In case you still don’t know already, ERP stands for Enterprise Resource Planning. It is an integrated information system used by all departments in a company. Departments such as accounting, sales, purchasing, manufacturing, and warehousing all see and use the same data.
While many of you would have probably heard about ERP, the key question still lies in How ERP Contributes to Business Success
In this article, we will discuss why your business could benefit from an ERP system in more details.
The Pain Points
Think of a day in the life of your business, how many times do you and your employees wish there was a better way to get the job done? If you keep a notepad handy to jot down every pain as it occurs how long will this list be?
Does growing your business seem stressful and chaotic?
Most small businesses deal with growth by applying band-aid solutions to problems on the fly as they arise. These inefficiencies such as manual processes, multiple systems, and lack of timely information make growth difficult.
Will your business remain successful in the long term?
As you can see, small companies tend to have tedious manual processes, for example, it can be time-consuming to check if the suppliers’ invoice matches what you received on the purchase order. How many documents do you have to touch or find to do this?
Another inefficiency is the duplication of effort, people must often re-enter information into several different systems, for example, the accounting system, the inventory system, or multiple spreadsheets. This causes errors and wastes time.
Multiple systems also cause another type of inefficiency; it takes more time to learn multiple systems. You must deal with multiple software vendors and licenses and some systems can become obsolete. All three of these challenges result in wasted time and inaccurate information. Inaccurate information means it’s hard to make good business decisions and wasted time costs you money. Wouldn’t you rather spend that time on money-making activities?
How Can ERP Help with Inefficient Processes
There was a survey done by the Aberdeen Group on process inefficiencies within organizations and what effect having ERP systems has on them. It looks at five categories for improved processes and groups respondents into four classes’ best-in-class through to ones with no ERP.
The first category is the standardization of back-office processes. Do your customer service personnel have to roam from department to department to track down the order status for a customer waiting on the phone? An ERP system allows you to see all the information pertaining to the customer’s orders, payment terms, and quotes all interactions in real time. The survey results show that laggards who aren’t using their ERP system still perform better at standardized processes than companies with no ERP system.
The second improvements are in the integration of manufacturing operations to customer service logistics and delivery. Information entered into one area of an ERP system is immediately visible elsewhere. For example, receiving inventory into the system creates goods receive the note that makes supplier invoice matching a breeze. No more routing through multiple filing cabinets just to pay a supplier invoice. Again, the laggards who are not using their ERP system well outperform companies with no ERP system.
The third benefit of having an ERP system is that decision-makers can drill down from summary data to transactional data. This gives decision-makers a big-picture view and the ability to quickly drill down into anomalies. Again, the best-in-class outperformed the laggards who in turn outperformed companies without an ERP system.
The fourth efficiency gains from an ERP system include automation and alerts. ERP can automate tasks like invoicing customers weekly or generating daily reports, it can also alert employees of potential problems such as emailing the sales manager if a key customer has not ordered in the past month. Here the best-in-class lead the pack for all companies while no ERP companies fall behind.
The final benefit of an ERP system is real-time visibility into all of your business processes. Think of it as a wall of live feed TV screens displaying all areas of your business conveniently on your computer screen. So as you can see companies that implemented an ERP system outperform companies with no ERP in process, organizational, and knowledge management capabilities.
These are the tests that help you focus on money-making activities rather than data.
Can We Grow Without Growing Pains?
Now let’s look at some specific problems facing small businesses regarding managing growth. First, there can be compliance issues, for example, new customers might require certifications or standards. Similarly, entering new markets can involve government regulations; you might even pay fines for non-compliance.
You can also waste a lot of time gathering data to prove compliance, for example, it can be tedious doing a product recall and tracing the lot numbers. Another inhibitor of growth is islands of data, information is scattered across multiple sources and is inaccurate. This causes delays and getting good information to make sound business decisions.
Poor customer service and retention also inhibit growth if your business can’t satisfy higher order volumes customers will go to your competitors and your growth will stall. Another problem that stifles growth is overworked and stressed-out employees, they feel frustrated because getting the job done seems chaotic and inefficient. Frustration leads to turnover and turnover makes growth difficult.
How Can ERP Help with Growth?
ERP systems are designed to help companies meet compliance requirements visibility on lots from receipt to manufacture to delivery. They can help you quickly and accurately identify all affected work orders or customer should there be a product recall or a need to submit documentation to prove compliance.
The power of having all this information in one system is that the system now becomes your single source of truth. Imagine having that kind of visibility and not having to hold extra inventory just because that cash can be reinvested back into the business. Better information from your system can also improve your customer service levels.
Accurate inventory information means you can properly locate and deliver inventory on hand to your customers when they want it or clearly communicate where and when it will be available. After all satisfying customers incrementally increase your chances of keeping them longer. The ease of compliance and increased reliance on data helps decrease the stress on employees.
Happier customers also mean that employees are able to build on the positive relationships to help longer customer retention. Best of all the ease of access to data empowers employees to make daily decisions that ultimately lead to their satisfaction and engagement with the organization.
Will the Business Remain Viable or Successful in the Long Term?
Another concern you might have is long-term viability of your business. Can your business scale up to satisfy much larger customers or does doubling your sales require doubling your headcount? What if key people leave? Is your business highly dependent on the tribal knowledge in their heads? This is a huge risk for many small businesses; it also leads to burnout of your key employees.
Another challenge is accessing more money to grow your business, often this is a major constraint. Other long-term concerns are attracting investors and your exit strategy. Do investors or potential buyers perceive your business as a smoothly running machine or is it somewhat chaotic and which type of business will attract more money?
How Can ERP Help with Long-Term Viability?
Having good business processes in place gives you time to anticipate changes to your market and agility to respond to them. You can rapidly ramp up existing processes for new market requirements while ramping down old inefficient processes. This is far easier to do with an ERP system which can scale more easily than people.
Also with an ERP system, you can move the tribal knowledge from your people into the ERP system and its archives. This means that you and your key employees can finally switch off your phones and emails while on vacation. Organizations grow over time but not all growth is self-financed often having sources outside such as banks or government agencies can be approached for funding. Having an ERP system in place cannot guarantee funding but it can make it far easier to gather the information needed to apply for loans or grants.
So Why not ERP?
So now you understand how an ERP system can really help your business but you are still not convinced, you think that an ERP system requires more people and more time to feed the beast. You think that an ERP system is too complicated for your simple business processes and you think that ERP systems are too expensive. Yes! You will have to put the effort in upfront to adopt new processes and implement the system however once you are past the learning curve the efficiencies stay with you.
You keep your current people who now use the ERP system to be more efficient, same staff more work done. Implementing an ERP system can be intimidating but it is modular, it can be implemented in phases over time based on business need and team availability. The system is also scalable which means it can easily accommodate new users as they are ready to adopt the system.
The final concern is a big one, money. You don’t have to spend a fortune to implement an ERP system but it does come with an upfront cost. Even here there are various options available to ease the burden. Most ERP companies can recommend leasing companies that will help finance the purchase.
Another alternative worth exploring is a cloud or software as a service option which turns ERP into an operational expense with monthly billing rather than a capital expenditure. Finally, there are a number of government and related agencies that offer funding initiatives for projects like ERP implementations which increase efficiencies or productivity.
What to do Next?
So if you are starting to think more about the benefits of an ERP system, here are some steps you can take and even if you are not interested in an ERP system you should still do these steps to benefit your business.
- Look at your current processes look for inefficiencies and opportunities to improve.
- Walk around the office and list all of the systems used by your staff, don’t forget to include wrote specialized programs useful in certain departments.
- Think about where you want your business to be in the future, things like growth strategies and new markets.
- Finally, compare your two lists and identify gaps that could hinder your future business growth that will help identify a path to your continued success.
As we have seen an ERP system gives you unique insights into your business, this gives you the power to make informed business decisions to achieve even greater success.