Think ROI, Not Cost When Evaluating ERP Software
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1 Think ROI, Not Cost When Evaluating ERP Software BY ADAM GRABOWSKI DIRECTOR, MARKETING AND COMMUNICATIONS We simplify your manufacturing.
2 When considering Enterprise Resource Planning (ERP) software for your manufacturing business, price will certainly enter into the equation, as these sophisticated systems typically come with licensing fees as well as training and maintenance costs. But as most ERP users will tell you, it s not the size of the price tag that makes the difference. It s how much of a return you receive on your investment. When successfully implemented, the ROI with ERP is usually several multiple of your original investment especially for companies still using manual processes and spreadsheets to manage the production side of the business. And these returns can be measured not just in cost savings on the shop floor, but also in the ability to run your entire company more efficiently, effectively and profitably. In many cases, ERP literally transforms the culture of a business into one of award-winning 1 lean operations, high performance and ongoing improvement. Where does this business-changing return on investment come from? Several years ago, we conducted a study of our customers to determine what had the biggest impact on ROI after implementing our software. We learned that: 31% of the ROI comes from reduced direct and indirect shop labor costs. 22% comes from improved profits through lean practices, better inventory management and streamlined purchasing. 16% can be attributed to savings in reduced office and shop indirect hours. 14% comes from increased sales attained through exceptional customer service, high product quality, and reduced expedite expenses. 10% comes from improved quality, driven by performance metrics and lean practices. 7% is a result of improved pricing/forecasting accuracy and review of job/work orders. Granted, not all ERP systems are alike, and the ROI you get will depend on the ERP software you deploy and the degree to which you implement it with discipline and structure. However, to get the best return on your investment, we recommend looking for an ERP system that offers the features and capabilities to deliver the following returns: 1 Several Global Shop Solutions customers have won awards for lean operations and manufacturing after implementing our software
3 1. Reduced labor costs. Lean manufacturing starts with controlling labor costs. With ERP, employees electronically log into the system when they start a job, log out when they finish, and the software automatically records their direct labor. It also assigns any time not on a job to indirect labor, and offers a variety of reporting options so you can make better labor allocation decisions. All of which improves labor efficiency in several important ways: Reduce total labor costs by measuring direct labor down to the minute. Decrease overtime by identifying and scheduling only those employees, rather than an entire department, that need to work extra hours. Reduce employee downtime by eliminating wasted time searching for lost job orders, fumbling through paperwork, or waiting for materials to arrive. Estimate jobs more accurately by comparing the employee s time on the job with the estimate. Use the system s precise measurement capabilities to identify and retain your most efficient and productive employees. 2. Precise inventory control for lower carrying costs. ERP streamlines materials management by combining all inventory-related activities into one integrated system. Having a single point of data entry eliminates the mistakes that often occur with multiple data entry, and makes it quicker and easier to track data and materials as they flow through the system. ERP also reduces the time and manpower needed to perform inventory control by automating most or all of the activities that are typically performed by hand. You can make fewer inventory counts in less time, with less people, and with a high degree of accuracy. Track materials inventory with unprecedented accuracy and detail Reduce inventory carrying costs Instantly know the availability of all materials needed to make a part or assembly Easily trace individual parts by lot, bin and serial number Reduce the need for manual inventory counts with customizable cycle counting, barcoding and scanning capabilities Eliminate bottlenecks caused by lack of available parts To optimize your ROI, look for a system that allows easy customization, preferably through a software development kit (SDK). That way, you can categorize and track parts in a manner that fits your unique business needs. Also, the best ERP systems now offer mobile capabilities, so that you can receive and move inventory from anywhere on the shop floor. 3
4 3. Real-time cost accounting for precise job costing and estimating. When you can t measure your true costs in a timely and efficient manner, you lose jobs, customers and money. ERP takes the guesswork out of cost accounting by automatically tracking every aspect of a job from start to finish. When you know exactly how much a job costs, you can bid jobs, schedule labor, allocate materials, and price your products accordingly. With ERP, job costing is: Faster. Dramatically reduces research time by instantly putting all the data at your fingertips. More accurate. Eliminates manual errors by automatically recording all labor time, material issuance, and work order information. Real time. Job costing occurs while the work is in progress. As soon as each job closes, you know how much it costs and why. You no longer have to wait days to know how much a job costs. You can stop losing jobs to competitors because you can t get accurate estimates out on time. And you can stop losing money on jobs because your bid was based on inaccurate costing. 4. Fast, flexible scheduling for improved on-time delivery. For many manufacturing firms, scheduling is the #1 anchor on productivity and on-time deliveries. ERP automates the scheduling process so that you can schedule workflow more efficiently and effectively. Managers can monitor the status of every job in progress, and the system automatically tells you which job you should be working on next. By taking into account work center capacities, employee availability and skill level, and other job factors, ERP enables you to: Schedule jobs quickly and efficiently Easily make changes to handle rush jobs or changing customer priorities Estimate capacity and costs more accurately Reduce indirect labor and improve direct labor percentages Eliminate employees standing around wondering what to do next With ERP scheduling, orders are accurately estimated, priced and quoted. Materials, labor and tools are utilized at maximum efficiency. Finished goods are packaged, shipped, tracked and invoiced with a high degree of precision. Deliveries are made on time, quality is assured, and the numbers balance out. And you can give customers realistic shipment dates with full confidence that you ll deliver on time. 5. Lower materials costs with automated purchasing. ERP automated purchasing helps to lower costs by reviewing what you have in inventory and work orders and identifying exactly what you need to buy for each job. Rather than buying in advance and carrying expensive stockpiles of inventory, you buy only as needed, freeing up cash flow for other areas of the business. 4 RETURN ON INVESTMENT
5 With ERP, you get: Better pricing. By consolidating all purchasing requirements into one central location, ERP allows you to buy in larger quantities at lower prices. Reduced inventory. Order what you need, when you need it, for significantly less inventory and lower carrying costs. Lower overhead. Reduce the number of staff needed to perform the purchasing function. Huge cost savings. Purchasing personnel have the time to conduct the research that supports more efficient and cost-effective purchasing. The Unexpected Dividend Increased Sales In today s just-in-time manufacturing environment, it s easy to get so caught up in getting the product out the door that you don t have time to look at ways to bring new business in the door. With ERP, it s a different story. When you deliver on time every time, word gets out in the marketplace. Existing customers tell others that you re a vendor they can count on. They start looking for ways to give you more business. And previously dissatisfied customers start coming back. ERP can also help close new business by showing potential customers how the software makes your production processes more predictable and reliable. How it makes you accessible to your customers 24/7, and how they don t have to worry about surprises when they place an order with you. Most important, ERP frees up time to think about how to go after bigger and more profitable customers. So buy the software to reduce costs and streamline operations. But don t be surprised when it allows you to do what every business needs to do grow sales. As director of marketing and communications for Global Shop Solutions, Adam Grabowski is responsible for translating company business objectives into successful marketing, brand, and communication strategies to drive company awareness, loyalty, and revenue. He has a diverse background in marketing leadership, holding previous positions with medical device, high-tech, automotive, and financial services companies including Hill-Rom, Nokia, General Motors, Motorola, and Arthur Anderson. 5
6 Global Shop Solutions 975 Evergreen Circle The Woodlands, Texas (800)
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