How To Know If Your Company Is Ready For An ERP
Information is king, especially when you’re making decisions about what products to make, how to be more efficient, and how to scale.
As your company grows, you might start to wonder when it’s time to transition from a traditional accounting program to an ERP (Enterprise Resource Planning) system. Excel, Quickbooks, and other programs are great for small-businesses starting out, but at what point does a company need to have better visibility and data management?
Essentially, we want to know some of the most common reasons companies choose to upgrade to an ERP, what key things we should keep in mind when comparing ERP systems.
Accounting Software versus ERP Systems
Accounting software creates a home base for your business’ financial data. It helps you stay on top of revenue and expenses, creates and tracks invoices, and makes sure your business stays tax compliant.
An ERP system creates a home base for all of your business’ data. In addition to doing everything an accounting program does, an ERP system can help with inventory management, automating shipping and return processes, customer relationship management, sales generation processes, manufacturing and asset management…and a lot more.
It’s smart to start out with accounting software
Accounting software is excellent for any business. It makes it easier to track and maintain your financial records, and know how much money you’re spending and earning.
ERP systems also have accounting capabilities, but because they can do a lot more, they also cost more than an accounting program. For small businesses looking to have clean financial records, it’s smart to start out with software that does “just enough,” until your company grows big enough that it needs something more.
But at some point, it’s time to check out new solutions
As your business grows, it creates and needs more and more data to run efficiently.
You were able to manage (and succeed!) with Excel files or Quickbooks or a string of separate programs, but now all of these separate files or programs are a pain to manage. They’re holding your business back instead of helping it grow to its next potential.
Instead of having a unified home base for just the financial information, what if there was a home base for everything? ERPs are great for small businesses because they have the capacity to handle all of your current data processes as well as the ability to grow with your company in the future.
6 Signs Your Business Is Ready For An ERP
1. You have too much inventory or not enough
Supply chains are becoming more and more complicated. The just-in-time model worked for a while but now you need a more sophisticated approach to understand your business’ needs, create forecasting reports, manage purchasing, and track inventory. ERP systems provide that inventory management support while connecting into your sales data to understand which products are the most popular.
2. You don’t have a clear picture on your cost margins
Knowing how much it actually costs to provide services or products can get complicated, fast. An ERP system tracks all of the costs of creating it–including material, labor, equipment, and third-party costs–so you can understand how each step of the process impacts the final cost of every product you sell. This enables you to give better estimates to customers as well as make sure you’re charging what each product is worth.
3. Everyone is working from different sets of data
You’re using four or five different programs that don’t talk to each other, or if they do, they don’t do it well. It might look like a customer calling to check on a shipping estimate and the salesperson has to call up the warehouse to see when it was sent out. Or it could look like the sales team selling a product that the manufacturing team ran out of parts to make.
An ERP system integrates all departments’ data into one unified source of truth, so that each team is working off the same information.
4. Business planning is more reactive than proactive
If your business relies on people creating weekly (or monthly) reports to understand how things are going, it can’t pivot quickly when things go wrong or when things are going great. Did your top customer not place their monthly order or is it much smaller than usual? Did a product go viral and sell out mid-week? ERP systems provide dashboards that allow you to see–at a glance–what’s going right with your business and what, if anything, is going wrong.
5. You’re storing sensitive data on a personal server–and you want (or need) better security
Your customers trust you with their data and expect that your business is keeping it safe. So far you’ve managed with a personal server (or storing customer information in Excel or Google Drive), but you don’t want to spend the money securing your server with every update, or be at risk of a hacker taking your data hostage. Cloud-based ERP systems store your data on servers which have their own teams working to prevent hackers, giving you access to customer data and peace of mind that it’s secure.
6. Quality assurance and compliance tracking is a headache
One customer complains about a product, and maybe that’s fine, it’s one customer, so you give them a refund. Five customers complaining, or ten, or twenty–now it’s something to investigate. Whether it is a faulty part or a bad customer experience, tracking down what went wrong and figuring out how to prevent it is simply easier with an ERP system. It provides a unified source that makes tracking easy, so you can narrow down which part, which manufacturer, which process is the problem, and in the event of a recall, know exactly which customers to contact.
Benefits Of An ERP System
1. Better decision making
An ERP system gives you access to real time data reporting and provides you with dashboards to show you how each part of your business is doing. The more informed you are, the better decisions you can make.
2. Faster processing
By unifying your systems, an ERP speeds up order management. A customer makes a purchase on your website? The financial system creates an invoice or processes the payment while the warehouse receives the order request while the shipping room prints out the label–all in real time, without waiting for a fax or an end-of-day email.
3. Fewer data errors
Every time someone has to copy data over from one place to another, whether that’s your website to an Excel file or Quickbooks to your inventory management, is another opportunity for a data error to slip in. Whether you’re using a cloud-based or a traditional ERP, data only has to be entered into the system once, giving all teams access to the same data without risking a decimal getting lost in an email.
4. Do more with hiring fewer people
As your company grows, there’s a lot that can be done through technology and automation versus throwing more people at the project. While an ERP system can’t automate everything, allowing technology to step in and automate processes not only makes your company more efficient (and less prone to data error), can save you the salary and benefits costs of hiring a person to do the same work.
Starting The Transition
1. Dig into the primary pain point
Most companies upgrade to an ERP because their current technology setup isn’t working for them anymore. It can be due to:
- Costs: the company is not accurately pricing its product, is not managing payments closely enough, or is losing money;
- Growth: the current software doesn’t have the capabilities to grow with the company;
- Retirement: the company relied on a key employee who knew how to run the server, is job hunting or retiring shortly, and the company doesn’t have a replacement; or
- Technology: the current system or software setup is outdated and needs to be replaced.
Understanding what problem you’re trying to solve will help you figure out if an ERP system is the right answer for your business’ needs.
2. Compare the costs of upgrading versus not
Upgrading to an ERP costs more than just the monthly maintenance of the ERP itself. Expect to pay for the initial setup and configuration; your company will go through an onboarding process and most companies need to customize their ERP system to make it truly work for them.
Additionally, changing the way your company operates by moving its processes into a new system is disruptive. The question is to figure out if the potential benefits of implementing an ERP system outweigh the costs. In other words, deciding if there’s a good return on investment opportunity here or if it’s better to make do with what you have for one more year.
3. Choose the right system
If all goes well, your ERP system should be with your company for at least ten years. When comparing the different options, consider what your company needs the ERP to do right now versus where your company might go in a few years time. Figuring out which ERP system has the right options to grow with your company means you won’t go to all the effort of buying and installing one system only for you to do it all again five years later.
When To Ask A Professional
There’s a lot involved in choosing the right ERP for your business. If you aren’t sure if your business is ready for the next step, or if figuring out the right ERP and ERP configuration is more work than you want on your plate, consulting a professional is the best next step.
An ERP professional has experience working with many different companies to decide which ERP system–and what ERP configuration–will solve their company’s current problems and set them up for future success. They know the landscape of ERP systems, can explain the pros and cons of each, and can help with the implementation.
Be aware that there are two types of ERP professionals:
- Functional consultants can explain the pros and cons of each ERP system to help businesses decide on an out-of-the-box solution. Functional consultants sometimes specialize in solving specific needs, like inventory, supply chain, and financial management problems.
- Technical consultants are who to turn to if the out-of-the-box installation doesn’t quite fit the needs of your company. They write programming to bridge the gap between what the software does automatically and what you actually want it to do.
Final Thoughts
Upgrading to an ERP system is a big decision. It requires deeply understanding how each process of your company works, and deciding it’s worthwhile to endure the growing pains of transferring all those processes and data into one system.
The good news is that it’s worth it. An ERP system organizes your company and helps it run more smoothly than maintaining a whole bunch of separate programs. It means fewer miscommunications between departments, better forecasting for sales, easier inventory management, and automated customer relationship management.
For expert guidance on finding the right ERP system for your company, that’s what we’re here for! We at CloudERPSystems.ai specialize at connecting small- and medium-sized businesses with top-tier ERP consultants who understand their industry, challenges, and goals.