Enterprise resource planning (ERP) is a business management software that manages and integrates business processes through a single system. ERP is the information center for any business and distributors are no different. Distributors need a robust ERP to cut costs, improve customer satisfaction and boost profitability.
Establishing and using an ERP solution takes significant time and money, causing distributors to expect instant and impactful ROI on their ERP investments. As with most investments, results aren’t realized overnight. Fortunately, there are ways to boost your ERP’s ROI for faster payback.
To better understand how to achieve greater ROI, distributors need to know the ins and outs of what ERP implementation can do for them.
Benefits of an ERP System
Understanding what an ERP solution does for your business will help maximize your efforts. Most distributors face problems that ERP can help resolve, such as lack of visibility into business processes, data silos, efficiency issues and manual data errors.
ERP implementation offers benefits that directly target the issues most commonly felt by distributors. With ERP, distributors can expect:
- Visibility: ERP allows complete visibility across systems. Individuals and teams can improve job performance by seeing ongoing processes and data from other teams.
- Cost Savings: ERP lowers costs in many ways, including eliminating manual data mistakes, paper trails and mundane administrative and operational tasks. An ERP also helps identify high-cost processes that could be streamlined for better efficiency.
- Accurate Forecasting: With centralized data, ERP generates more accurate forecasting for your business, allowing your organization to make the necessary changes promptly.
- Increased Productivity: By automating simple and manual tasks, your team can focus more time on the growth and development of your organization.
- Better Data: ERP eliminates data silos and centralizes your data for added security, better insights and the elimination of duplicate data.
Cost of an ERP System
The cost of an ERP system is determined by many factors. Some are known before implementation and others need to be measured over time to gain clear insight. To understand how to maximize your ROI on your ERP system, distributors must understand the various factors that impact the cost of implementation.
A 2022 ERP report showed that the average budget per user for an ERP project is $9,000. The same report showed that roughly 26% of employees would use the ERP system. These numbers can help your organization identify a broad range for the cost of implementation. However, the Total Cost of Ownership (TCO) considers other items, including:
- Software licensing fees
- Additional servers and network hardware costs
- Data conversion and transfer to new ERP
- Customization charges
- Testing fees
- Training fees
- Vendor/consultancy support post implementation
These all play a vital role in understanding TCO and maximizing your ROI. TCO also includes the decision to use an on-premise ERP or cloud-based ERP; it factors in capital versus subscription costs.
How to Calculate ROI on ERP
Calculating your ROI on ERP is not an exact science. It is a complex process involving a detailed analysis of the benefits and costs following deployment, and there is no set timeframe for measuring returns on ERP investments.
A quantifiable metric to determine ROI is this:
(total value of investment – total cost of investment)/total cost of investment x 100.
There are two distinct parameters for calculating ROI on an ERP system: hard benefits and soft benefits. Hard benefits refer to easily quantifiable financial values, and soft benefits refer to immeasurable benefits, such as improved employee morale and customer trust.
There are also two phases to evaluate your ROI: implementation and ongoing use. During the implementation phase, your organization will see the immediate benefits of ERP. The ongoing phase shows the long-lasting benefits that need to be measured over time.
How to Boost Your ERP’s ROI
C-Suite Buy-in
Maximizing the ROI on your ERP investment starts at the top with C-suite leaders. Getting buy-in from high-level leaders will set the foundation for success by creating a supportive environment. Having top-down enthusiasm can boost ROI by aligning everyone on the same page and reducing pushback.
ERP Integration
Another vital step in boosting ROI is integrating your ERP system with other critical systems in your organization. Integration with other systems in your organization results in a single source of truth for your business. Your other systems can share real-time data with your ERP, eliminating error-prone manual data entry and data silos and allowing for shared information between divisions of your business.
Employee Onboarding
Training employees on how to best use your new ERP system ensures initial implementation and long-lasting success. Low adoption rates and resistance occur with employees who don’t know how to use the system or have not been adequately trained on best practices. They will ignore the benefits of ERP and continue manual processes. If your ERP system adoption is low, your business will see a low ROI because the technology won’t be used to its full potential.
Evaluate after Implementation
After initial implementation, businesses should adopt an evaluate-and-modify approach. At a minimum, your business should evaluate where you can cut costs and restructure your ERP, review key performance indicators (KPIs) and understand that successful ERPs are rolled out in phases over time.
Rely on Digital Solution Providers
Lean on your digital solution providers for best practices and to optimize your ERP implementation. Having a clear implementation strategy at the start and a testing plan during and after implementation will help mitigate any risks associated with ERP.
Research ERP Providers
Finally, take the time to research ERP providers and ask questions about their implementation process and support. There are many factors when deciding on an implementation vendor, but carefully evaluating your partner is essential for success.
ERP implementation is unlike a traditional tech deployment with upfront costs and a short-term payback period. Instead, it is a complex process that touches every part of your business, requiring commitment and trust.
A successful ERP implementation provides businesses with many tangible and intangible benefits. Investing time into your employees and training sets the foundation for long-term success. Fully integrated ERP gives distributors unparalleled insights, drives profitability and saves time.
Karthik Chidambaram is the Founder and CEO of DCKAP, which simplifies digital commerce for distributors, and organizer of DCKAP Summit, a conference on growth for distributors. He bootstrapped the company from his small apartment in Chicago, Ill. DCKAP was started with two people, two computers and two desks and is now a global and distributed team. Karthik holds a Master’s Degree in Computer Engineering from Illinois Institute of Technology, Chicago.