Business Automation and Software Blog

A Closer Look at Enterprise Resource Planning Systems

Posted by Robert Baran on Thu, Apr 21, 2011 @ 03:55 PM

It is a common misconception that Enterprise Resource Planning (ERP) systems are just for large businesses. Though this may have been the case when they first came on the scene due to high dollar investment costs, there have been affordable options available for those in the mid-sized sector for some time now.

Studies show that when compared to similar organizations in size and sector, small and mid-sized organizations with ERP systems outperformed those without in regards to process, organization, and knowledge management capabilities. This is because a properly implemented ERP solution provides better visibility to service the customer, improved inventory management, and efficient processes which allow for a more streamlined growth transition.

In a survey on the effects of ERP on small to mid-sized businesses, Aberdeen Group contacted 783 companies, of which roughly 133 had not implemented an ERP solution. Within that group they were instead using: spreadsheets (57%); accounting applications (50%); multiple disparate applications (37%); home-grown applications (22%); and legacy applications (20%). Many of these noted that spreadsheets are familiar, and their older systems are comfortable. Unfortunately spreadsheets are not auditable and can be widely susceptible to error, while out dated systems can hold an organization back from future growth capabilities.

When asked why they hadn’t invested in ERP the most common answers were:

  • We have been able to function effectively without it in the past (46%)
  • We are too small (41%)
  • It would be too difficult to implement it internally (26%)
  • Fear of cost of software and services (20%)
  • We anticipate being able to continue to function effectively in the future with ERP (19%)
  • The systems are too complicated (6%)

The Aberdeen report expects that explosive growth and planned growth beyond a pre-defined threshold may be the catalyst needed for SMB’s to take the plunge. However those who have not yet considered ERP may want to take a look at the performance levels of their competitors who have. Aberdeen broke down those surveyed into 4 classes: Best in Class (those in the top 20% of scoring measured against several Key Performance Indicators (or KPIs); Industry Average (those in the middle 50%); Laggards (those in the bottom 30%); and those with No ERP. Of those surveyed who had implemented an ERP solution, the top 20% best-in-class reported the following:

  • A 21% reduction in operating costs
  • A 19% reduction in administrative costs
  • A 17% reduction in inventory*
  • A 16% improvement in Schedule compliance*
  • A 17% improvement in complete and on-time delivery

If you’d expect the Best in Class companies to outperform those without ERP, you’d be right. On average they outperformed in each category by an average of 36%. However you may be surprised to note the differences between those in the ‘Laggard’ versus those in the ‘No ERP’ classes:

  • Standardized back office processes:
    1. Laggards: 59%
    2. No ERP: 42%
  • MFG operations integrated with customer service, logistics, & delivery:
    1. Laggards: 50%
    2. No ERP: 20%
  • Capability to drill down data to identify transactions that form the fiscal and operational audit trail:
    1. Laggards: 41%
    2. No ERP: 26%
  • Ability to automatically notify decision-makers when scheduled activities fail to occur on time:
    1. Laggards: 21%
    2. No ERP: 12%
  • Have real time visibility into status of all processes from quote to cash:
    1. Laggards: 34%
    2. No ERP: 15%

Ultimately as shown by this report, ERP is going to be a necessity for even small and mid-sized companies if they wish to standardize back-office processes and gain more effective control of their organizations. The benefits outweigh the costs, and the ROI can be significant if the system is implemented properly. From operational improvements, to streamlined business processes, an ERP system can help an organization gain better visibility, organization, and provide for growth. If you are considering an ERP implementation be sure to plan ahead, set specific goals and timetables, and have a plan for measuring the end results. We think you’ll be impressed with the outcome.

Topics: Sage 300 ERP, ERP Software, Sage 50