Mulitdivisional companies: Integrate systems across your enterprise
The Microsoft Dynamics AX "hub and spoke" model scales to meet the needs of headquarters, branches, or your entire organization
Published: February 15, 2006
The simplest definition of "hub and spoke" is that it is a model for integrating the business management software solution used at a company’s headquarters with the systems used by its subsidiaries and branch offices.
Such a situation—wherein a company may need to employ different business systems in different places throughout its organization—can occur for various good business reasons. At the same, to help enable the organization to function as a whole, the company must also find a way to integrate and exchange the data from these different systems. The hub and spoke concept is a way to achieve this goal efficiently.
If your company manages multiple divisions or offices, Microsoft Dynamics AX is an excellent solution to implement—whether at company headquarters, at subsidiaries or branches, or throughout an entire organization. Read on to discover why Microsoft Dynamics AX is a good fit and whether your company would be best served using it at headquarters and integrate it with the systems of subsidiaries and branches, or the other way around.
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The “hub and spoke” concept explained
The “hub and spoke” concept refers to a parent or holding company that uses one business software system (the hub), which is integrated with the systems used by its individual subsidiaries or divisions (the spokes).
As a metaphor, the image is of a wheel with a core component (the hub) and many sub-components (the spokes). Together, the hub and spokes form a whole that can progress forward as one unit.
In the world of business management software, this metaphor can be identified in the case where the information technology (IT) system of the parent company (hub) must work together with the systems of its subsidiaries (spokes) to enable that organization as a whole to reach its destination or, in other words, achieve its business goals.
Why use different systems?
Microsoft Dynamics AX works well as an all-in-one solution for both a parent company and its subsidiaries. It is not always practical, however, for a company to use one solution for the entire organization.
Since subsidiaries are only responsible for part of the organization’s overall data processing requirements, it may make more sense for them to use a different solution than the one used at headquarters, depending on the circumstances.
Companies that were acquired, for example, may have their own processes and IT systems in place. Or a subsidiary company may offer products or services that have special IT requirements. In such cases, using one system at the parent company and a different system at the subsidiaries or branches, and then integrating them, can offer many benefits, including:
| • | Simplicity – Individual subsidiaries or branches can manage their businesses with smaller and simpler applications than at headquarters, where they must account for every requirement in every location. |
| • | Local requirements – Subsidiaries or branches can run the software that best meets their local needs. Even when they all run the same software, it can often be configured or customized individually to meet local requirements. |
| • | Local control and accountability – Some companies find it easier to do most of the administration and support locally, because it minimizes barriers, such as language and time zones. The increased control also improves local accountability. |
| • | Better performance – Applications running on local servers with smaller user counts can yield huge performance benefits. |
| • | Lower cost – Implementation costs are reduced because the subsidiaries and branches run simpler software, which is quicker and easier to implement. Upgrades are easier and less painful because they can be upgraded one at a time. |
Two common hub-and-spoke integration scenarios
The following scenarios explain how Microsoft Dynamics AX can be used either at a parent company or at its subsidiaries and branches to centralize business functions. Please note, however, that these are just examples; the concepts, challenges, and solutions outlined here can readily be translated to other processes, such as centralizing handling of incoming orders or enabling transactions between subsidiary companies.
Scenario one: Centralizing financial data
Centralizing financial data helps business decision-makers get an overview of their whole organization and meet the financial requirements of authorities. In this scenario, financial transactions are created by the subsidiaries’ systems and transmitted to the parent company.
The subsidiaries function as autonomous business units, with their day-to-day activities being relatively self-contained. For example, they might have their own customers and process their own orders. As financial results are generated by each business unit, however, they are sent to the parent company, where they are combined and consolidated.
How Microsoft Dynamics AX helps you centralize handling of financial data
Microsoft Dynamics AX has an architecture and feature set that make it well suited for consolidating financial data. In particular, the system’s strengths for centralized handling of data include:
| • | A strong journal-based system |
| • | Multiple currency capabilities |
| • | An efficient account structure |
Strong journal-based system
When Microsoft Dynamics AX functions as the hub (the system used by the parent company), the general journal provides a logical place to capture the journal entries transmitted by the subsidiaries. The well-built out-of-the-box reporting and approval logic in Microsoft Dynamics AX makes it easy to review the journal entries manually before posting them.
Alternately, when Microsoft Dynamics AX functions as the spokes (the system used by the subsidiaries), the journals provide a place from which to trigger the transmission of journal entries to the hub. The system can be set up so that when journals are posted on the local system, they are automatically transmitted to the parent company. In addition, the batch scheduling capabilities can execute the reports at night, when general system usage is lower.
Multiple currency support
The General Ledger has excellent support for multiple currencies. When Microsoft Dynamics AX is used at the parent company, the journal entries can be captured from the subsidiaries in their native currency. The system can handle the details of exchange rates and currency conversion.
When the parent company’s system does not have good support for multiple currencies, Microsoft Dynamics AX systems at the subsidiaries can help. You can use Microsoft Dynamics AX to push out the financials in the parent company’s base currency, even though the transactions are executed in the subsidiaries’ local currency.
Efficient account structure
Microsoft Dynamics AX has a simple account structure, rich financial dimensions, and flexible reporting that enable it to operate with fewer accounts than many of the systems it will connect to. For example, in many systems, departments are hard-coded into the General Ledger account structure.
With Microsoft Dynamics AX, departments are a financial dimension and do not need to be coded into the base account structure. Because the dimensions are not hard coded in the Microsoft Dynamics AX account structure, the possibility of structural mismatches between Microsoft Dynamics AX accounts and the account structures of subsidiaries or branches is greatly reduced. This simplifies the process of mapping accounts into the parent company’s chart of accounts.
Learn more about centralizing financials and about future improvements in the Microsoft Dynamics AX Hub and Spoke Integration White Paper.
Scenario two: Centralizing procurement
Centralizing procurement can increase efficiency, and it can also entitle a company to bulk discounts. In a typical implementation of centralized purchasing, requisitions (or purchase requests) are submitted by the subsidiaries to a centralized purchasing department at the parent company. The parent company places the purchase orders with the vendor and communicates the status back to the subsidiaries. Receiving can be performed either at the parent company or at the subsidiaries. Invoice matching is performed at the parent company.
How Microsoft Dynamics AX helps you centralize procurement
Microsoft Dynamics AX’s architecture is well suited to help companies manage procurement centrally. For example, its multilocation inventory and journal-based updates provide a convenient structure for capturing and communicating on-hand and available inventory quantities.
When Microsoft Dynamics AX is used at subsidiaries or branches, it enables the creation of purchase orders for materials, supplies, and capital items that can then serve as requisitions when sent to the parent company. The purchase order module also works well when Microsoft Dynamics AX is the solution used at headquarters. For simple implementations for purchases of materials, supplies, and capital items, requisitions received from the subsidiaries or branches are used to create purchase orders.
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