Displaying items by tag: ERP MRP Return on investment

Thursday, 25 February 2016 14:32

Manufacturing ERP: killing the ROI question

Why do so many ERP selection projects stop without choosing a system?

If you're asking the question "Do we need ERP Software?" then the answer is probably yes.  Whether you are using an old, outdated and non-user friendly ERP solution or you don't have one at all, there is no doubt that a properly implemented system can save you time and money, and enforce a set of structures and rules for the business as a whole to ensure profitability and a continued focus on efficiency.  But the one question that often stalls ERP projects indefinitely during the selection phase is that of measuring a return on investment.  Why is that? Let's face it, for high tech maunfacturers and widget makers alike, it is so much easier to justify the investment in production machinery, people and buildings than it is in software.  It is the age old question of an intangible product that requires much more thought to provide an answer to.

But software systems really can help, and without being too scientific, an estimate on the conservative side to the following questions will in many cases easily justify the investment:

1. How many spreadsheets are used in the business containing duplications of the same data, maintained separately by different people?
Go count them, it's incredible.  If you gather up all the spreadsheets you'll easily estimate how many hours per day, week, month can be saved through simply making this information available via a system report at the click of a mouse.

2. Quality Control automation for manufacturing - how many complaints, problems, manufacturing defects per month by customer and reason code are you getting?
What is the severity level, response time, resolution and accountability of these? I f you can't answer these questions, the chances are the same mistakes are being made over and over.  How much is that costing your company by day, week, year?  There is a term often used by consultants called Cost of Poor Quality (COPQ).  It is worth evaluating.

3. Material Shortages - how much production down time is caused by materials not being available? 
Materials Requirements Planning (MRP) is an invaluable tool that will prevent material shortages without overstocking.  MRP is an integral component of a good ERP solution.

4. Fully integrated accounts - can order processing see available credit taking into account existing invoices and outstanding orders? 
This is only possible with a truly integrated system - inputting sales orders into a standalone manufacturing system without accounts leaves you open to raising orders for customers not complying with their credit terms.  It is a fact that companies operating integrated ERP software have lower debtor days on average than those without.  Reducing your debtor days by 5 or 10 days gives a serious cash flow boost.

5. Are you maximising your potential economies of scale? 
Again this ties in with MRP, but it also has implications throughout the business. Most suppliers will offer quantity discount breaks or special pricing in return for a well maintained, accurate schedule of estimated requirements into the future.  What cost savings could you apply here?


For an indepth analysis including tips on justifying the investment in ERP, register to get our White Paper: Building a Return On Investment Justification for ERP

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