What to Consider Before Investing in an ERP?

Posted by

Slide1

By Karl Crnkovich

It is always great to see a small business grow and mature into a full-scale enterprise.  As part of this growth process, business owners often focus on the KPIs (as they should) such as Revenue Growth, Sales Growth, Inventory Turnover, Revenue per Employee and more.  However, this growth may slow or even stop as companies find themselves poorly equipped to manage this growth with existing tools and infrastructure.

Though target fixation on sales and revenue growth KPIs, many businesses forget to finance this growth through investment.  One of the questions, especially among manufacturing companies, is whether to invest into an ERP system or not.   Acquiring an existing ERP system (or a new one) is one of the biggest investments a company can make, however many small businesses often claim they are “too small” for an ERP. (business.com) The fact is that in today’s business environment, no business is to small for an ERP.   Small players have to be better, faster and more agile then the established competitors and a good ERP can help.

What is an ERP?

Enterprise Resource Planning (ERP) is a software tool which integrates all core processes in the company into one seamless, system.  Core processes such as finance, HR, manufacturing, inventory, BOM, supply chain, CRM, procurement, and others are all integrated to provide visibility, analytics, and efficiency across every aspect of a business. (SAP, 2018)

Why is ERP Important?

In many ways, an ERP allows small businesses to appear and operate like an enterprise-size business.  An effective ERP can facilitate the flow of real-time information across business units and functional teams so owners and managers can make data-driven decisions and manage performance.  In addition, it can also automate various core business processes, guide regulatory compliance, reduce risk, streamline reporting, track orders and purchases and much more.   This automation and availability of key data (often live) in turn enables managers and business owners to focus on core tasks and competencies.

What to consider before investing in a new ERP/MRP:

  1. What do you currently have? What do you have now in terms of systems and how can you leverage (integrate existing systems) into a new resource.  Make a list of what you already have, such as QuickBooks, CRM, etc.   Keep these in mind as you have already invested in these resources and should at least consider how you can leverage this as you consider new MRP or ERP system.
  2. What functionality are you really looking for? What are your key requirements when evaluating the system? You should conduct a needs analysis to assess the features, functionality, and actions that you will need the new system to do. Take the time to think about what functions are significant to your business so that you can choose a system that can handle them efficiently.  Create a short-list of business requirements and changes you want to achieve.
  3. If you are considering an MRP shouldn’t you also consider an ERP? Is your company ready for this?  Here is a basic comparison table to highlight key differences between MRP (II) and ERP systems:

Slide1

  1. Will the new system be scalable to grow as your company and product line grows? Business growth is a good thing, but it can come with growing pains as you scale up.  It demands careful planning and accurate financial information to manage successfully.
  2. Consider Total Cost of Ownership (TCO) as opposed to only up front purchase price.   The Total Cost of Ownership (TCO) for enterprise software is the sum of all direct and indirect costs incurred by that software, and is a critical part of the ROI calculation.  Some costs associated with software as follows:
  3. Don’t only fixate on the up-front acquisition cost.  Consider long term investment and other costs such as licensing, new hardware requirement, subscriptions to various features, data security and other software upgrades, training, customer support, depreciation, data migration etc.  For example:  Assisted implementation or not? If a particular system comes with a monthly agreement, you need to be aware of options for ending the contract and what penalties accompany that decision. If you have to commit to a large upfront cost for the implementation, then make sure you have definite timelines and costs in place before making the purchase.
  4. Disruptive technologies. Does a new system you are considering employs tools like Machine Learning, Artificial Intelligence(AI), Cloud Computing, Block Chain? During your strategic planning you should consider where the industry is heading and plan for the future in order to ensure you maintain competitive advantage and maximize efficiency and effectiveness.
  5. Data warehousing. Do you want the system to be based on your company’s physical location or prefer a cloud environment?
  6. Available time. What is the time between purchase decision to new system being up and running? You may want to consider a turnkey solution from one of the main vendors, but this can come at a price due to lack of customization.
  7. Vendor reputation and ease of use. Read the reviews, talk to suppliers, partners and people in your industry.  Get recommendations and do your research.  If you don’t have the time, get advice from an unbiased consultant who is not tied to a specific vendor. Fontana Global Associates can help in this process.
  8. Consider data security and cybersecurity. Your company’s long term future could depend on it.  What would happen if you lost your intellectual property or your manufacturing process ground to a halt for a week?

Overall, if you are in business and aim to continue to be in business, you will have to grow and keep up with the competition.  In today’s age, this means not only making a top notch product or providing the best service possible.  It also means keeping up with new technologies to gain and maintain the competitive advantage.   Selecting and implementing a new ERP systems might sound like a daunting task as there are many things to consider.  What type of system, should you do an assisted implementation, what is the TCO?  Fontana Global Associates can help you navigate this process and make an optimal choice for your business.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s