How EXACTLY Do ERP Systems Save You Money?
It’s a question many small or expanding businesses ask and what it really boils down to is this: how do I know if my business really needs an ERP system – and, more importantly, will it be worth the cost?
With costs starting from around 30-40k for a typical 10 user ERP implementation, ERP systems aren’t a light investment choice to make. Whether you need one depends on your business – something for another blog post. Whether it will be worth the cost is another matter entirely. Improving business performance is a top cited reason by those looking to invest in an ERP system for the first time according to a 2015 survey by Panorama Consulting.
But how do you calculate whether an ERP system is worth the investment?
Return on investment – in practical terms
The real consideration to any business looking to implement an ERP system is the return on investment. To calculate this, you need to establish what your current issues and goals are and then quantify what improvements to functions in support of those goals are.
Without a consultation, we can’t help you establish or quantify these at this stage. However, we can give you a clearer picture of how an ERP system works to save money across the most common areas that are assisted by streamlined and automated functions: operating costs, admin costs, inventory costs, obsolete inventory and cycle time.
Operation costs
- Making allocation of work more efficient: An ERP system provides overall visibility of jobs and resources, instead of looking at these by department or function only.
- Manufacturing and material planning: ERP solutions can provide a single view of the allocation of materials and resources for production planning. Normally manufacturing businesses struggle to gain an overview of materials and resources or they need to look at three different systems to establish the current state of play.
- Process performance: Without an ERP system there will be processes in place that may not be working but there will be no visibility of this.
Admin costs
- All customer information in one place on one customer record: Usually accounts, services and CRM all hold information but there is no link between them without an ERP system in place. This can double, treble, or even quadruple the amount of time taken to get the information and the number of admin staff need.
- No chasing paperwork, with all jobs recorded real time: Without ERP software, job data is typically recorded on sheets and entered in a service system managed by the service department. However, all of this then needs to be re-entered for invoicing purposes – leading to wasted time, lost paperwork and frustrated staff who can think of much better ways of spending their time.
- Real time view of data to answer customer queries: Usually in businesses that haven’t made the move to ERP, the customer services operator would have to route through numerous systems or data sources to answer simple customer queries. With the information in one place, time spent dealing with customers is reduced – meaning higher profits and happier customers.
- Simple report mechanism, all in one place: Without ERP getting reports for management, service meetings and accounts etc. will be labourious as you have to go into one system and then cross-reference this with another to establish issues and trends.
- Ease of scheduling and employee management for both processes and HR: Without enterprise software in place, employee information will be sat in various systems and scheduling, jobs and holidays etc. will be on different systems that don’t join up. So your service department may have the employee booked in for jobs because they couldn’t see that HR have marked the employee as away on holiday.
Management costs
- Real time reporting and dashboards providing up to the minute analysis of the business or department: Typically in businesses without real-time reporting, teams can spend hours at the end of the week gathering information, much of which is a few weeks out of date.
- Triggers and alerts to highlight exceptions: Without this, management only know about operational difficulties after they have accumulated to become a major risk to the business.
- Project overviews and statuses: Management that make do without this only get a view of true project costs after the project is completed and hours of manual data collation has taken place.
- Employee information and performance: Without an ERP system, it is difficult for management to get a full understanding of their workforce, efficiency and training requirements. Everything is in different systems, meaning that information can slip through the net, or take too long to collate.
Inventory management
- Reduces over and under stocking: Without ERP solutions, the business may have a view of stock holding but will find it difficult to differentiate between good and bad stock, allocated stock and repaired stock.
- Allows for the forecasting of stock requirement: Without this there will be no predictive analytics that look at seasonal trends, year-on-year figures or other variants that affect predictive stock ordering.
- Reports on wastage, returns, swap outs, replacements and items to be returned to manufacturer: This is very important if you don’t want to be left with a warehouse black hole, with no understanding of the stock that is in it and whether it needs writing off, repairing or returning to the manufacturer.
- Gives location visibility for picking, etc: Most business without an enterprise system in place can waste hours searching for stock.
- Provides stock valuation: Without this the business would not have a full understanding of its stock position and how the value of their stock holding reflects on the business as a whole – reflecting on warehousing costs and cash flow.
Calculating the costs and time savings
Interviewing your staff in each department can assist in establishing how much time they feel they waste when they encounter any of the above issues. However, sometimes what your employees say and what they do in reality are very different. You need to be confident that you are asking the right questions and making the right observations.
A good ERP partner can guide you here, by listening to the requirement of the business and often taking you a few steps back to look at the ideal situation, not just what you think is possible based on pre-conceived ideas. They should listen to all stakeholders and employees and offer suggestions based on their experience of implementing systems in different markets. From there, a good ERP partner can build a picture of the best solution and its design and present you with a written document as part of your proposal.
With this, you should be able to assess the return on investment based on what can be achieved and the likely costs. We have provided a guide to likely costs of an SAP implementation elsewhere but it’s important to remember that every company’s needs and likely return on investment is different.
One final thought – it’s not just the software
However, in order to ensure a successful ERP implementation Ziff Davis in Top 5 Reasons ERP Implementations Fail and What You Can Do About It, advises that you need to avoid these five business factors:
- setting unrealistic expectations at the outset
- not managing organisational change
- not including key stakeholders in the implementation
- poor project management
- not addressing business benefits
The ability to adapt quickly to the changing demands of your business are also key and an agile approach is now deemed the gold standard. That’s why we believe in lifetime application management of your ERP implementation, to ensure that it truly reflects your business needs both now and in the future.
To find out more about what the Lifetime Application Management of ERP systems involves, download our guide below.
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