ERP: To have or NOT to have?

ERP products and implementation both are expensive in terms of not just cash outflow but also considerable resources are engaged in its deployment for around an year, first for going LIVE and then a painful change management process takes away initial productivity of staff to make sure that all intended users use it as the primary application for the organization. Also, as complex a system as ERP is, the decision-making around selecting, upgrading, and changing an ERP system is even more complex. The system touches almost every aspect of planning for a manufacturing company, from budgets and reporting, to detailed inventory and production scheduling. It becomes the foundation for growth in both operational efficiency, as well as growth into new, distributed markets. As profitable growth returns in 2010 and 2011, companies are taking advantage of the cash they are sitting on to expand IT budgets and shore up their business infrastructure. Manufacturing companies are deservedly notorious for being focused on cost. But scratching the surface of company priorities provides a little more insight into changing business drivers. While cost continues to be a primary challenge for all business activities, managing growth and the customer experience are close behind. Interestingly, companies without ERP are feeling more pressure to improve the customer experience and innovate. This is derived from having a lack of systems or scattered systems that can frustrate, or at a minimum, be a drag on customer interaction.

InfoVerto recently measured the benefits of deploying an ERP for a couple of manufacturing organizations and got few contrasting figures. Both the organizations used same ERP, were of similar industry profile and size but were operating in different geographies. Whereas, the results for first organization were:

• 22% reduction in inventory levels
• 97% inventory accuracy
• 3.4 days to close a month
• 96% manufacturing schedule compliance
• 98% complete and on-time shipments

The other organization could boast of just below:

• 3% reduction in inventory levels
• 90% inventory accuracy
• 7.3 days to close a month
• 73% manufacturing schedule compliance
• 84% complete and on-time shipments

What does it tell us? Oversimplifying it will take us to a straight forward conclusion that deployment and sticking to the solution is much better for first organization. But, just to look at the other side, one of the organizations in our sample did not have an organization wide ERP but their measurements were also good, as below:

• 90% inventory accuracy
• 7% operating margin growth YoY
• 5.3 days to close a month
• 87% manufacturing schedule compliance
• 89% complete and on-time shipments

These were much better than the 2nd organization with ERP so this question came into our mind, if ERP is required for better efficiency or we can do without it too? Well, a simple answer is that every organization’s dream is to become best in class and if we again have a look at the results of the 1st organization, we will find that they are much ahead of the rest two.

The other benefits for the organizations which implemented ERP Solution are typically:

• Streamlined and accelerated processes to improve efficiency and productivity
• Standardized business processes
• Optimized use of current capacity
• Visibility to business processes across functions and departments
• Modernized technology infrastructure and applications
• Less number (& cost, pain etc.) of disparate enterprise applications in organization
• Linked global operations to improve interoperability and collaboration
• Centralized selected functions using shared services
• Integrated disparate enterprise applications

So while some of the organizations might think that having ERP is more of an issue than not to have it but it is always a case of getting ahead of competition by deploying state of art solutions. Regardless of how efficient you are, a good ERP implementation will make you more efficient. You should focus on streamlining and standardization of your business processes as a goal for your system. Selection of your ERP should be as much about defining the functions you need to grow, as well as the ease of use for the entire strata of users in your company. One critical aspect of the selection process will be the definition of ease of use. And that is something each company must define on its own. Evaluate it yourself!