The Indusa Blog

Calculating the Benefits of Implementing ERP Software

Posted by Indusa Admin on October 20, 2015 5:19 am

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There are many reasons why your business might be looking to implement new Enterprise Resource Planning (ERP) software. You might be migrating from an outdated system, consolidating multiple applications into one, or implementing an ERP for the first time.

Regardless of your reason for implementing a new system, utilizing new ERP software can present your company with numerous opportunities and benefits. With ERP providers focusing more on usability than ever before, businesses are able to use the software to its full potential – increasing your ability to maximize benefits.

ERP Software Risk Reward

ERP Software Benefits

What do we mean when we say “ERP software benefits”? Either you have a recurring benefit, such as increased production, or you have a one-time reduction in working capital that allows the funds to be used for other working capital requirements, such as managing inventory more effectively. By implementing an ERP, you are empowering your organization to potentially run more efficiently. In the context of opportunities to improve recurring business performance, think of three factors: increased revenue, decreased cost, or increased volume. The right ERP software coupled with a successful implementation can streamline all three of the processes.

In a survey “Optimization trends in ERP usage” by market research firm Gate Point (2013), a survey of 62 Fortune 500 companies were asked about their ERP implementation. The top five expected benefits from the new system were:

  • Reduced level of inventory through improved planning and control
  • Reduced labor cost through better allocation of staff and reduced overtime
  • Improved production efficiency which minimizes shortages and interruptions
  • Increased sales revenue, driven by better managed customer relationships (order management)
  • Reduced administrative costs (time to close)

Even More Benefits to Consider

  • Reduced materials cost through improved procurement and payment protocols
  • Increased gross margin percentage
  • Reduced regulatory compliance costs

Potential Challenges

All of these benefits, and more, are possible to attain through implementing a new ERP system – but that doesn’t mean they will happen overnight.

  • 32% of the Gate Point survey respondents indicated that reduced inventory as their biggest opportunity, only 16% realized that goal
  • 27% of companies reported reduced labor cost as a primary goal but only 12% realized such a reduction
  • 26% identified increased productivity as a goal but 20% reported meeting it
  • 20% reported better order management as a primary goal and 36% were able to achieve this – far exceeding expectations
  • 11% reported closing company books faster as a primary goal and 44% were able to achieve this within three years.

These statistics show that the benefits of ERP systems can have varied results and rates of achievability. In order to have a realistic view of your achievable return on investment, you must carefully asses your company, goals, and ERP implementation.

“Benefits must be tangible and measurable; and someone needs to commit to achieving them,” said Keith Reali, Solutions Architect, Indusa. “Taking risk into account is important and allows for the creation of a more realistic and achievable scenario.” His new e-book “What Will My ERP Cost? Assessing Risk for an Achievable ROI” not only discusses the opportunities and benefits of ERP implementation, but how to calculate potential outcomes for your specific business scenario as well.

Such calculations enable you to prove the worth of a new ERP system, which can be difficult to grasp without taking the time to analyze the relevant data. More uniquely, this e-book and calculator take risk into account, which can be the trickiest aspect of an ROI to calculate.

 

ROI to Calculate Risk Reward

Final Thoughts

By taking the time to assess the opportunities and benefits of implementing an ERP  – regardless of whether or not you have an outdated or inefficient solution, or no ERP at all – you now have a stronger, quantifiable understanding of whether your business should invest in a new system.

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Keith
About the Author – Keith Reali

Keith is a financial and management executive with broad experience in all aspects of business including general management, project management, cost management and financial management.

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Contributing Writers: Sarah Van Wambeke


Topics: ERP