Calculating the Business Value of ERP

  • 14 March 2018
  • CTND
Categories: ERP

Business value concept

Return on Investment (ROI) is one of the most important considerations for company leadership. After all, any investment must yield some value to be worthwhile. The ROI on some investments, like a new piece of equipment that increases your shop’s daily production, is easier to calculate due to your familiarity with their direct benefits.

But what about the ROI of an Enterprise Resource Planning (ERP) system?

Understandably, executives may be hesitant to invest in a costly software solution like ERP. Like any new technology, ERP systems take time to implement and require all workers to be adequately trained. Is the value of ERP really worth the cost?

Answering this question comes down to understanding two things: what kinds of value ERP brings to your company and how to attach a dollar amount to them. In this post, we’ll cover both.

Adding Value to Your Organization

Before you can understand the value an ERP solution brings to your organization, you first need a solid understanding of your organization as it currently stands. Knowing your existing challenges and pain points will frame the way you discuss an ERP investment with other decision-makers in your company.

When weighing the potential areas where ERP will bring value to your business, you should consider:

Data Access

Does your leadership team have access to the necessary data and information to make quick decisions? While business leaders’ experience and expertise are always helpful, leadership needs real-time information and data-driven insights to support fast decision-making. ERP delivers value to decision-makers by tracking real-time data across your production processes, and storing that data all in one place to make it easily accessible to any decision-maker.

Current Supply Chain Visibility

Has a lack of visibility into your supply chain caused problems in the past; such as inventory shortages, production delays, or delivery errors? Have those problems cost your business time and revenue? ERP delivers value by providing greater visibility across your entire supply chain. With real-time insights about materials, schedules, and deliveries, you can anticipate and adapt to sudden changes in your supply chain, before they make a dent in your bottom line.

Current Compliance Processes

How organized is your current compliance documentation system? In the event of an audit that involves a third-party, your company should be able to pass over all necessary information without concern for its accuracy, organization, or completeness. ERP delivers value to companies in highly regulated industries by organizing all necessary documentation in one digital storage system, and helping to track your company’s processes to support compliance across all areas of the business.

State of Your Current Workforce

Is your company facing an aging workforce that’s struggling to adapt to today’s technology? Or, an incoming workforce that’s missing industry expertise and key job skills? Manufacturing companies in all sectors are facing both of these challenges — the median age for a manufacturing worker is 44.5 years old and as experienced workers retire, there aren’t enough skilled young workers coming in to replace them. ERP delivers value to your workforce by storing all information related to your industry regulations, company policies and production processes in one accessible and user-friendly system; helping to bridge the generational skills gap and train the next generation of manufacturing staff.

Putting a Dollar Value on ERP

Of course, speaking of value in intangible terms can only go so far. Executives want to know, in dollar amounts, the return an ERP system will bring to their organization. The question becomes this: which parameters can you use to assign a dollar value to your ERP investment?

Due to the many ways ERP benefits companies, leadership has can assign dollar values to several factors, including:

  • Reduced inventory levels due to improved planning
  • Reduced costs caused by production interruptions and shortages
  • Reduced material costs due to improved procurement
  • Reduced labor costs due to fewer overtime hours
  • Reduced costs of managing compliance
  • Increased revenue due to improved customer relationship management
  • Increased gross margins

The Cost of “Business as Usual”

A common reason that company leadership resists investing in ERP is that they’ve gotten along without it so far, and they’re afraid to risk the time and money implementing a new and unfamiliar system. While it’s tempting to stick to this ‘status quo’ mindset, consider the following:

These companies have benefited from ERP systems in several different, yet all meaningful, ways. Their leadership teams were able to assign value to each area where ERP improved their business, and calculate a return on their investments. They weren’t content with business as usual; no company should be.

If you’re ready to assess the value an ERP system will bring to your business, get in touch with us today. Cre8tive Technology & Design implements ERP solutions designed to meet the specific needs of manufacturers across many industries. We’re here to assist you in choosing the right ERP for your company and getting the most out of your investment.

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