When Will I See a Return on My ERP Investment – and How Much Will It Be?
With the end of the year looming and next year’s budgets being top of mind, many companies are looking at their projected purchases to make sure they produce the financial return they expect and need to justify the spend. Considering how large an investment in implementing or upgrading an ERP system can be, you’ll want to see some dividends from it as soon as possible. Without these benefits, how can you justify the expenditure? It would be like buying land, building a house, and not being able to move in. However, expecting to see tangible ROI on roll-out day with a new ERP system is much like a homeowner expecting to have all their boxes unpacked when the power company turns on the meter. It just isn’t realistic. Below, we’ll explore when you can expect to start realizing the benefits of an ERP implementation.
Throughout the lengthy process of requirements elicitation, your company should already have come across ways to improve your inventory management. While the end goal may include mapping your processes to the new system, scrutinizing procurement and warehousing can improve planning and control of inventory levels to reduce costs even before roll-out day.
After roll-out, you should have a better understanding of how labor allocation within your organization works. This will allow better forecasting of wages and can help reduce overtime as well for workers directly involved in production. For example, in most manufacturing ERP installations, indirect labor produces nearly half of the total cost savings because many companies have no idea how much indirect labor goes into their production process.
New ERP implementations and upgrades leverage the latest technologies, giving your business access to features and services that might not have been available before. Features like universal web access, enhanced data security, regulatory compliance, and real-time data analysis are now standard in many ERP software packages rather than requiring extra charges for customizations or integration with third-party software.
Then there are less quantifiable metrics that come with an ERP system. You’ll likely decrease administrative time working on calculating regulatory compliance costs. A well implemented CRM module will drive sales revenues by better managed relations and tracking of leads. Errors will be reduced throughout the system, and increased record accuracy will provide allow better decision making. The current generation of ERP systems have become more agile and less rigidly structured than older business solutions, so organizational components can operate cohesively. This will allow your business to become more fluid and adaptable to an ever changing business environment.
Even with all these benefits, it will still take time to fully recover your investment. Panorama Consulting has estimated that the average payback period for Microsoft Dynamics NAV is around 2.6 years, while SAP and Oracle range from 2.9-3.2 years. The bottom line is that ERP will make a real difference in your company’s future, both in terms of dollars spent and the benefits gained from the insights into how the business operates. The large investment to purchase and implement an ERP system may seem daunting, but it is small compared to the return on investment that it will produce for years to come.