Automation domination Featured

8:00pm EDT March 26, 2010

This is a short story about a wonderful return on investment. Everyone loves a return on investment, especially if that investment costs hundreds of thousands of dollars.

There is a small manufacturing company in Arkansas that installed and implemented an enterprise resource planning system last year. The industry in which the company works is not particularly important. Neither is its geographic location. But the fact that the company, call it Company A for the purposes of this story, decided to move forward and install an ERP system is particularly important. It will change the fortunes of Company A in rather short order.

Prior to the installation and implementation of its ERP system, Company A shipped about $200,000 in inventory per week and it stored about five weeks worth of inventory in its warehouses. But executives at Company A figured there was a more efficient way to run the warehouses and, in turn, the business of the entire company.

So after months of research and planning, after working with a top technology firm, after moving forward to install that ERP system — and, in particular, a handheld wireless scanning system to better handle its inventory management — Company A did find a more efficient way. It was able to decrease its amount of stored inventory to about three weeks worth of items. That allowed Company A to free up about $400,000 in working capital, more than the total cost of investment in the ERP system. And that allowed Company A to restructure a large swath of the way it now does business.

What is ERP? You might know, but even if you have a grip on the technology, it has certainly changed since its introduction to the business world in 1990, and it has changed even more during the last couple of years.

“The term ERP has remained pretty stable,” says Alex Attal, general manager, Sage ERP X3, within Sage North America. “It was developed more than 20 years ago, but we still use the name; it still means something. The reason, I think, is because it has filled an important need for businesses. The application is different, but the process is always the same: How do you automate complex processes?”

Plan, then plan some more

ERP is an integrated system that is used to manage the resources and automate the processes of a company. It can be used to automate and improve just about any process that deals with manufacturing, with supply chain management, with human resources, and with financials and data. It has been referred to as “the present of computing,” “the future of computing” and “an invaluable part of business” by a panel of experts and software developers and designers across the nation. There is a longer definition filled with more technical details, but if that doesn’t provide a sense of what ERP can do for your business, well, just read the simple success story of Company A one more time. Then take a long look at the processes in your own business.

“Small and medium businesses do not have processes any less complex than those of larger businesses,” Attal says. “The challenge for small and medium businesses is that their processes are still complex and there are fewer resources to fix it. You need to bring as simple a solution as possible to a complex process, because whatever the size of your business, you need to automate your processes.”

The installation and implementation of an ERP system is neither an inexpensive nor a short project. The cost can vary depending on the number of your employees and the revenue size of your business, the depth and scope of the system you want to install, and the amount of training you want during the process. A simple system for a small business might cost less than $10,000. An average system might cost somewhere between $50,000 and $100,000. A much larger system for a corporation that has thousands of users and stretches around the world might cost millions of dollars. But an average cost, especially for small and medium businesses, is somewhere between $3,000 and $5,000 per end user, including the implementation, from the day you start installation to the day you are running live in production.

Similarly, the installation time varies based on multiple factors. For smaller systems, plan for at least three months, including end training. For larger systems, plan for at least six months to one year.

And the training is important. Consider it an insurance policy, of sorts, to make certain that your employees endorse the system and want to use it. If they reject it, you’ve not only wasted your money, but you have also taken a step backward toward different departments speaking different technological languages.

“There is significant training,” says James Barber, partner and CEO, ERP Professionals. “Not only will the end users who use the system to conduct daily operations need training, but they may also see their roles changing as they move to a new system because of how the processes are mapped out.”

Close your doors

Perhaps your largest concern with the decision to either install or upgrade your ERP system — other than the considerable investment of money and time — is security. Your data will not likely be susceptible to external hackers, even if you opt for cloud computing and store your data on a server outside of your offices, but there is always the concern that your own employees might attempt to tamper with the system.

“If you have an on-premise solution that you keep within the walls of your business, your security concerns are more internal in terms of access for your employees,” says Prasad Akella, vice president of SME Solution Marketing, SAP. “You don’t want the guy running your supply system to be able to cross over to your HR system.”

In other words, assign each user a unique access name and password, much as you or your IT staff would for any office system of considerable size and importance, and allow each user access to only the parts of the system that he or she needs to use for his or her assignments. There are always concerns, but if you set up the security in advance, you will better protect your data and your business.

The other concern, especially after hearing the relatively sudden successes of Company A, the Arkansas manufacturing company that trimmed its stored inventory by about 40 percent and reaped a full return on its investment within a year of implementation, is when you will earn back the money you put into the system. Depending on the speed of the installation and how quickly you and your employees implement the full range of process automation, you could see a full return within two years, and perhaps even just one year. But the consensus is that ERP has evolved so much during the last couple of decades that it is a sound investment, no matter your industry, business size or needs.

“There has been a maturation process that businesses have gone through,” Akella says. “ERP is a commodity now, and businesses recognize that they need it and that they need to invest in it.”

It can, after all, help you improve the processes and efficiencies of your business. And it can change the way you do business.