Deciding if your organization shall undergo an ERP implementation initiative is always a hard decision. Since ERP systems are big investments, such a decision shall be made based on concrete reasons and after precise analysis on costs and benefits. This, unfortunately, is easier said than done, since ERP systems have;
- Tangible benefits, magnitude of which, in the best case, can be estimated based on industry practices, and,
- Intangible benefits, which will be realized in the long run and are impossible to quantify until ERP system is implemented.
Given these vague financials, how an executive can make a decision of implementing an ERP system without having a clear picture on Return of Investment (ROI) or Payback period? How can the decision implementing or not implementing an ERP system can be verified?
The situation is complicated and there is no easy answer for this question, but there are some good news as well – after all had ERP implementations been simply gambling, there wouldn’t have been so much winners.
First and foremost, unless your business is arranging space trips to Mars, your company will not be the first one in its industry to implement ERP systems – so it is very likely that enough market data exist for you to study as a starting point for cost & benefit analysis. Without going into any industry specifics, let’s have a brief look at some of the most widely accepted areas that ERP systems are proven provide improvements on:
- Improved planning and forecasting yielding reduced inventory levels and stock holding costs.
- Improved cash-flow and accounts payable practices yielding decreased material costs.
- Improved resource allocation and efficiency yielding reduced labor and overhead costs.
- Improved production and scheduling yielding minimized interruption and shortages.
In addition, there are many intangible benefits of ERP implementation, some of which can be summarized as;
- Better legal and regulatory compliance.
- Standardization across departments yielding more efficient, streamlined and integrated business processes.
- Improved customer satisfaction.
- Increased capabilities on strategic planning.
- Less time and efforts for data entry through elimination of using multiple applications.
- Improved support to top management through better provisioning and higher availability of information for decision making.
There are many other benefits of ERP systems as well as risks and pitfalls during the implementation stage and afterwards. However, there is no ‘ERP benefit calculator’ as such, for any executive to enter quick figures into a spreadsheet and make a decision.
A business analysis shall be carried out by a third party outsourcing partner consisting of professionals who are experts in ERP systems and ERP implementation, and a detailed report shall be prepared so that executives can make the right decision whether or not to invest on ERP systems in their organizations. A successful ERP implementation is worth the time, effort and investment needed to develop such an analysis.
Things don’t have to go wrong for making the decision to implement ERP systems. Contact us now, so that we can work together with the evaluation and next steps on ERP implementation in your organization.