In our previous post we discussed two very real, very important cost benefits that accrue to companies who successfully deploy ERP systems. The improvements to inventory and receivables are significant, and well documented. As we noted, the typical $10 million factory can free upwards of a million dollars in newly available cash through inventory and receivables collection improvements. Those are very real savings.
Those two areas alone are often capable of offsetting the entire cost of your ERP system – and then some. Next we’ll look at still more areas where benefits accrue to the wise…
Reduction in Material Costs ERP almost always leads to improved procurement practices. As your forecasting improves, your order lead times shrink, and you run into fewer stock-outs as well. Better advance planning of purchasing in turn leads to obtaining better discount breaks, terms and conditions from vendors. When you improve your forecasting, they can improve theirs, and often you’re rewarded. Typical figures cited in reductions to material costs for these reasons range around 5%.
Lower Labor Costs Usually, ERP helps improve manufacturing practices (and helps you grow leaner), and as such you can reduce outages, interruptions, and with them, re-work, overtime and mistakes. Better demand forecasting can level out production schedules, reduce the stresses of rush jobs and expediting, and optimize tooling and machine setups as you learn to stage your production runs better through improved MRP, scheduling, planning and forecasting. Estimates are that ERP can reduce overtime and re-work by roughly 10%, while speeding up factory floor flow.
Improved Sales and Customer Service One key benefit of ERP is improved levels of intra-company communications – a shared silo of information accessible to all users. This improved coordination leads to shorter production leads and eventually to improved sales as you prove your ability to deliver. The result is improved customer loyalty which always has a positive effect on sales. Another benefits lies in ERP’s ability to improve production agility. With proper planning and MRP, you can better accommodate order changes later in the process, and further improve customer loyalty and satisfaction. The long-term effect is improved customer retention (and less customer loss), leading to notable increases over sales volumes pre-ERP. A figure of 10% is often cited as typical here.
In this and our prior post we’ve tried to illustrate some of the proven benefits to ERP we’ve seen over the years, and as noted in a report by Compare Business Products.com. These are the benefits that yield what we like to call “hard” dollar savings – quantifiable cost reductions (or revenue increases) proven to result from successful ERP deployments. Collectively, they will return more than your original ERP investment — sometimes surprisingly quickly.
In our next and final post in this series, we’ll take a look at some of the intangible (or “soft”) – yet still very important – cost savings attributable to your ERP investment. Stay tuned…