Many business owners and managers may balk at the thought of deploying an Enterprise Resource Planning (ERP) solution. Thanks to publicized ERP solution failures, coupled with the perception that ERP systems are expensive, has cooled many.
However, the reality is that most businesses, if not all, do manage their enterprise. Some form of contact management exists to keep track of customers, some form of accounting tool exists to manage finances, some form of tracking exists to track and manage mission critical processes (distribution, manufacturing, bill time, engineering, etc). The question is not whether a business has an ERP system; it is whether the ERP functions are integrated with one another.
For many businesses the ERP functions are performed manually. Consider Wii-Jet, a fictitious made-to-order manufacturer with 50 employees, with an average Sales Order value of $12k and annual revenue of $10M.
Each Sales rep maintains a client list in Outlook and uses spreadsheet to create quotes. Once a sale is made for a new client, client data must now be entered into a system for billing and another system for manufacturing. An APQC study shows that the median cost to process a Sales Order (SO) is $24.81 whereas the best-in-class (paperless companies) can do it for $5.11 per Sales Order. Using this latest figure, it costs Wii-Jet $4,258/year to process its Sales Order. Data must now be entered in the manufacturing software.
Let’s use 11 minutes as the time to enter a new Sales Order in the Manufacturing Software. This includes, receiving hard/soft copy, entering data in system, and filing the hard/soft copy. Manually entering this information costs another $2,938/year. Once the item is shipped, a manual process for billing is executed. Assuming billing takes 5% of a clerk’s time, this represent another $2,000 annually. With this scenario, Wii-Jet pays $9,196 annually to manage only two (2) elements of its business process.
We have not discussed inventory/raw material tracking, purchasing, and a myriad of other operations. Add to this $1,200/year for QuickBooks, $1,200 for the MRP software and $100/user/year for Office 365, and you soon balloon up to $13,000/year.
The amount of money invested could be put towards an integrated ERP/MRP (Manufacturing Requirements Planning) for Wii-Jet. What is key to understand is that the functions of the ERP/MRP systems must be integrated in a suite. It’s not enough to simply have multiple stand-alone systems; data must flow from one system to another without requiring human intervention (and possibly human errors). The efficiency gains of the integrated ERP system come from the automation of business processes.
Most ERP solutions for the Small and Mid-Sized Business (SMB) is on a Pay-per-User model. This model can scale up or down with the needs of each organization.
Is a business too small for an ERP solution? A review of each step executed in the course of doing business can reveal whether you can, or cannot, afford an integrated ERP system.
Ready to talk about your ERP requirements? Contact us to schedule a free consultation or give us a call at 240-348-5208. Withum Digital will guide you through the process to determine whether an ERP is right for your organization.