Any company investing in any new tools or equipment will want to know that the investment will pay off—have sufficient return on investment (ROI) to justify the expenditure. And that’s certainly the case with an ERP system.
Interest in implementing a new or replacement ERP system usually starts with a need to address some operational difficulties—trouble in meeting production schedules, too much inventory, high costs, inability to meet competitor’s moves, shortcomings of the current system, or sometimes just a general desire to improve performance. Once this interest is recognized, a project team is established to set a budget, select a system, and put together an ROI justification.
Most companies will identify inventory reduction as one of the biggest benefits of an ERP system. Many companies actually achieve the savings that they anticipate, but it is the implementation effort and the focus on procedures and discipline that generate inventory reduction (without increasing shortages), not the software itself. Nevertheless, the software implementation is the mechanism for the improvements so it’s not unfair to give the ERP system the credit.
Many companies also achieve significant cost savings through increased productivity, better control of material acquisition, improved quality and reduced lead time. These are all direct and measurable improvements that are often sufficient to fulfill most companies’ capital expense guidelines. But there are even greater benefits available from ERP that are less easy to measure and therefore are often overlooked.
The REAL Advantages of ERP Systems
ERP collects, manages and distributes information across functional boundaries and helps break down information “silos”—those barriers that stand in the way of full cooperation between production, materials, planning, engineering, finance and sales/marketing. The resulting higher quality, reduced time-to-market, shortened lead times, higher productivity and lowered costs can help improve customer service and increase sales and market share as well as margins.
Measurements, analysis and simulation capabilities can help companies plan better and react sooner and more effectively to changes in demand, competitive actions, and supply chain disruptions.
Modern ERP systems are built for the internet-enabled world with e-commerce capabilities and provision for integration and collaboration with supply chain partners, customer portals, and enhanced tracking of incoming material and outgoing product to extend the visibility and control. Many companies are challenged by the continually changing requirements of Internet-based business processes and find that their current ERP system is not able to take them where they need to go. It’s hard to put a value on the ability to take advantage of new and evolving e-business imperatives—or the cost of not being able to keep up with (or perhaps even lead) the competition.