There is some controversy within companies when the issue of investing in an ERP system comes up. And it is that for some people it seems to be an "optional" tool, that although it simplifies the control and execution of the processes, it may not represent any other advantage that goes beyond the initial investment, or that it may even be a project that does not have a substantial return on investment.
However, this reading is intended to disprove these beliefs, and reaffirm the excellent ROI (return on investment) that a quality ERP system can represent.
It should be clarified that we will not mess with numbers or ROI percentages that the implementation of an ERP “could” generate, but since you observe the improvements in each of the company's departments and their corresponding benefits in terms of productivity and profitability, you you will realize the potential ROI of the implementation of a project of this nature.
Later, the improvements in terms of control and execution of processes that an ERP provides in each of the departments of a company will be described in detail, and even more important, how this can boost the profitability and productivity of your business.
But first of all, let's define what an ERP system is…
What is an ERP?
An ERP (Enterprise Resource Planning) system is a business resource planning system. Its main function is to manage, administer, and control the processes and resources of an organization in a systematic and traceable way.
Depending on the vendor, ERP systems generally handle the company's production, logistics, distribution, inventory, billing, and accounting modules. However, this system can also include other areas of the organization such as sales, marketing, production, customer management (CRM), and quality control of processes and products.
Now if we go to know the specific benefits that an ERP brings to the administration, production, purchasing, inventory, sales, finance and accounting departments.
Administration
Let's start with the administration department, where the most important decisions in an organization are made.
Depending on the ERP capacity, a system of this nature will allow the members of this department to make accurate decisions in real time, thus avoiding wrong or untimely actions (corrective or preventive).
In addition, an ERP system offers the opportunity to monitor in detail each and every one of the operations carried out in the organization, which enables a constant tracking of the execution of business processes, and therefore, the security of that the systems and operations that were initially standardized continue to work correctly and in alignment.
Production
In the manufacturing area, we face 5 main challenges:
- Minimize costs (time, waste, and movements) Plan a production based on demand and minimize obsolescence Monitor the correct execution of manufacturing operations. Control the quality of raw materials, processes, and finished product. Identify potential risks in production that hinder the alignment of processes with production goals, and therefore, delay the delivery of the finished product.
How can efficient production tracking, control, and planning be carried out so that the goals agreed with customers (sales orders) are met in time and form?
By implementing a system that aligns each and every one of these supply chain stages, and that in turn affects accounting and inventory statements as items move through the production sequence. This system is part of the multiple functions of an ERP.
Purchases and Inventories
Purchasing and inventories are two departments that are strongly related to the manufacturing area.
On the other hand, even if there is no production department as such, or that the production of the items to be sold is carried out externally, the purchasing and inventory modules (departments) are still necessary in case of marketing products. tangible.
In order to carry out an effective production planning (in case of having a manufacturing area) it is essential that the inventory status can be viewed at all times and that these are affected as the items change warehouse, walk through the warehouse. production line, and leave or enter the institution (as a finished product or raw material respectively).
A similar case occurs when it is not required to control production directly (eg. Marketing company) but it is necessary to monitor inventory levels, merchandise arrivals or departures (times), and re-order points.
Finally, to always keep inventories at optimal levels (maximum and minimum), minimize stoppages in production lines, and avoid delays in order delivery, it is necessary that purchases are aligned with production and / or production orders. sale.
An ERP system has the ability to provide the purchasing department with automatic suggestions for material requisition through MRP (Materials Requirements Planning), which is nothing more than a material requirements planner, which schedules the purchase of raw materials in based on production requirements (production orders).
MRP - ERP Benefits in production
This tool ensures the on-time supply of inventories, which in turn, minimizes order delivery delays, reduces costs related to over-inventories, and optimizes customer service (which has the potential to attract future sales with this or new customers).
Sales
The follow-up to the client in the different stages of sale, the generation and calculation of profitability of marketing campaigns, and the possibility of creating loyalty programs (ex. Points) or exclusive targeted discounts, are just some features that the sales module of a good ERP can provide.
On the other hand, if this ERP has the possibility of being able to place orders, know customer data, and inventory status from a mobile application (as is the case with SAP), the improvement in productivity and efficiency of sales representatives will be seen highly benefited, which translates into higher profits (more sales) and lower costs (times and movements).
Finance and accounting
Now we will focus on the core department of every business (and in some cases the most problematic), the area of finance and accounting.
The greatest benefit that an ERP can bring you in this area is the consolidation of financial information for the entire company in real time, something that a purely accounting software cannot provide.
As each and every one of the operations that affect the accounts and financial statements are aligned, such as purchases (accounts payable), sales (accounts receivable), production (expenses and costs), and marketing (logistics expenses and marketing campaigns). marketing), the consolidation of financial statements is simplified and accelerated, obtaining, for example, a reduction in the time invested in the analysis of financial statements (eg the Guadalajara Chamber of Commerce obtained a 70% reduction in the time invested in this type of analysis).
In addition to this, since each transaction is recorded within the system and cannot be eliminated (only revoked), it is possible to have a traceability of each of the documents generated, and therefore the security that the business processes and systems standardized are carried out as planned each and every time they are carried out.
Conclusions
The increase in productivity derived from the implementation of an ERP system will boost the growth and exposure of your company, while the increase in profitability will allow you to receive higher income and reduce costs.
Finally, below are listed the benefits that a correct implementation of an ERP can provide your business in terms of productivity, costs, and income:
Productivity
- Consolidation of information (search for information in a single place). Systematized, controlled, and more efficient business processes. Decrease in physical documents, paper authorizations, and movements. Automated processes and calculations.
Lower costs
- Reduction of times in consolidation and analysis of financial statements. Inventory control (reduction of over and under inventories). Reduction of times and movements in business processes. (More agile processes and automation of tasks). Greater control and reduction of waste and expenses. Elimination of redundancies (repeated tasks). Reduction of incidents (errors in data insertion, generation of reports, or information migration are minimized). activities outside the standardized process (control and traceability of business processes) Prevention of ant theft and reduction of losses caused by bad practices Document traceability (relationship between all documents involved in sales and purchasing processes) Connectivity (integration of modules / departments, reduction of stationery consumption,and accompanying documents related to transactions). Standardization of processes and systems (standardized, simple training, and with "insurance" against errors in your practice, which facilitates its implementation in other companies / branches if necessary).
Increase in income
- More controlled and efficient sales cycles Simple invoicing (massive invoices can be carried out) Customer follow-up Targeted loyalty and discount programs Calculation of profitability of marketing campaigns Increased customer retention and acquisition of new prospects thanks to better service provided by delivering quality orders on time.
