The continuing challenges of a volatile economy require middle market manufacturing companies to keep their operations as lean as possible.
The demand for a lean, effective operation must be balanced with never-ending customer requirements, complex supply chains, increasingly competitive market conditions and other scenarios that consume available time and resources.
Given this scenario, one of the most compelling questions faced by a manufacturing company is how to effectively organize to meet the demands of an ERP selection project.
After managing hundreds of successful ERP selection and ERP implementation projects in a range of vertical manufacturing industries, we suggest a series of seven steps to effectively organize an ERP project.
A first step, briefly outlined here, involves taking a hard look at the expected Return on Investment (ROI) from the ERP project.
Most sources define ROI as a performance ratio that measures the efficiency of an investment. For our purposes, the investment is the direct and indirect costs and benefits of a new ERP system. ROI can also be used to evaluate the efficiency of different investment scenarios.
At its most fundamental, ROI is achieved by the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
ROI and ERP
In most cases, the need for a new ERP system is felt within the entire organization.
As an ERP project gets underway, management must clearly understand the needs, the alternate solutions, the cost, the benefits of the solutions, and the return on investment. Management needs to be educated so that it understands the ROI of improved business processes throughout the organization.
In terms of ROI, it’s wise for manufacturers to track both direct and indirect benefits that are anticipated from a new ERP system. The anticipated return must consider process improvements including a more streamlined ordering process, reduction of physical inventory counts, improved production quality, better scheduling and more. Other savings should come from access to real-time information for more accurate materials planning, integrated databases, streamlined information reporting, dashboard reporting and other uses of real-time data.
We also suggest manufacturers assess the economic impact of a return achieved from customer satisfaction, enhanced supply chain communication, improved decision-making quality, delivery performance, and more.
Keep it Relevant
We’ve found the most effective ERP ROI calculations are achieved when the entire enterprise teams together to assess how a new system is anticipated to save time, effort, and improve business processes.
We’ve also seen that an ROI exercise is an effective way to gain company-wide buy in and acceptance of the ERP project.
The step outlined here is only one of seven key steps a company should take when undergoing an ERP selection project.
By Jeff Carr, Founder and Managing Partner
Ultra Consultants www.ultraconsultants.com