longer,” said Nguyen. Chandara added that many companies underestimate the implementation timelines and that project management can be problematic. Streamlining business processes can take a long time in any operation. According to Fidel, Vietnamese companies sometimes lack patience and flexibility in dealing with the required business engineering.

For ERP implementation to succeed companies need to change behaviour in the organization and remember there is no single person responsible for operations. Companies need to understand the capability in their organizations and what they need to do to develop capability. In Vietnam, finding and keeping good people on a project can be challenging undertaking. “Companies don’t always have the human resources for ERP implementation,” Nguyen explained. Especially outside of the major commercial centers of Ho Chi Minh City and Hanoi, finding the right capability can be problematic. Bringing in overseas consultants also presents challenges. “Overseas consultants don’t always understand business practices in Vietnam”, said Nguyen.  Language skills can also be an additional barrier. Developing local talent in the organization is an ongoing process. “Companies need to cultivate and motivate employees,” advised Fidel.  Nguyen added that, to some extent, human resource departments are benefiting from the slowdown in the economy as employees are less likely to jump ship.

Value and return of investment

Despite lower costs now, Vietnamese companies need to have a clear understanding of the investment cost and return on investment. “Companies sometimes underestimate the total cost of ERP implementation,” Chandara said.  According to Nguyen, some companies view the implementation of a well known ERP brand as increasing the value of the company.

The Vietnamese business landscape has changed dramatically the last couple of years and companies are increasingly recognising the benefits of ERP. However, the business environment in Vietnam is very different from more established ERP markets in the US and Europe. Vietnamese companies need to conduct a detailed risk assessment and not base their assessments only on industry research. For any company, ERP is a big investment and implementation and building local capability should not be taken lightly. Especially in these uncertain economic times.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s