By Mark Wilson, Chief Executive Officer of SYSPRO EMEA
As manufacturers seek to eliminate process inefficiencies and maximise profitability, they are adopting automation and turning to digital technologies that provide them cross-departmental visibility and control of their operations.
While adopting an Enterprise Resource Planning (ERP) is a great place to start. Originally designed to manage quality and inventory in large manufacturing enterprises, ERP systems have transformed to support a much wider range of organisations as it seamlessly integrates business operations. However, various misconceptions exist about ERP systems that prevent organisations from realising their many benefits. One of the areas least understood is the cost.
MYTH: ERP systems are expensive
Buying an ERP system can be one of the most significant investments your company will ever make. It’s a critical business system that will support your business for many years to come so you want to make absolutely sure you have a successful implementation.
A study by Deloitte showed that for first-time buyers of an ERP, the price was the most important factor. However, second-time buyers had learned an important lesson: the level of relationship and support with the vendor became most important.
It’s true that high-end, innovative ERP solutions package still carries an expensive price tag on them, but that shouldn’t matter as each deployment should be custom tailored for your specific business requirements. You are not just buying a piece of software. You are buying a critical business system that will underpin your entire business for years or decades as it grows and changes.
So, what about the hidden costs?
The implementation of ERP is influenced by several variables that differ significantly from one company to another, costing time and money. Research shows that organisational (i.e. human) issues, which include governance structures, resistance to change and process redesign challenges, are the most common reason for ERP budget overruns. However, many of these issues can be mitigated with a comprehensive change management plan.
Another cost-related issue to consider is the right deployment model for your business. The three primary options are on-premise ERP, hosted/managed service ERP and cloud ERP solutions. Gartner has already openly predicted that 47% of organisations utilising cloud ERP will move their systems to the cloud over the next five years, and while it is certainly a trend for organisations, this doesn’t mean that cloud ERP is necessarily the right model for your business.
Knowing why you require an ERP solution, whether it’s a new model, an upgrade, or a legacy replacement model, is the key to making the most of your overall ERP investment. SYSPRO’s latest research into shows that after investing in an ERP system business on average experience a 16-month payback period. This is why it is important to set realistic Return on Investment (ROI) targets for the investment before the system is adopted. These targets should align with the organisation’s overall operational and digital strategies.
Where ERP saves money
ERP selection is key to a successful implementation of an affordable yet effective system. SYSPRO’s findings also reveal that the average cost of owning an ERP system is approximately 3-5% of annual revenue for most organisations. Instead of paying for different systems to handle various parts of the business, an ERP system handles many changing parts of the process simultaneously, reducing overall staff workload, costs and system expenses. It is therefore critical to view an ERP system as a business investment instead of an expense.
ERP systems generate vast amounts of data which, if integrated and utilised effectively, can become one of the organisation’s biggest assets. This could include optimisation of supply chains, customer profiling and other business process insights. It is forecasted that 65% of businesses will use AI-based ERP strategies by the end of 2022 to gain a competitive advantage.
If you look at the common ERP misconceptions, it is clear how most companies might be missing out on a true opportunity for growth. From finance to inventory, manufacturing, reporting and more. ERP gives you a single source of truth that is used across all the areas of your business to consolidate disparate systems and eliminate manual processes.
There’s no doubt that ERP is a big investment and as with any other large-scale investment, it brings a number of risks. However, with proper planning and a rigorous procurement approach, together with appropriate strategic input, it is possible to plan a project to the budget which does deliver high-value outcomes and exceeds client and executive expectations.