ERP systems have become integral parts of large enterprises. Use of ERP has made operations more efficient and streamlined. Advancement in software solutions has led to further evolution of these systems and they are now even better as they can now cater to the various requirements of the company in terms of both business verticals as well as size. But, whenever it comes to the development and deployment of ERP systems, company boards always have to give it a second thought.
There is absolutely no doubt in it that ERP systems are highly efficacious but, their efficacy comes at a fairly high investment rate. Therefore, before showing the green signal for ERP development, companies tend to go on an ROI calculation and make sure that the benefits of ERP do justify the cost that comes with it. For all those companies that are busy with numbers, here’s good news for you. A well-built ERP system does come with clear-cut benefits that are very much quantifiable and solve your problem of ERP cost justification.
Here are the benefits.
Reduction in Cost of Labor
The advent of ERP allows companies to have a better forecasting of demands along with improved workflows. This brings down the number of rush jobs that was required prior to the installment of ERP. The minimization of rush jobs result in less expenditure of time in material handling, disruptions and extra setups.
Also, the work schedule of employees suffers fewer interruptions as the manufacturing practices are improved. All these things are possible by successful implementation of ERP, which in turn leads to reduction in the amount of labor costs. It has been estimated that proper installation of ERP can, directly or indirectly, can bring 10% reduction in labor costs.
Improved and Better Accounting Controls
Proper use of ERP results in improved collection procedures. The improvements in the procedures include accurate, prompt invoice creation that takes place directly from shipment transactions, proper follow through on derelict accounts and procurement of timely customer statements.
Thus, companies have better accounting controls. Further, there is improved handling of customer queries, which further brings down the number of problem accounts. ERP systems also enable companies to plan better cash utilization as the requirements are forecasted properly, which results in proper cash flow.
Reduction in Inventory Cost
It has been observed that proper planning and improved scheduling practices can lead to inventory reductions by 20 percent. ERP system lowers inventories as it allows manufacturers to sell and buy only what they actually require. With the help of ERP, the deliveries can be coordinated with the actual requirement dates. Also, the orders for unwanted materials can be cancelled or postponed.
Further, companies can keep a proper check on materials obtained and ensure that the materials are purchased in balance, that is, neither too much of a component nor shortage of another. By planning timely changes in the bills, companies can avoid inventory stock of discarded materials. Thus, with the help of more realistic schedules via ERP, companies can reduce heavy bills on inventory.
Improved and Better Sales and Customer Services
Improved management of customer contacts, timely deliveries of products, and improved coordination of sales – ERP system can really make a difference by bringing all these improvements in a company, and these improvements lead to the provision of better customer services via customer satisfaction and more repeat orders. ERP systems also enable sales people to focus more on selling instead of verifying deliveries or apologizing for untimely deliveries.
ERP systems also allow the sales people to react to the changes in demand and diagnose any sort of delivery problems. With the help of these systems, sales people can take corrective actions on time like notifying customers about changed delivery dates or making a change in production schedules. It has been found out that improvements in customer service through ERP leads to fewer lose in sales and increase in sales by at least 10 percent or more.
Reduction in Cost of Materials
Use of ERP system leads to improved forecasting and better procurement practices that result in better negotiations with vendors for prices. Observations state that better procurements and negotiations have typically resulted in material costs reduction by 5 percent or more.
Apart from providing negotiation information, the ERP systems also provide suppliers with better visibility of their requirements. Through better visibility, suppliers can achieve efficiencies by planning their production in a better way, which again results in reduction of cost in materials.
Other than above mentioned quantifiable benefits, ERP also brings in some quality changes in an organization like better day-to-day management of work, proper resource management and improvements in products and process design.
There is absolutely no doubt in it that deployment of ERP system within an organization can bring commercial benefits to the organization. But, not every member of the management can understand this. However, a thorough analysis of benefits versus cost of ERP can convince any die-hard skeptics about its potential and the long-term profits it can bring in the organization.