Business Development Entrepreneurship

4 Steps to Optimize Your Enterprise Resource Planning (ERP) System

Enterprise Resource Planning
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Enterprise Resource Planning systems can be an invaluable resource for your business, but only if they’re chosen and used to maximum effect. I’ve put together a quick guide to optimize your Enterprise Resource Planning (ERP) system to make sure it works for you and your organization.

System Architecture Enterprise Resource Planning
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Quantitative Analysis

When choosing and evaluating your ERP system, it’s important to think about the money you’re willing to invest and the budget that you’re able to set aside in order to maintain your enterprise resource planning system. Performing a quantitative analysis of your chosen system will allow you to get a clear picture of what it’ll cost you in real terms both upfront and over time. While there are multiple numerical factors you can choose to measure, one of the best is a monetary valuation that gives you a realistic idea of costs and return.

You can expect to see a shortfall here because many of the benefits of an ERP system are non-monetary, but it’s up to you to decide what the acceptable ratio is. Some of the more straightforward monetary benefits that you can expect to see include being able to minimize or even discontinue other software because your ERP incorporates the functions they perform, so that you no longer need to pay for those licensing fees. Similarly, you may find that you need fewer man hours or a smaller staff because operations can be automated, and data is easily available at a button click without needing hours of extraction, collation and analysis.

Depending on your business, you may even see smaller but still significant costs that you can save, such as being able to save on paper and printing costs because your data is easily available and can be shared on your system.

You can also save money through the results that your ERP gives you, as you’ll be able to see where your money is being spent and to optimize your business strategy accordingly. By having a clear view of which areas and departments are profitable and which aren’t, you’ll be able to make more informed decisions about where you should continue to invest your money and what you should change or scale back. You can then shift your focus on the things that you need to prioritize and so will be able to play to your strengths and address your weaknesses.

This clear quantitative analysis will also help you to utilize your key resources properly – whether that’s your employees or the machinery that you use. By seeing where your money is being spent and where you’re making a return, you’ll be able to spend more effectively and put your strongest assets in the area that provides you the greatest benefits.

Qualitative Analysis

A qualitative analysis is more open to your interpretation than a quantitative one because it doesn’t deal in numbers and it’s up to you to decide the value of the benefits that you receive from your system – as well as the non-monetary costs to your business. When you set about this analysis, one of the most important things to consider is the type of system that you want and the features that will be of most use to you. There are many different types of ERP system to choose from with a wide range of capabilities and scope, so it’s vital that you find a system that provides everything you need but which doesn’t incorporate unnecessary extras which may prove to be more of a burden than a benefit.

In contrary to your quantitative analysis, you should find that your benefits will outweigh your costs in your qualitative analysis. Remember to take into account the operation costs and benefits over time rather than just the initial switch, which will likely require a great deal of time and manpower. Even though you’re not dealing with numbers, make sure that any predictions you make are realistic and are based on existing data so that you go into your strategy with a clear idea of what you can achieve.

Examples of qualitative benefits include the effect on your organization and communication within the business. For example, the information that you generate can be easily accessed by managers, which means that they’ll save time on waiting for it to be passed along by other departments. Minimizing the middle-man effect means that you can both simplify your process and that you can avoid viewer bias on the data that may influence the way that information is presented. It also means that the information is quickly placed into the hands of those most able to act on it and to make decisions, increasing your company’s responsiveness and the overall productivity within the business.

It’s important that once you’ve completed your initial qualitative analysis and your system is underway, you regularly review your progress and make sure that your costs and benefits are as you expected them to be. If you find that you’re not reaping the rewards that you anticipated or that you’re expending more resources that you expected, you may want to reassess whether your ERP system is really working for you. Similarly, if you have exceeded your expectations, you may want to extend your ERP system to other areas of the business to see if you can further your progress.

FUNCTIONS OF ERP SYSTEMS
Advanced Planning & Scheduling (APS) Systems. Click Image to Enlarge

Weighing of Costs and Benefits

Once you’ve completed your analyses and assessed the costs and benefits that you can expect to see from various ERP systems, it’s time to weigh up your pros and cons and to decide whether it falls in your favor. Because you can expect higher costs in the quantitative measure and higher returns in the qualitative measure, you’ll need to compare these two categories to decide whether it’s going to be beneficial overall for your organisation. It’s worth considering whether the money you’re going to spend on both your initial and ongoing system is both affordable and justifiable.

You may find that some of the benefits are less direct but can still be invaluable for your organization. Factors such as being able to respond and react to data quickly, being able to process new requests and being able to link with your suppliers and customers can contribute to the overall productivity of your organisation which can result in better profits and more effective spending long-term. You may also find that features such as cross-functional access to data helps to streamline your company and can provide benefits in areas such as management, staff requirements and data usage.

You should also consider the benefits to your company culture and your employees that aren’t directly related to profit but can improve the life of your business. A good ERP system can facilitate communication both inside departments and between them and can make it easier for your team to work together. You can eliminate unnecessary bottlenecks by putting the data exactly where you need it and giving the right people access to it, which helps to reduce frustration and to increase job satisfaction.

The sharing of common data also makes it quicker to process and can help you to put the focus on the areas that are most valuable to your organisation. It also means that you can keep closer control on your inventory and automate jobs that might otherwise be time-consuming or even missed altogether due to staffing or cost restraints.

Defining the Project Objectives

The most important point of introducing an Enterprise Resource Planning system to your organization is to make sure that it will help you to work towards your business objectives. These could be financial objectives, or they could be related to the way your organisation runs, to employee satisfaction or any other number of factors. It’s entirely up to you to set your own goals, but there are a number of things to consider.

When defining your objectives, you need to make sure that you are setting realistic and achievable goals. Use your existing data to analyse your progress and to see how you can expect to expand on that in the future. Whether your goals are quantitative than qualitative, ensure that you have evidence and data that can back them up and that can help you work towards them.

It’s also key to define success within your objectives. Often, your objectives will be ongoing, and so you will want key milestones that you can use along the way as markers of success and indicators of progress. These will help you establish whether your strategies are working and whether you want to change your approach at more manageable intervals.

Do you use an Enterprise Resource Planning system and how do you make sure it’s optimized for your business? Let me know in the comments below.

Aniket Warty
Adventure Capitalist. The creation of wealth is merely an extension of my innate freedom to produce.
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