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.

“ERP systems give an integrated solution that allows your business to have immediate access to pertinent information so that you can make more well-informed decisions,” says James Barber, partner and CEO, ERP Professionals. “The latest releases of the ERP systems now integrate much better across all aspects of the business. It allows you to make a more well-informed decision, as opposed to taking an educated guess and seeing negative results later on.”

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 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.

“Compared to other systems, ERP systems give you the power and the flexibility to grow your organization,” says James McKee, president and CEO, M9 Solutions. “But it really does all depend on how good of a job you do upfront to understand your requirements and configuring the system to address those. People don’t invest in these systems to implement them, stand them up and then just leave them alone.”

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 have not only wasted your money but have also taken a step backward toward different departments in your business speaking different technological languages.

“There is significant training,” Barber says. “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 might be susceptible to external hackers, even if you opt for cloud computing and store your data on an outside server.

“There are always security concerns based on the sensitivity of your data and how you run your business. That goes without question,” McKee says. “There will always be individuals and companies that can crack that code, but there is sufficient technology to ward off that threat or at least get an early warning signal. Security is a big issue, but there is sufficient technology to protect you from those kinds of attacks.”

There is also the concern that your own employees might attempt to tamper with the system, so 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 he or she needs to use for his or her assignments. If you set up the security in advance, you will better protect your data and your business.

The other concern, especially after hearing the successes of Company A, 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.

“An ERP system may take a little longer to realize that return on investment, but once you hit that break-even point, you’re often going to realize future gains,” Barber says. “These things are much more efficient than people could have imagined years ago, and the efficiency is where companies are going to be able to save most of their money.”

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