ROI on ERP: When You Need it, How to Begin and Does it Make Financial Sense?
Taking the plunge and purchasing new (or for the first time) Enterprise Resource Planning (ERP) software system can be a daunting endeavor. There is cost involved, reorganization of how you run your business, training, and of course the ultimate goal of a return on your investment (ROI).
You can go into this choice armed with knowledge, which can help you make the optimal decision for your specific business needs.
Symptoms of a Company That May Need an ERP System
Described many times as 'software aches and pains,' there are a number of symptoms that demonstrate you may need Enterprise Resource Planning (ERP) software now, or soon.
Standalone Databases/software that cannot communicate between departments: Your employees rely on external workarounds, such as Microsoft Excel, to complete separate job tasks. There is no way to centralize the data in your system, and therefore there is no communication which results in decreased productivity.
Reporting Frustrations: You need answers from your current system, such as profit and sales margins, product availability, sales productivity, complex financial reports and other necessary information to know where you stand, and where you need to grow. Your current systems does not provide you with this vital information, or reporting functionality.
Duplication of Work: Your software program is not centralized, and therefore separate departments must many times complete identical work to accomplish their job responsibilities. Your human resources are not being utilized efficiently, likely losing you time, money and productivity.
Compliance Issues: Your company has had difficulty, or has failed to meet regulation compliances such as International Reporting Standards (IFRS) and Sarbanes-Oxley. You have incurred auditing fees due to inadequate processes with your current software.
Software Functionality: Know what you want it to do.
Are you looking to save money, have the latest technology available to your workforce or compete in the global market on an even playing field? Or maybe you want to see data relating to your entire operation all in on place, gauge productivity at different work stations or make sure you are sales tax compliant across the country. Do you want to provide not only your vendors, but your customers, data and information that is easily accessible? Know what functionality you need and want from ERP software and be able to communicate those requirements to a potential software partner.
Steps to Take to Find an 'ERP Cure'
Get informed. Information is flowing on the internet relating to available options. Some good resources are www.inside-erp.com or www.erpsoftware360.com.
Request a demonstration. The above named websites list the different ERP software options available. They include the top three in the market share - Microsoft Dynamics, SAP and Oracle, in addition to other options. Experience a few demos and ask pointed questions relating to your business processes and how ERP can address them.
Choose the right partner. Experience and knowledge are beyond priceless when it comes to choosing a software partner - to not only sell it to you, but to implement it, train your employees, and provide support to you when needed. Investigate how long your potential vendors have been in business, ask for references and talk to their customers about their experiences. Consider strongly those who have a proven track record working [successfully] with companies similar to yours.
Consider Your ROI
Determining what the return on your investment is, is dependent upon a wide variety of factors. And those factors will vary from business to business. One company may have a drain on human resources and capital due to duplication of efforts because software cannot update between departments, while another company has poor inventory management processes and accounts receivable management that take the lion's share of resources - both human and financial. Another company may have higher than average accounting and audit fees. All of these issues that unnecessarily cost a company money are often times due to poor functioning software.
So how do we figure out if, and how long it will take to make back the money you spend on an ERP systems? An exact answer to this question can be likened to throwing a dart at a target with a blindfold on...
What is certain is that inefficiencies across the board cost you time, money and all other resources available to your business. When those issues are fixed through software that meet's your company's specific needs, there is true value in that.
On average (and this is a VERY liberal average) an ERP deployment is roughly $100,000 - meaning some are higher and some are lower. Functionality, number of components purchased and specific reporting capabilities needed all factor into the total cost. Then there is maintenance, which averages between 16-19% across the industry per year. Consulting - again an average - can run around $50,000, while hardware can reach around $18,000.
What needs to happen for you to have a full picture of what your specific ROI will be is to first determine where your inefficiencies lie, and how much money you are actually losing due to software that simply isn't getting the job done for you. Once you have that information, you will be able to draw a more clear picture as to if ERP software is the right decision for you.