Almost everyone looking for an ERP system has asked himself these questions.
Their business is growing but they look at their processes and see some friction, they often lose track of products or shipments, and nothing really pins back to their accounting. So what do they do?
They look for an ERP system.
And then starts this battle in their mind:
" - Wait, do I really need an ERP? "
" - I have processes in place, and they might not be perfect but they have worked for years and get the job done."
" - Is it worth the risk to destabilize the solid foundation I built to install a new structure that may (or may not) help me grow my business?"
The answer will not be as simple as yes or no.
It will depend on your organization, your business model, your growth strategy, your pain points, and your ability to change. One answer I can give you, though, is that if your company is facing the following problems recurrently, an ERP is probably the solution you are looking for.
1. You make decisions based on incorrect data
Either you are the CEO of a Manufacturing business or the Purchasing Manager of a Metal Building company, you are the captain people look for to set a course.
The problem is, your compass indicates East and you are navigating with a map dated from the 10th century. The world is flat, the Americas are not yet spotted and Europe looks like a giant potato.
I hope you have an outstanding sense of direction because this trip is not going to be easy.
In 2010, the Harvard Business Review found that the use of data-driven decisions in U.S. manufacturing nearly tripled between 2005 and 2010, from 11% to 30% of plants. They also demonstrated that companies with high levels of information technology, educated workers, greater size, and better awareness have proven to be the most capable to leverage the power of data-driven decisions.
So data is becoming the next big thing in many industries, now what?
Now it is time to help you capture all this data, and translate it into essential information about your business.
And this is when the ERP comes out of the bench.
It will collect every single information entered in the system and send it to the relevant department. Every time a new purchase is scanned, a set of products is on the line, or a box is getting ready for shipment, all this data is accumulated. An ERP gives you the opportunity to break down how many items were used to produce this object, what is your scrap rate, and your productivity per employee. It will plan your next shipment and aggregate everything in your accounting every step of the way. It constantly monitors every aspect of your business and displays accurate in-depth data on an operational and strategic level.
But collecting this data is not only a nice feature that will add bells and whistles to your IT department. In fact, A study from the MIT Center for Digital Business found that organizations driven most by data-based decision making had 4% higher productivity rates and 6% higher profits.
I will let these numbers soak in.
2. Your departments operate like isolated islands
All right, enough with the sea metaphors, I know, but this one is not from me. This is actually a reaction from one of our customers. David Dodds works at Dimensional Metals Inc, and this is the way he described his company before they got an ERP Software: “Everything operated like islands, […], nothing was interacting with anything else, you had purchase orders that were happening on one side, then you had to invoice on another side, then sales orders and inventory and these were all individual items but none of them were communicating with each other”.
I like the image of islands because it is easy to picture the distance between them.
To transfer the information to another island, you have to get into your boat and paddle across the sea. Or in our case, walk across the hallway. It is probably not as exhausting but the very fact that there is no direct line of communication that instantly sends information typed in on island A to island B, C, and D, means that you are losing time. Either paddling your way to another island or because you spend hours to understand which set of data matches which items, or why the same data has been entered twice; you are losing time, energy and you always trust delayed information.
This is particularly true when you use different software solutions for each department. Your sales team uses a CRM, your financial team an accounting package, shipments are processed in a third software, while production and inventory are completely independent. When it gets to that point, migrating data from a software to another is a nightmare, the extraction is chaotic, and you need to spend extra time sorting and filtering it into a standard template. And I am not even talking about summing up the cost associated with each solution.
— Percolate (@percolate) February 5, 2015
If you got to this point, it is time to seriously consider an ERP system. It could seamlessly connect every department, employee, and task, saving thousands of work hours every year.
It reminds me of an anecdote we had discussing with a customer the other day. He works at the Inspection Department of a Utility Company with four other inspectors. The five of them perform 20,000 inspections a year, and they used to do everything on paper; they would go out to a customer, inspect the pipes, fill out a couple of papers, hand it over for processing, and then file them. The process of filing and archiving was not only long but when they needed to go back to find a paper, it could take days. Their archives were split up in three other buildings (in different states) and they would receive cases of files to look through to find the right paper. By giving them the ability to process everything digitally and centralize all the documents in a cloud system, their department saved about 8,000 hours of work every year.
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This is just one example that demonstrates how centralization can help companies become more efficient. And perhaps another sign that it is time for yours to consider an ERP Software that centralizes your CRM with your accounting, production, and inventory.
3. Accounting takes forever
Traditional accounting takes inputs from every area of a business. Revenues are summed up, assets are estimated, inventory is reported, and costs are subtracted. This is the easy picture.
But running a business is anything but easy. With daily fires to put out, it is not uncommon to spend weeks or months without making any entries in the books nor reconciling any business checking statements, or sales tax accounts. Financial statements are out of date, and suddenly, you are making decisions based on obsolete information.
And this happens without considering accounting’s Arch Nemesis: Data Entry Errors. How many times did you spend hours entering data, consolidating accounts, and doing the math, only to find out that your result is not balanced? Somewhere, somehow, you probably entered the wrong number; a 35 might have become a 53, or a number was entered in the wrong category. Bloomberg actually calculated the cost of the errors for US companies and the result is astonishing. In 2013, incorrect reporting cost US businesses almost $7 billions in IRS civil penalties.
If these errors seems a little too familiar, it might be time to consider an ERP software.
Most of them include an accounting module that automatically syncs all the information into one centralized database.
Read Also: How to choose a Manufacturing ERP Software?
New products are scanned as soon as they come in, and their number, acquisition cost as well as reselling prices are systematically sent out to every department, including your accounting software. Expenses are added as they come, inventory is systematically indexed and assets are depreciated for you. With this consistent flow of accurate data being updated systematically, you can focus on the part of accounting that actually generates value. Analyzing your profitability ratios, breaking down your costs per project or department and install a cost accounting methodology that will combine savings with higher profitability.
Today, it is still not rare to meet organizations that do not have easy access to information about their business, that use multiple types of software for each process, or take decisions based on obsolete data. It is my belief that those organizations will tend to disappear. Not the companies themselves, but as they are configured today. Because they would have made a bold move to put their business into the next century, or because they would have been forced to do so by a competitor that is eating their market share because he achieved higher profitability ratios. Either way, the computerization of the economy impacts every sector, and it will only grow stronger.
What is the good news then? Not all change is negative. In this case, it will bring companies to a level of productivity that is unprecedented in history. Businesses will achieve higher efficiency in every department; they will optimize their processes and maximize their profitability. Another customer earlier this month told me that our software helped them down this path: “we should have already hired somebody, but hiring has been leveling off because of the unforeseen hours saved by Adjutant.”
Saving hours, achieving higher productivity, maximizing profits; this is what the biggest companies have done for decades, and it is now achievable for small and medium businesses. The only question that remains is: When will it be your turn?