Return on investment of an ERP project can be difficult to quantify, but it is important to consider the potential return before embarking on the project. If you’re unsure about investing in an ERP system, an ROI study can give you the information you need to make the right decision.
Many businesses across the country are experiencing difficult times right now. The impact of Brexit, which is largely still too early to quantify, plus the ongoing issues caused by a global pandemic, mean that the finances of all sorts of of businesses are being squeezed from all sides.
A lot of companies are simply in survival mode, hoping to stay afloat once the storm has passed, but some more fortunate businesses have experienced an upturn in their business owing to current circumstances that they wouldn’t have predicted a year ago. Companies whose sales have seen a dramatic increase on the back of the pandemic may find themselves constrained by out-dated processes that will hamper their progress.
This has provided the incentive for many to consider reviewing and modernising their processes, but there are a number of things to consider before starting a digital transformation project.
How much will the project cost?
With a wide variety of options available, there are many factors involved here. Initially, companies should evaluate what features they want from their solution and what problems they are looking to solve. It is also important to consider future requirements and features that will support the business for long-term growth. This will give them a ‘shopping list’ that will help them narrow down the options available to find the systems that fit their needs. Only then is it possible to start assessing the potential costs involved.
Licence costs are just one aspect of an ERP project, however, which can be insignificant in comparison to other costs involved in the project. Implementation costs, development and configuration, as well as training and annual maintenance, will be the majority of the project cost. They should all be taken into account, but none of these are areas to cut corners on.
It is very important to ensure that enough implementation days are bought to ensure the success of the project, and if any development is required, it is better to overestimate the cost rather than underestimate. After all, implementing a new ERP system is never a ‘cheap project’ and failure of the project is the last thing anyone wants. Additionally, cutting corners on training is not a good idea. Staff need to know how to use the system to ensure its uptake, especially if new, more efficient processes will be facilitated by its use. The success of any digital transformation project is dependent on all staff being invested in the new system and processes; resistance to change will just delay and hinder the potential return on investment.
How long will it take for benefits to outweigh the cost of the investment?
This is dependent on a number of factors. Staff buy-in to the new system and process changes is fundamental to its success. Their increase in efficiency may be difficult to measure initially but has a big impact over the longer term. In the finance department, and other departments traditionally heavy on manual tasks, or reliant on paper, automation of time-consuming tasks means they can concentrate on more strategic activities that have a more significant business impact, and therefore increase their output through the time savings that result. This makes staff feel more valued, makes greater use of their skill-set and provides opportunities for further training and career development, which has a positive effect on their overall job satisfaction and happiness in the workplace, but it is not easy to quantify.
Production output and inventory costs are easier measures of ROI. Process automation can increase production, resulting in more effective use of resources and less wastage. It can also keep inventory costs under control by having the right quantity of raw materials required. Any manufacturing company knows that keeping excess inventory in stock is a big overhead so a real-time view of what is required to meet demand, whilst avoiding wastage through use-by dates or inefficient use of the raw materials available, can have an immediate and significant impact on the bottom-line. In this case, the return on investment of new systems and processes is easy to quantify.
What are the potential benefits we might see from implementing a new ERP solution?
ERP solutions and replacement of outdated business practises can improve business revenue in a number of ways – these are just a few:
• Increasing customers by being able to offer competitive pricing after realising cost efficiencies.
• Greater customer satisfaction through better communication/updates and on-time deliveries, which creates customers who keep coming back.
• Better use of resources, both raw materials and human resources, to avoid wastage of materials and time.
• Optimised inventory management, which keeps raw materials and stock at the best level to meet demand without unnecessary overheads, minimising stock outs and keeping the production line moving.
• Increased efficiency achieved by better planning and use of resources based on real-time information.
• The ability to make strategic decisions based on insightful reports into the state of the business, enabling managers to take action and react to market conditions.
There are many areas to consider when looking at the potential return on investment of an ERP project, but the full benefits won’t become clear until the system is up and running. However, there will be benefits from certain functionality that prove to be extremely useful, which weren’t even considered an issue at the outset.
One of our customers, Abbeydale Direct, was surprised to find that the biggest benefits they realised from implementing SAP Business One were ones they hadn’t even initially considered. As David Brownsey, Director, says, “while we initially chose SAP Business One for its capability with reporting and analysis, the more we integrated it into our company, the better it has become for us. The amount you can do with data in the system is really only limited by your imagination.”
Our friendly team has many years’ experience across all industries and business types. We love to work alongside our customers to help them find solutions to ease their business pains and help them achieve a significant return on their investment, both tangible and intangible benefits. To find out how we may be able to help you understand the potential return on investment of your ERP project, please don’t hesitate to contact us.
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