The Bottom Line: Using an ERP System to Help Manage Costs

Rising costs and competitiveness make cost reduction a top business driver behind most technology initiatives today. Given this reality, is it possible to use an ERP system to help manage costs?

The pressure to reduce costs is just as critical as the need to manage growth and improve customer service as the main business drivers of ERP selection strategies.

Not only are production costs rising, but the cost of quality, the cost of transportation and the cost of energy are becoming more and more challenging to the bottom line.

An ERP system that is properly matched to the needs of the company and improves overall business processes directly contributes to cost management.

Does Your ERP System Help Manage Costs?

Many manufacturers and distributors operating with legacy enterprise systems are advised to assess how their ERP system contributes to cost reduction – does the solution help manage costs of production, inventory management, shop floor operations and other areas?

When carefully selected and implemented, the right enterprise technology provides the visibility needed to control costs and enhance customer service.

Making improved visibility a priority when setting ERP requirements provides a framework for standardized business processes and allows coordination between different business functions.

Some of the key benefits of a successfully utilized ERP system include:

  • Better visibility of business processes across multiple functions and departments
  • Improved customer responsiveness
  • Reduction of inventory and improved inventory accuracy
  • Reductions of administrative and manufacturing operational costs
  • Improved manufacturing schedule compliance and complete on-time delivery
  • Reduced customer lead time and improved quality performance

Other key areas where an ERP system can help manage costs include supply chain optimization.  Control of a supply chain helps take waste and time delays out of the process. From ordering to warehousing to inventory control and shipping, costs are better managed with better control of the supply chain.

The Importance of Measurements

Implementing an ERP system to help manage costs cannot be objectively determined without metrics to track results, thus key measurements need to be put in place.  I explored this topic in a past blog post that demonstrated why it is critical to link metrics to the life of the business.

Even before ERP implementation, it is ideal to put these metrics in place prior to implementation in order to have a benchmark against which progress can be measured.

Typical metrics to be used to measure success in an ERP environment include:

  • Inventory Days’ Supply – number of days inventory based on projected usage.
  • Manufacturing Schedule Compliance – percentage of work that is completed on time per the manufacturing schedule
  • Complete and On-time Shipments – orders shipped complete and on-time per the customer’s requested date
  • Order Cycle Times – various cycle times can be measured, but the customer order date to the delivery date cycle measures the time from a customer point of view
  • The Bottom Line – The most important measure!  As cost performance improves, so will the bottom line.

By focusing on a few key metrics that are business related and focused on the objectives of the project, the cost savings can be quantified in order to determine what is working and what needs further improvement. In that way the team can accurately determine if it is possible for the ERP system to help track costs, as well as move toward business process transformation.

Learn More for Your ERP System to Help Manage Costs

Deciding whether to go through with an ERP project is one of the most challenging decisions a company will make. This is primarily true because there are so many aspects of the decision that are constantly changing including whether the ERP system can help manage costs.

Partnering with an independent consultant team like Ultra will guarantee that you are working with the most recent ERP knowledge to ensure you find the right product for your company.

Contact Ultra for a look at your specific requirements.

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Jeff is the founder of Ultra Consultants, a well-known voice in the ERP consulting industry and an expert on ERP solutions for discrete and process manufacturers. Over the last 40-plus years, his companies have helped more than 2,000 organizations improve their business processes, select ERP software and implement advanced solutions.

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