Posts Tagged ‘Too small for ERP’

In our two prior posts we looked at adoption of ERP systems by smaller firms: why they didn’t, what they used instead, and what key performance improvements such firms see when they finally do adopt ERP.  In this, our final post on the topic of why your firm is probably not too small for ERP, we’ll look at some of the key benefits derived from implementation.

Adapters of ERP saw significant improvements in both business performance and in organizational capabilities.  Some examples:

In the “best-of-class” category of SMBs, results included:

– 21% reduction in operation costs (!)

– 19% reduction in administrative costs

– 17% reduction in inventory (in mfg. & dist’n.)

– 16% improvement in schedule compliance

– 17% improvement in completion and on-time delivery

But perhaps even more significant was how even the worst-in-class performers (i.e., the “laggards”) were able to achieve important gains.  Their numbers for the same criteria were as follows:

– 9% reduction in operation costs

– 5% reduction in administrative costs

– 11% reduction in inventory (in mfg. & dist’n.)

– 13% improvement in schedule compliance

– 7% improvement in completion and on-time delivery

Companies across the success spectrum also made enormous gains when implementing ERP in organizational capabilities that included:

* success in standardizing back office processes from 60% to 80%

* improved ability to integrate manufacturing with customer service, logistics and delivery was cited by 50% (of laggards) to 64% (of best in class)

* ability for decision makers to drill down to important data was cited by 41% to 60% as being improved

* ability to signal looming schedule failures improved dramatically, especially among best-in-class firms where it improved by over 50%; similar findings occurred in the area of “real time visibility into status of all business processes from quote to cash.”

And best of all… even the laggards saw implementation timelines of well under a year – and in best in class firms, deployment times averaged closer to 7 months.

Aberdeen’s research (the entire report can be accessed here) concludes with advice we wholeheartedly endorse — and give to our prospects and customers every chance we get:  When approaching an ERP implementation, set goals for the project, set aggressive but achievable timetables, and most importantly, measure the results.

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In our prior post we looked at small to midsize businesses (SMBs) that had not yet adapted ERP, and concluded with the question… Why?

Of the reasons cited in Aberdeen’s research, two stood out:

(1) Nearly half felt they’ve been able to function effectively without it in the past (though many felt they would not be able to continue to function effectively into the foreseeable future).

(2) Over 40% felt they were too small.  Given the focus on growth of the under $50M firms that we noted in part one, it’s likely that growth will cause this excuse to collapse under its own weight soon enough.

Interestingly, only 20% of surveyed small firms who had not yet adopted ERP cited cost as a concern. 

Still, availability of low cost options, that might be simpler to deploy, were cited as the number one factor that “would force you to implement ERP,” according to Aberdeen’s survey.  The perception is that a lower cost to deploy helps reduce risk (which of course, it does).  Cited second was “explosive growth.”  Regulatory requirements, parent company mandates and pressure from customers or suppliers rounded out the list of factors.

When Aberdeen set about to quantify the results of ERP implementations, they drew some convincing conclusions from those companies deemed best-in-class, and who had already adopted ERP.  These were the “top performers” as measured by performance improvements that included:

– 17% growth in operation margins

– 95% complete and on-time shipments

– Improved Average Days Sales Outstanding to as low as 35 days

– Average days to close a month: 2.8

(For the results for “average” and “laggard” companies, seek out the full report, which can be downloaded here.)

In our third and final post, we’ll identify key business benefits derived from the adoption of ERP specifically by smaller firms.

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The Aberdeen Group does an outstanding job of researching tech and business sector issues, mining data and interviews with executives to determine how best-in-class companies manage their businesses in order to become best-in-class in the first place.

In a recent research report that can be downloaded in its entirety here Aberdeen details how small businesses have been able to realize the benefits of ERP.

In a survey of over 1000 businesses, Aberdeen looked at smaller companies that were intent on growing revenues.  In fact, they learned, revenue growth was the number one goal for SMBs (small to midsize businesses) in the under $50M range.  Revenue growth declines in importance as the surveyed firms grew larger.

Adoption of ERP was spotty across company sizes and sectors.  Manufacturers (63%) and distributors (72%) were by far the biggest adapters. 

Top business drivers included (at number one) the need to reduce costs, and (at number two) the need to be easier to do business with, or improve the overall customer experience.  Needing to manage growth expectations ranked third.

As best-in-class companies know, a properly deployed ERP system helps significantly in all these areas and more, providing better service capabilities, improved inventory turns (lower inventory costs), ability to respond faster, and standardization and streamlining of processes to support business growth.

Unfortunately, Aberdeen found, too many companies are still stuck in the past. 

Most notably, 57% of surveyed companies cited the use of “spreadsheets” as the manner in which they run their business.  Accounting applications ranked second at 50%.  Other aps (desktop, disparate, homegrown and legacy were top categories) were cited as the tools many companies used most to run their business.

Needless to say, integration, standardization and widespread communications – i.e., making data available to those who need it, when they need it – is rarely achieved in these sorts of environments.

Put simply, spreadsheets (cited by a whopping 92% of those who don’t use ERP as being the chief tool they used in conjunction with the others listed above) simply do not provide the same efficiencies or controls as ERP.

So… why not ERP?  Two key reasons were cited, which we’ll explore in our next post.

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