“To ERP or not to ERP?”
That is the question many business leaders ask themselves. Acquiring an ERP system is one of the biggest investments a business can make, yet many small and young businesses claim they are ‘too small’ for ERP. This stems from the mindset that the number of users drives the need for an ERP solution.
The truth is, a small business must be faster and sharper than the competition. In today’s business landscape, no business is too small for an ERP solution. ERP allows small businesses to appear, act and operate like an enterprise-scale business.
What is ERP?
Enterprise Resource Planning (ERP) has been known to be the backbone for many corporate-scale businesses. The software is a key tool for managing production, order processing and inventory. It also monitors business resources between stakeholders, such as; revenue, materials, orders, staffing and manufacturing capacity. All of this is done in a single interactive database management system with built-in analytics and a dashboard.
An ERP can be implemented across several industries including manufacturing, retail, human resources, steel, concrete, banking, pharmaceutical, chemical, oil/gas, as well as agricultural, farming and livestock management.
There haven’t been as many suitable ERP options available to small-sized businesses in the past. These businesses simply didn’t have the funds or technical support to create the infrastructure necessary to adopt the traditional corporate-scale ERP solutions.
Therefore, growing businesses end up creating a fragmented business structure made up of several separate programs that handle finance, inventory, sales, payroll and more. However, recent technological advancements have opened the door to more practical small business solutions.
Related Article: What Is ERP Software & How Can It Increase Efficiency?
What Do Small Businesses Need to Understand?
Within a small company or startup, employees wear multiple hats. Everyone pitches in wherever and whenever the need arises (which is frequently). Who has the time to manually process multiple spreadsheets and separate mountains of data? ERP systems geared towards small businesses are able to blend and automate key business functions such as order processing, production and finances.
However, ERP software is integrated over all departments of a company. Implementing an ERP system entails careful planning in order to minimize the risk of failure and to ensure goals are met.
This requires a standardized implementation blueprint, an established ERP strategy prior to selection and involvement of all business and IT staff members in the process. Any business can get a real ROI from the use of an integrated ERP system if executed correctly.
What Benefits Do Small Businesses Get From ERP?
- Transparency: Instead of each department having its own information system, all relevant data can be shared and accessed by all the departments. This eliminates the need to re-enter or export data, which can result in less errors, increased productivity and reduced expenses on human resource.
- Decision-making: Real-time data provided by the system can be beneficial for marketing, management, accounting, and enables the organization to make vital decisions on time and reduce waste. Teams can detect any potential obstacles or issues that may shake productivity levels. An overall picture of operations allows for business leaders to make effective decisions and respond quickly to a changing business environment.
- Productivity: With increased clarity by streamlined business processes, staff can shift their focus on managing increased volumes of business. This aids in transforming various facets of your business and overcoming the challenges involved in business growth.
What Are Signs That Your Business Needs an ERP?
The majority of small businesses start with just the basics. This may include a combination of simple accounting software and document-based processes—i.e., spreadsheets, synced documents.
As the business expands and transactions increase, it may become more time-consuming and difficult to process a larger volume of data. Business processes become much more tedious, such as; inputting sales and purchase orders from various clients, updating inventory, manual stock checks, processing invoices, billing and keeping track of client interactions.
This is especially true if this information is stored in separate systems and databases. This means that data may need to be imported/exported from program to program in the workflow, allowing room for errors.
ERP can automate these manual processes, allocating more company time to sales and business development instead of administrative tasks. Furthermore, ERP software allows synchronous workflow from inquiry to invoice and payment. The ideal ERP system would handle the processes in one fluid system:
Contact with Client (CRM) → Order Processing (Supply and Inventory Management) → Invoicing and Payment (Finances and Accounting)
It may be time for ERP implementation:
- When the amount of inventory in the warehouse becomes difficult to determine;
- When the sales forecast is based mostly on guesswork;
- When the company is struggling to keep up with an upsurge of orders or relies heavily on excel spreadsheets;
- When getting solid facts becomes problematic, it may be time for ERP implementation.
What Is the Right Choice of ERP?
There is no one size fits all ERP system. Each business has different competitive profiles, customer mixes and business standards that make for a massive range of solutions.
A good ERP option will offer a suite of business management tools such as CRM, web hosting, ecommerce platform, a tasking system, a shipping manager, email marketing, etc. However, too many unnecessary bells and whistles may cut back revenue.
As a small business you want to invest in the most cost-effective solution that meets your needs, fits your industry and is manageable. There are various factors to consider when choosing which ERP is best for you and your company.
Ease of Use: Consider the learning curve involved. Is it user-friendly? What would be the amount of training involved? Modern ERP solutions come with responsive user interfaces and can easily integrate with most business tools such as Microsoft programs and Google.
Customization: Does the software accommodate changing business models? Does the software utilization, platform and user count adapt with business growth? The system should be scalable to your business goals.
While most of the sophisticated enterprise-scale software will be too bulky and expensive, the ‘freemium’ software (small, basic packages) will be too difficult to scale as your business grows. It is important to select an ERP solution with the features that best align with your business objectives.
Highly customized systems will generate a higher cost, so think before you customize. Design a workflow and ask the vendors to run demos based on your requirements. It is important to see first-hand how a particular ERP system will function within your business.
Cloud or On-premise Platform: Traditionally, on-premise systems required expensive licensing costs and large initial investments. Now with the emergence of cloud ERP solutions, an affordable ‘pay-per-transaction’ pricing model is now available to smaller businesses and start-ups. This minimizes the risk of you purchasing an inadequate solution that is too powerful for your needs.
For some companies it may be necessary to have the solution be in-house and installed on an internal server, while others may prefer a web-based solution that is more mobile and can be accessed through tablet and mobile devices. Determine which option best suits your business objectives.
Frequency of Upgrading: Be aware of the support guarantee regarding mandatory upgrades. Unless you are purchasing additional components for your software, make sure enhancement fees are locked in and don’t increase with developments and future releases. Also consider the ease of upgrading; a cloud platform may provide faster and automatic updates while an on-premise update may involve more work.
Security Measures : Ensure that the security of your data is as much of a priority to the vendor as it to you. Be aware of how to manage and determine different access and authorization roles in the system to prevent data violations. Make sure passwords are strong and securely encrypted. Also, ask the vendor what security measures are employed for integrating third-party products.
Support Service : Take into account how much support is offered by the vendor and find out if there are any additional fees involved for troubleshooting your system. The vendor should also have plenty of personnel to assist with setting up and maintenance of your ERP software.
Also, software buyouts and partnerships are now more commonplace. Protect yourself against a situation in which the supplier management changes and make sure they guarantee support for a certain extent of time on currently implemented products.
Total Cost of Ownership: The goal here is to maximize your ROI. The costs involved in purchasing software can be confusing. Sales reps are known to downplay the costs and risks involved. Be clear on what the costs for the software, implementation, maintenance, customization, training, support, hardware and updates will entail. Determine the pre and post implementation expenses and project these costs for the next 5-10 years.
Once you understand what you are after and what your business processes are, you can ask more targeted questions about the ERP software you want.
Plan for Now and the Future
Many young and small companies shy away from investing in a full-fledged ERP solution, due to the risks involving finances and inefficiency. Ultimately, you need to understand how your business operates to fully understand what you want to get out of your ERP program.
As a new startup, iS5 Communications had complex needs from the get-go. iS5 Communications designs, installs, manufactures and services network routing equipment specifically for harsh environments commonly found in the transportation, utility, military, industrial and surveillance industries.
They required a software package that offered powerful functionality through a lean and scalable platform. They teamed up with an ERP solutions consultant and decided on an ERP solution since it offered the manufacturing, accounting and international features that iS5 needed immediately.
This ERP solution is a good fit for companies with varied requirements and complex business processes while remaining cost-effective and fast to employ. This company knew it was headed for growth, so rather than starting with entry-level accounting software and eventually transitioning into an advanced ERP solution, they invested in a solution that would take them from startup to success.
The CEO of iS5 Communications, Clive Dias, claims they made the right choice for now and the future.
“I have used many ERP applications during my career. What always plagues these applications was the lack of integration. None of them offered all the tools we needed in a single system; we used other add-on applications to provide the necessary functionality,” explains Dias.
“We now have manufacturing, product configurator, customer relationship management (CRM), service issue tracking, remote access, multicurrency, strong core accounting, and financial reporting capabilities in one powerful product. I appreciate that we have software that supports our business processes, rather than us having to build and adapt business processes that the software can support.”
To successfully weigh the risks versus the rewards of ERP software solutions, the key is to identify your business priorities and corresponding resources for training and project management strategy.
Even the best ERP software can fail if the implementation isn’t executed correctly. With so many options available, seeking a consultant specializing in ERP solutions and implementation may be in your best interest and ensure you select the right system and manage the change effectively.