Today's economic climate requires companies to continuously seek opportunities to drive efficiencies in their supply chains, enhance revenues and increase overall business performance. Enterprise resource planning (ERP) systems provide significant opportunities for manufacturing companies to realize these objectives.
With every dollar spent on IT and other initiatives being scrutinized, it is more important than ever to be realistic about how to best leverage ERP software. According to the Panorama Consulting Group, 93% of ERP implementations take longer than planned and 60% cost more than expected. Given these challenges, companies need to make smart and deliberate investments in their enterprise software.
Operations executives should follow these three strategies to ensure they are getting the most out of their ERP systems:
- Assess your current systems. The first step is to ask whether or not your current enterprise systems are aligned with your business and operational needs. Disparate systems, manual workarounds and process inefficiencies are common symptoms of having the wrong systems supporting your organization.
- Compare the costs and benefits of investing in a new system. It is helpful to compare the costs and benefits of your current system versus investing in a new ERP system. Despite tight IT spending in many sectors, some companies are finding that purchasing a new ERP system can be a strategic investment that pays dividends in the short- and long-term. Process inefficiencies, lost sales and legacy system maintenance costs are examples of benefits that some companies gain from installing new systems.
- Optimize what you already have in place. Assuming your company is not in a position to invest in a new system, it may be prudent to improve enterprise systems already in place. Lack of training and process inefficiencies and overlooking potential system enhancements are problems that may be addressed by tweaking the current software and processes rather than investing in an entirely new system.
For example, a $35 million manufacturer and distributor of all-natural food products in Long Island, N.Y., decided to evaluate the ability of its systems to help it reach its goal of reaching $200 million in revenue within five years. After an extensive review of its operations and evaluation of potential enterprise systems, it selected a niche ERP system that specializes in food manufacturing and will allow the company to scale for its ambitious growth plans.
The company is in the process of implementing the system, which it plans to have in production by August.
On the other hand, some companies find it more advantageous to optimize their existing enterprise systems. For example, a manufacturer of wireless data devices had been using SAP. However, the company was experiencing problems tracking open orders and with sales reporting and serialization of its products. After conducting a review of the system, the company found that it was not fully leveraging the capabilities of its ERP software. Instead of investing in a new system, the company found that it would be able to address its operational pain points at a lower cost by optimizing its use of SAP.
The company is in the process of implementing changes to the system that it expects will reduce costs by $1 million per year and increase revenues by more than $4 million per year.
There are a number of ways to leverage ERP software to reduce costs and increase revenues. By following the above three steps, manufacturing and distribution companies will be well-positioned to determine the most appropriate and cost-effective way to get more out of their ERP systems.
Eric Kimberling is the president of Panorama Consulting Group, a Denver-based consulting firm that specializes in ERP software implementation.
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