How Can You Measure the Value of ERP?
As an ERP consulting firm, we are often asked about the value an organization can expect when investing in a new enterprise technology solution. Where will manufacturers and distributors see the greatest value and how will that translate into ROI? How can we measure the value of ERP?
5 Steps to Value and ROI
Ultra’s long-term experience tells us that ROI from an ERP project depends on proper planning using a 5-step ERP methodology:
1 – Forming a team of process owners to serve as the ERP project team. This team, led by its chief process owner, develops a strategy to review all business processes impacted by an ERP solution. It identifies all functions by department and business process flow and gathers and analyzes reports from sales, shop floor data collection, inventory, accounting, quality, etc.
2 – Documenting the current state of business processes to find strategic areas for improvement.An ERP project is the ideal time to take a hard look at business processes that may have evolved in various ways over time with little documentation. Now is the time to reexamine all processes to determine their strategic value, and to identify waste. By documenting the current state, the team finds the ways to fully leverage the best practices afforded by modern ERP systems.
3 – Educating business process owners on best practices of state-of-the-art ERP systems. A comprehensive and strategic approach to education is a necessary ingredient for successful technology transformation. It’s tempting to skip this step, however, working with industry analysts, expert consultants and vendors will illustrate best practices. In most cases, the team will identify solutions to the problems of wasted processes, redundant data, and unnecessary manual steps uncovered by the current-state mapping and documentation exercise.
4 – Reviewing current processes to define the desired improved future state. Here is where the team develops best-fit business process flows. Waste in current processes is found and best practices and future state requirements are identified as the team creates the “to-be” maps of the future state. The team looks at ways of reducing waste within existing systems, identifies midterm improvements that require IT investment and spells out the functional improvements enabled by the new workflow from the ERP.
5 – The final step is making the business case for change. The team reviews the list of benefits identified in the previous business process improvement steps, documenting ROI for each. It’s critical to link the improved processes to improved performance by optimizing current state metrics. The team can document how the investment in a new ERP system will reduce inventory costs, reduce stock-outs, improve cycle time, etc.
Enterprises following these 5 steps during an ERP software selection project will achieve considerable value from their new ERP solutions. With proper planning and execution, manufacturers and distributors will meet their business process improvement goals, whether it’s adding automation or reducing cycle time, for true business transformation.
Insight to Measure the Value of ERP
In a recent webinar, Ultra Founder and CEO Jeff Carr summarized how Ultra’s business improvement consultants measure the value of ERP. He highlighted how enterprises implementing a new ERP will see value in three core categories: productivity, information and asset management.
- Productivity – A new or updated ERP solution will yield significant value in productivity with improved processes. We’ve seen anywhere from 25 to 50 percent increases in productivity resulting in improved margins and greater profitability.
- Information – Getting real-time information faster with greater accuracy means improved decision-making and better forecasting. Having one version of the truth on the shop floor leads to better productivity and better customer service.
- Asset Management – Finding improved ways to manage assets impacts revenue, customer satisfaction, supply chain processes, production, and costs:
- A new or updated ERP brings updated tools for scheduling, managing supply chain, purchasing, and forecasting which all improve production.
- Customer portals, visibility of customer transactions, streamlined online ordering all contribute to customer satisfaction, which drives revenue.
- ERP estimating tools bring real-time insight into production costs by job.
Mapping the future state during the planning phase with a focus on productivity, information and asset management, we see significant business process improvements. In fact, we’ve seen returns in the range of 3-5 times on investment in updated ERP.
Following Ultra’s expert methodology and phased approach as you develop your ERP implementation plan drives the process to measure the value of ERP for your enterprise.
For further insight, contact the Ultra team.
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.