Is your business ready for an ERP system?

3-minute read

Thinking of adopting an enterprise resource planning (ERP) system?

It can help take your business to a whole new level of productivity and profitability. But it’s a huge undertaking. And after all that effort and investment, you may be left wondering whether it will pay off.

An ERP system is an all-purpose software with modules that manage your key business functions—everything from inventory to finances, human resources and operations. No more struggling to integrate various types of systems in each department. The ERP system does it all.

The downside is they can be expensive and time-consuming to implement. About three-quarters of ERP purchases don’t provide a return on investment. One-third of the systems don’t even go live.

Here are three steps to help you determine whether your business is ready for an ERP system.

1. Assess your current technology

Review your current systems to determine whether you can make do with them.

Many businesses complain their software isn’t meeting expectations—only to find it’s just suffering from what can be called “application erosion” – the inevitable degradation of software performance over time.

Failing to do necessary updates and maintenance is often the culprit. Another common problem is lack of employee training.

Companies often skimp on training because they think their employees know how to do their jobs. But if they aren’t trained to work with the software you’re using, they might actually be causing more problems than they solve.

As a result, many companies find all they really need is a remedial implementation of their existing software instead of an expensive new ERP system.

2. Evaluate your future needs

Thoroughly assess your company’s information technology needs over the next several years as indicated by your business’s strategic plan.

Also be sure to involve employees. This will help ensure their buy-in if you go ahead with an ERP purchase.

3. Do a cost-benefit analysis

Define the financial impact of your problems and proposed solutions. How does system performance affect your business? Compare the cost of revamping existing systems versus the ERP option. Be sure to consider how each solution will affect your market share.

Don’t forget to include implementation and training costs. Many businesses underestimate these, but they can be a big expense.

An ERP system may be warranted if you’re turning away business because of a technology bottleneck and if your current systems can’t be improved.

There’s no rule of thumb for how big a business should be to consider ERP. Some fairly large businesses do just fine without ERP, while some quite small businesses find that they couldn’t function without one.

A much more important consideration is the complexity of your products or services. Look at the “depth” of your products (how many components they’re made of) and their “breadth” (how many different types of products you have). ERP systems especially make sense for deep, broad product lines.

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