In today’s competitive business environment, companies are always looking for ways to streamline their processes, reduce costs, and improve efficiency. One technology that can help achieve these goals is an Enterprise Resource Planning (ERP) system. An ERP system is designed to integrate various business functions into a single system, providing real-time visibility into business operations and helping organisations make more informed decisions. Implementing an ERP system can be a significant investment for a company, but the benefits justify the costs.
ROI of ERP systems
“ERP systems are designed to integrate various business functions into a single system, providing real-time visibility into business operations and helping organisations make more informed decisions,” says epicERP’s principal solutions engineer, Mihir Gulabbhai. “However, implementing an ERP system can be a significant investment for a company, and many decision-makers wonder whether the benefits justify the costs.”
When making the decision to go the ERP route, it’s important to consider the return on investment. This can be measured in several ways, including cost savings, productivity gains, and increased revenue.
Cost savings
One of the most significant benefits of an ERP system is cost savings. By streamlining processes and automating tasks, an ERP system can help reduce labour costs, minimise errors, and optimise inventory management.
“An ERP system’s ability to reduce costs is a significant driver for its adoption in modern businesses,” says Gulabbhai. “The potential cost savings through streamlined processes, reduced waste, and efficient inventory management can greatly impact the financial success of an organisation, making it a wise investment.”
ERP systems have the potential to generate cost savings through various means. An illustration of how ERP systems can contribute to cost reduction is when a manufacturing company adopts an ERP system to facilitate the management of its inventory, production planning, and procurement processes. By leveraging the capabilities of the ERP system, the company can streamline inventory management, improve production planning, and optimise procurement. By utilising an ERP system to manage its inventory, production planning, and procurement processes, the manufacturing company can realise significant cost savings related to inventory carrying, production, and procurement. Furthermore, the ERP system can empower the company to make data-driven decisions and improve its overall operational efficiency, leading to further cost savings in the long run.
Productivity gains
“Implementing an ERP system not only streamlines processes and improves efficiency, but it also frees up time and energy for employees to focus on more meaningful tasks,” says Gulabbhai. “With an ERP system, teams can work smarter – not necessarily harder – and achieve more in less time.”
An ERP system can be instrumental in enhancing productivity in several ways. Firstly, it provides a centralised database of information that is easily accessible to all employees, thereby eliminating the need for multiple systems and data entry points.
Secondly, ERP systems automate many manual tasks and workflows such as purchase orders, invoices, and payments, reducing time spent on administrative tasks, freeing up staff to focus on more value-added work.
Thirdly, ERP systems provide real-time data on various aspects of the business, facilitating informed decision-making, faster response times to changes in the business environment, and ultimately increasing productivity.
Fourthly, ERP systems allow for seamless collaboration across different departments and teams, leading to more efficient and productive operations.
Finally, ERP systems offer advanced reporting capabilities that allow organizations to generate insights and analytics on various aspects of their business, leading to identifying areas for improvement, optimising workflows and processes, and ultimately improving productivity.
Increased revenue
Although the primary purpose of an ERP system is to optimise operations and improve efficiency, it can indirectly contribute to revenue growth through various means.
An ERP system can optimise inventory management by providing real-time visibility into inventory levels, thereby facilitating identification of overstocking, stockouts, and slow-moving inventory. This, in turn, can minimise inventory carrying costs, enhance cash flow, and potentially free up capital for investment in revenue-generating activities.
ERP systems can also enhance production planning and scheduling by accurately forecasting demand and ensuring availability of products to meet customer demand. This can lead to faster delivery times, improved customer satisfaction, and potentially higher sales and revenue.
Furthermore, an ERP system can provide valuable data and insights into sales, marketing, and customer behaviour, which can help identify growth opportunities, optimise marketing campaigns, and tailor products and services to better meet customer needs.
“These activities can ultimately lead to increased revenue,” says Gulabbhai. “The streamlined operations, improved efficiency, and data-driven decision-making that an ERP system enables can have a positive impact on revenue growth over the long term.”
Take a long-term view
When considering the ROI of an ERP system, it is crucial to take a long-term perspective. As Maritz explains, while the initial costs can be significant, the benefits tend to accrue over time.
“Moreover, the ROI of an ERP system can vary depending on the industry, the size of the organisation, and the specific needs of the business,” he says. “For instance, a large manufacturing organisation may experience significant cost savings by optimising inventory management and reducing waste, whereas a small service-based business may benefit more from streamlining billing and customer service processes.”
To determine the ROI of an ERP project, you can follow these steps:
1. Identify the costs: This includes the upfront costs associated with implementing the ERP system, such as hardware, software, consulting fees, training, and ongoing maintenance costs.
2. Identify the benefits: While most of the benefits have been covered earlier in the article, some benefits are not as clear-cut. For example, an ERP implementation provides an opportunity to revisit processes with consultants.
3. Quantify the benefits: Assign a monetary value to each benefit identified by estimating the savings or revenue increases resulting from the ERP project.
4. Calculate the ROI: Subtract the total costs from the total benefits and divide the result by the total costs. This will give you the ROI as a percentage.
5. Consider other factors: Other factors that may affect the ROI include the time frame for the project, the potential for unexpected costs or benefits, and the risks associated with the project.
Once you have calculated the ROI, you can evaluate the financial viability of the ERP project and determine whether it is a worthwhile investment. However, it is important to note that ROI is only one aspect of the decision-making process and should be considered in conjunction with other factors such as operational requirements and strategic goals.
To maximise the ROI of an ERP system, it is essential to choose the right system and implement it effectively.
“The selection process should involve a thorough analysis of your organisation’s needs, including current processes, pain points, and growth plans,” says Gulabbhai. “Additionally, it is important to consider the scalability of the system and how it can adapt to changing business needs over time.”
Maritz recommends that the implementation process should involve careful planning, effective training, and ongoing support to ensure that the system is being used effectively and efficiently.
Finally, choosing the right partner to walk through the implementation process with you is crucial. It is vital to choose a partner with the right expertise and culture that fits your organisation’s culture.
As Gulabbhai, points out, “Choosing the right ERP partner is like choosing a business partner; they will be with you for the long haul, impacting every aspect of your business. It’s crucial to choose wisely, as the wrong partner can lead to a costly implementation, while the right partner can deliver transformative results.”
Speak to one of our experience consultants about how you can unlock the ROI in your ERP system: https://www.epicerp.co.za/contact/ or email in**@ep*****.za
