More companies are realizing the benefit of integrating their ERP with all their other systems, machines, and applications. Many have opted to move their ERP to the clouds for access, efficiency, and faster implementation. Some have decided to integrate their ERP with their digital and social media marketing campaign platforms and applications. They have also integrated ERP with their business processes, data collection and analysis, and customer service engagement.
Some companies have realized the value of adopting ERP software for HR companies. Some businesses have begun to connect their industrial devices to the Internet of Things (IoT) and integrate it with their existing ERP systems. But the question often asked is whether these investments in ERP systems and applications will generate ROI for the company. Here are some of the ways by which an ERP system can help generate ROI.
1. Optimize Inventory Management For More Sales And Revenues
One way by which an ERP system can help generate ROI is by optimizing inventory management. Companies and warehouses that don’t have an ERP system always seem to have issues with their inventory management. Managing their inventory well is a critical aspect of business operations. Procurement, supply chain management, and logistics may all benefit from having an ERP. Some are already transitioning to blockchain ERP systems.
Inventory consists of the core product of what your business produces, manufactures, trades, distributes, or sells. The goal of a company’s numerous teams and divisions is to get merchandise from their warehouse to their distributors, merchants, or purchasers as quickly as possible.
Everything that your procurement, production, packaging, logistics, marketing, sales, and distribution teams and departments do is geared towards moving your products. Even the auxiliary functions of finance, accounting, and collections are all aimed at converting beginning cash to gross revenues and finally profits.
2. Shorten The Cash Conversion Cycle (CCC)
Having an ERP can help your company shorten your cash conversion cycle (CCC). This is the amount of time it takes for your company to convert the cash you invested in procuring raw materials to gross revenues available as cash. A firm that does not have an ERP will frequently have problems with data management, both in terms of content and accuracy.
For one thing, having too much inventory beyond what your sales and distribution departments require holds up your company’s cash flow. For example, if you have too many raw materials in your warehouses for an extended period, your firm will have cash that isn’t being turned into completed goods, purchased equipment, or utilized to pay staff.
Other indicators of inefficient inventory management are when you have too many works in progress (WIP) items. Even finished goods which remain stocked and unmoved in warehouses for long periods are tying up your cash conversion. These symptoms indicate that you’re creating more things than your marketing, sales, and distribution departments can sell. ERP can integrate data analytics tools to shorten the cash conversion cycle.
3. Synergize All Aspects Of Your Business Operations
Having an ERP will enable you to synergize all aspects of your business operations. You can readily find holes and come up with strategies to patch those gaps to further enhance every part of your business operations if you have a wide perspective of what’s going on everywhere. If there’s an excess or surplus anywhere, you can scale down, and if there’s a deficit, you may level up.
You can use the data collection and analysis from your ERP and apply it to develop machine learning algorithms for your industrial machinery and production equipment. With faster and more accurate data inputs, your machine learning algorithms can teach your industrial machines to learn on their own how to optimize their production and downtime schedules.
When your business operations are being degraded by inefficient inventory management, this will have downstream effects in terms of deficient or excess inventory. When there’s an excess of raw materials or stocks, too much cash is tied down. It also takes up warehouse space and uses up utility costs such as electricity and ventilation. If the raw ingredients were acquired on credit, this also means that interest will accrue over time.
On the other hand, production would go down if there were no raw materials to work on. Warehouses would be empty but they’d still use electricity and ventilation, and wages would still have to be paid. The machines would be lying idle doing nothing, thus affecting the ROI on capital expenditure (Capex).
If sales teams came up with purchase orders, production won’t have anything to hand to them for sale and distribution. This would also have an impact on the sales performance and revenues, ultimately affecting the company’s ROI. If customers don’t get their orders on time, they might think of coming up with contingencies by sourcing their requirements from other suppliers, at least in the meantime. But there’s also that possibility that they might shift their sourcing to other suppliers.
4. Integrate All Systems And Applications
Using an ERP can also indirectly help you generate ROI by making all your systems and applications work better together and as a whole. By using an ERP, all your different internal teams would be able to work together using one data set. This will streamline all areas of your business operations from posting marketing leads to receiving social media queries, to the procurement of raw materials and supplies, to production, up to sales, packaging, distribution, and collection.
Your marketing teams would be able to integrate all their social media marketing channels with the efforts and campaigns of the sales teams. Leads and inquiries converted into customers would be more easily processed into orders. Procurement would be able to plan their purchases of raw materials and supplies with more timely and accurate input from marketing and sales. Production could take this integration to the next level by adopting the Internet of Things (IoT) for their manufacturing machinery and equipment.
For their part, accounting and finance can also integrate their system and applications with marketing, sales, and production. This would enable them to provide more timely and accurate input to the other teams and departments. They’ll be able to process and track purchase orders, and loop in marketing and sales for any follow-through efforts to activate personalized marketing and upselling.
Marketing can perform data analytics on the inquiries and purchases of customers and ask production if they could recommend other products that can be offered to these customers. Customer service can also enhance customer engagement by asking accounting and finance to do proactive billing reviews to avoid issues that might cause customer dissatisfaction.
Companies without ERP systems frequently have problems with data accuracy and management. This often results in inefficiencies in inventory management, procurement scheduling, production planning, logistics scheduling, revenue generation, and collection efforts. Integrating your ERP system with your machine learning systems, production software, social media marketing platforms, data analytics, and financial reporting software can significantly bring down your inefficiencies and costs, and generate more ROI in less time.
Bellamy Smith often writes about ERP systems, business process improvement, supply chain management, and change management. When not writing, he loves to go to the beach to do some surfing and strolling under the sun.