Is an ERP System Truly Necessary for My Business?

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Enterprise Resource Planning (ERP) is useful for many businesses and many industries, from discrete manufacturing to aerospace & defense to medical devices to industrial manufacturing.

ERP gives you a big-picture view of core business processes using a central database management system that can update information in real-time. Done right, ERP helps automate business functions to support your entire business and operational structure.

With a good ERP system, you can improve your planning, manufacturing, and product delivery. ERP can help your business improve its decision-making, be more efficient, and work more collaboratively.

Ultimately, by increasing efficiency and helping your enterprise run more smoothly, ERP helps you reduce your costs and increase your productivity.

Despite these many benefits, it is common for businesses to ask whether ERP systems are worth the investment. It takes time, money, and commitment to implement an ERP system. Here’s how you can determine if that investment will pay off for your business.

Follow this guide to determine if an ERP system is indeed the right solution for your business and its goals.

Assess Your Internal Environment

Take stock of what’s going on inside your business. Examine the resources and knowledge within your business. Among the people who would be involved in implementing ERP at your organization, do you see the following characteristics and abilities?

  • Expertise to build the business case for ERP
  • Time to spend building the case, then presenting it to stakeholders
  • Credibility with company executives and other staff
  • Knowledge of industry best practices

Even if you have staff with these capabilities, it is wise to consider working with a consultant that has ERP expertise in your industry. Implementing an ERP system is a big task, and it often requires some outside help to get it done.

Do a Process Audit

Document how your organization currently operates with a process audit. This will help you determine if activities, resources, and behaviors are being managed effectively, and where there are opportunities to improve.

By documenting your challenges and the opportunities for improvement, you will build a better case for investing in ERP, and you will be better able to explain to your team how an ERP system can help you improve.

Map Your Future State & Set Goals for Savings

Following the process audit, you are positioned to clearly articulate the processes an ERP system could improve, and what savings those improvements would translate into.

Create detailed process maps for your business and for each department, department processes, and all sub-processes to show the future state of all these. Determine the savings or efficiencies that would come from those improvements and estimate the potential gains in revenue.

Then, determine if these processes can be implemented with the technology you currently use, or if it requires new technology. If you need new technology, create a map that shows the inputs for that system and serves as the design phase during implementation.

Combined with ERP, this kind of future state mapping can lead to reductions in inventory, reduced product cycle times, less waste, and improvements in sales and revenue. There’s a lot ERP can do for you when you’ve mapped out the future state of your organization and established what that would be worth to you in savings and revenue.

Estimate the Total Costs of ERP

Implementing an ERP system is not cheap. Costs include acquisition, training for staff, implementation, customization if required, and deployment options.

It’s important to consider all the costs – there may be quite a few you do not initially consider. For example, if implementing the ERP system requires staff working after-hours, you may have to pay overtime. If you will be implementing an ERP system in multiple locations, there may be significant travel costs. If implementing the ERP system requires shutting down your manufacturing process, no matter how briefly, there could be lost sales and revenue. Take all of these costs into account when estimating the costs of implementing ERP.

It is also important to take into account the costs that will be incurred over time for maintenance. Customizations can make your ERP more expensive to maintain, and different deployment options – whether on premise, private network, or cloud – come with different price tags too. Weigh the pros and cons of each against your particular needs.

Calculate Your Return on Investment

Now that you have an estimate for the savings an ERP system could provide your organization, and an idea of the costs associated with implementing an ERP system, you can calculate the return on investment (ROI) you would receive from implementing a system for your business.

That makes calculating ROI sound easier than it really is. This is a challenge for many small- and medium-sized businesses, mostly because the costs of a new ERP system are easier to identify than the savings. Don’t neglect to consider the indirect savings that do not necessarily appear on the bottom line, but still improve your business’ processes.

This may be something an experienced ERP consultant can help you with, to determine the feasibility and value of implementing an ERP system in your organization.

Deciding whether an ERP system is necessary for your business is a big decision, and not one to be taken lightly. Take the time to do your due diligence with these five steps:

  • Assess your internal environment
  • Do a process audit
  • Map your future state – and set goals for savings
  • Estimate the total costs of ERP
  • Calculate your ROI

There are many benefits to implementing the right ERP system. Take the time you need to go through these steps and consider whether ERP is right for you and your business. And if you decide it is, consult ERP implementation tips to ensure your implementation process is smooth sailing from start to finish.

Image Credit: Creative Commos

Is an ERP System Truly Necessary for My Business?