How to calculate the ROI of your ERP system
If you have an Enterprise Resource Planning (ERP) system in place or are considering implementing one, you’ve probably wondered if the investment will pay off in the long run. Today’s ERP systems are more advanced than ever when you get into the things they can do now vs. just a few years ago.
At a basic level, an ERP system integrates the various functions of a business into one complete system with the aim of streamlining business process and data across the entire organization. It accomplishes this with a shared database that supports the multiple functions used across your business. This includes inventory and asset management, ordering, accounting, human resources, customer relations, and more. It can be a massive undertaking and can incur quite a bit of investment depending on the type of business. Naturally, you’ll want to know if your return on investment (ROI) is worth it.
Before you conduct an analysis of your ROI, ask yourself if you have given your ERP enough time to provide an accurate picture of its effectiveness. Popular opinion is that you should wait at least three years before conducting such an investigation. Five years would be even better and more accurate.
If you feel that your ERP has been in place long enough to warrant a look, here are some points to consider when examining the ROI on your ERP system.
Keeping a close eye on your IT budget is an obvious place to start when determining if your ERP system is providing measurable benefits. The most evident savings is going to be in hardware and software. As your ERP is most likely cloud-based, you’re not spending money on acquiring expensive equipment and paying your IT team extra on upkeep and repair. You also aren’t going to be paying for software licenses and upgrades. All of those should be covered by your cloud service.
Another cost point to look at is how your ERP system is contributing to the efficiency of your business and employees. Hopefully, you’re paying for less overtime with an established and consistent ERP in place.
With a consistent and central integration of your business data, your employees should be spending less time organizing your business data. While this saves on payroll, it also improves workflow by unifying the process across your entire business, saving you time and aggravation in trying to get all of the data and employees on the same page.
This also results in less of a need for oversight and enhances any compliance processes you may have and lower auditing costs.
Initiating a new ERP system can help improve inventory control and planning, eliminate waste, and improve your procurement process. This includes having a solid view of your supply chain from start to finish.
A majority of the benefits of an ERP are going to boil down to cutting down on waste in departments across the board. Whether it’s in the warehouse or in the IT department, an efficient ERP is going to help you identify where spending can be reined in so profit remains high.
Customers like seeing a business that operates in a consistent and efficient manner. Considering how a positive customer perception can affect sales is something else to consider when measuring the financial impact of your ERP. By shortening fulfillment times and exhibiting good quality control, your customers will become more committed to doing business with you.
How do the numbers look?
Chances are that you’re going to find the numbers are on your side. While the financial benefits may not be apparent within the first couple of years, continued usage of your ERP system should show increased profits from a combination of savings across numerous departments and in how business is conducted overall and the technology is only improving.
It takes work, some investment and time but it’s a process in which you’re going to want expert guidance. While it sounds like a lot of risk, the larger risk is not keeping up with the technology available to improve and grow your business.