Three reasons to implement a new ERP system

May 9, 2014
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ROI ButtonIn my experience, implementing a new Enterprise Requirements Planning (ERP) system can be an expensive and risky undertaking. I advise my clients that the decision to replace the existing system or to implement their first ERP system should be driven by one or more of the following three factors.

        1. To improve profitability and cash flow
        2. To solve problems with existing systems
        3. To improve operations

 1. Improve profitability and cash flow

Executive are always looking for ways to improve profitability and cash flow. Good ERP systems can help by reducing costs of material and labor, and driving faster through put.  A modern ERP system can help improve your  basic planning and control functions which leads to reduced inventory, reduced WIP, and reduced direct and in-direct Labor.  Additionally, good ERP systems provide enterprise wide integration leading to:

  • Faster and More Efficient Business Processes
  • Instant access to the latest information
  • Data being added only once
  • Inter-operability of the internal and external supply chain

 A new ERP system can help cash flow by enabling a faster cash to cash cycle through use of capacity planning, more accurate scheduling, and increased visibility of material availability. Enterprise wide integration provided by ERP links all your functions leading to faster design to manufacturing times,  faster sales order entry, and allows you to find fastest route through order fulfillment.

 The best reason to implement a new system is when it can be shown to improve the bottom line.

 2. Solve problems of the legacy systems

The second reason to consider implementing a new system is because of problems with your existing systems. I’ve often seen companies dealing with one or more of the following:

  • Obsolete technology – the hardware or software are no longer supported by the supplier.
  • Lack of real time processing – Older systems provided batch processing which can lead to delays in getting critical information.
  • Difficulty getting data out – ERP systems demand you put a good amount of data in. Sometime I see that they have a limited ability to provide information back out.
  • High maintenance costs – Old mainframe applications are much more expensive to maintain then modern server based systems.

When the old system is slowing a client down and costing them too much to keep running, I tell them it is time to throw it out and bring in a new one.

 3. Improve operations

Sometimes the demands of the business out grow the existing systems. I have worked on many projects where a new system was needed to make operational improvements, for example:

  • Cope with new production requirements such as the need to trace the source of material consumed
  • Facilitate growth / increased business
  • Provide the architectural anchor for rationalization of acquisitions
  • Synchronize customer related data across geographies or business entities
  • Communicate with customers and suppliers anytime / anywhere

When  the system is preventing a client from growing or changing their business, I recommend pulling the plug.

The decision to implement an ERP system should be based on a solid business case which at its core includes the need to improve profitability and cash flow, solve problems of the legacy systems, or improve operations. I would question a project that could not describe their need in one of these three areas.

 

“Image courtesy of Stuart Miles/ FreeDigitalPhotos.net”

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