Business and Profitability
While many big corporations have already implemented ERP solutions, small and mid-size organizations are still mulling over the implementation of full-fledged ERP system. The major deterrent is the risk of failure due to poor processes and inability of the management and employees to adapt the new system.
ERP systems facilitate resource allocation and plan production schedules. They have a huge potential in improving the business prospects of a company by making its processes efficient. Many manufacturing and distribution companies employ ERPs for increasing productivity and improve decision-making. Let us discuss the various challenges faced by businesses today and find out how ERP provides an answer to all their problems.
Challenges faced by businesses today
- Raw material
With increasing production capacity, the demand for raw materials obviously increases. But when there are multiple raw materials, micromanaging every type of raw material becomes a daunting task. Such business processes are often met by supply hiccups thus disrupting the production cycle. In addition to that, raw material market is becoming highly volatile with constant price fluctuations. To save cost, manufacturer must pick up the right amount of quantity from the market. Quality of raw material and in-process item is another significant matter concerning production managers which affect the final product quality.
- Revenue growth
Increasing competition and the demand for high quality product has been keeping a check on revenue growth of companies. Changing technology and process improvement demands continuous investment from businesses which is making difficult for business owners to increase their top line. Moreover, suppliers are growing at a faster rate than the market resulting in shrinking market share.
- Maintaining profitability
Increasing raw material cost is making it difficult to maintain profit margins. High quality processes demand purchase of new machinery, training of employees and hiring skilled labor. Moreover, small scale businesses do not have the advantage of economies of scale in contrast to large scale manufacturers. All these issues are responsible for diminishing profit margins.
- Research and development
R&D initiatives play an important role for achieving breakthroughs in technology and product. Small scale businesses cannot afford to invest time or money in R&D activities as it starts affecting the cost of their end-product. Their best effort is focused towards curbing cost of existing processes and increase customer base to stay competitive.
- Changing customer demand
Customers today have a lot of choices to procure the product. They want a high quality product at competitive prices in a short notice. A small scale businessman is the first one to face the crunch in the times of economic crisis as customers have a better control over the market. Manufacturers need to anticipate customer demand and be the first one to bring the product to market.
What does an ERP do?
- Reduce cost and streamline processes
ERP system helps you to cut down wasteful processes. We often see information being generated from different departments of a company. Merging them becomes a humongous task without a common integrated system. Besides eliminating redundant processes, ERPs devise a smoother way of conducting a process. It weeds out inefficiency in the system and introduces a faster way of accomplishing a task.
- Faster response to disruptions
ERP is integrated system which helps the executives to respond quickly to disruptions. A disruption can be caused by any technical glitch in manufacturing, production flaw, raw-material shortage and machinery breakdown. ERPs are enabled to detect these gaps so that managers can quickly come up with a solution. It also stimulates them to mull over redesigning supply chain so that key customers don’t have to face the consequences of disruption.
- Production planning and inventory management
ERP system is designed to do production planning, execution, quality check and maintenance. It helps you to identify business processes that form a relation between production and inventory management. It allows you to acquire the right quantity of raw materials, schedule purchase of equipments and meeting human resource requirements. Furthermore, it enables you to produce appropriate quantity of products.
- Eliminate manual-data entry
Manual data entry is time-consuming and is major source of diminishing productivities of small scale organizations. As the business grows, data entry demands increase. Manual data entry is prone to frequent data errors. ERP systems have centralized data management that immediately removes duplicate data entry thus helping your organization to increase efficiency and cut down man hours.
- Customer service levels
Maintaining customer service level is the priority for any successful business. Customer service is directly related to your inventory management and work in progress processes. When ERPs detect a significant error in production, the chances of passing flawed product to customer decrease with limited inventory. Similarly, fewer items will get defected if processes are in control. This ultimately saves rework labor thereby increasing cost of the product. Therefore, ERP will help to curb your operating expenses, meet customer service levels and delivery dates.
- Resource utilization
Every business has limited resources to meet customer demands. Resources include your machinery, inventory, human capital, processes and technology. If these resources are not utilized to their full potential, it affects your quality and increases cost of production. A business serving multiple customers often switches its production modes. It means you have to constantly realign your equipment configuration besides reducing downtime. ERPs help you to follow the best possible solution depending upon the customer that may include producing it yourself, subcontracting or purchasing it.
- Better reporting and regulatory compliance
An ERP system manages information from different departments through a centralized data base. It offers managers with better visibility helping them to generate improved reports. More rapidly growing ERP systems are cloud-based ERP system that allows real-time, synchronized and automated reporting. There are various parameters involved in a production that must meet government regulations, laws of the land and ensure transparency. ERP solutions allow the managers to be in a better position to manage risk and regulatory standards.
The end goal of ERP
The end goal of ERP system is to integrate and collaborate seamlessly with different departments to deliver a suitable and affordable product. Businesses should run with the aim of profitability rather than sustainability. ERP systems manage a huge volume of company information to gain business insights and take well-informed decisions.
ERP does not change but improves the way you work. One can say, it helps to design efficient business processes and use ERP to build upon it. ERP combines with existing high quality business processes and fine tunes them. Though workers are resistant to change, one can certainly educate and train them to use the new technology.
However, you have to be realistic while implementing an ERP solution. There is no system that can bring a sudden change in your business processes. You must have a strategic plan in place before implementation or before you even start looking for a vendor.