Mark Miracle | August 12th, 2022
Over the past six years I have been involved in well over 60 ERP evaluations and upgrade projects, primarily with small to mid-size manufacturers. It is somewhat disconcerting to see how long many of these evaluation projects take and how many of them eventually turn into a “no-decision”. Outside of the cost, time and effort involved with implementing or upgrading an ERP, other common factors causing a reluctance to move forward are an apparent lack of urgency and/or executive backing. Why are urgency and executive buy-in missing from these evaluations? In my opinion it has to do with the difficulty in quantifying the benefits that a well-implemented ERP solution will have on the organization.
So how can a company go about quantifying the value of a new or upgraded ERP? At a high level, most of us realize that a well-implemented system will:
While the above is absolutely true and sounds really good, the difficulty is in attaching a real dollar value to the above benefits. At this point you might think that it should be the software vendor’s responsibility to provide that value proposition. Unfortunately, those value propositions are somewhat generic unless the vendor can get specific and transparent input from the client, who is the only one that understands their specific pain and how much it is costing them. In the end, if you, the customer, understands how your current situation is creating problems, and what the revenue impact of those problems is, you are the only one that can put together a believable ROI. But how do you do that?
The best way to explain the how is to take a hypothetical, but also somewhat typical, example and walk through the scenario, utilizing some of the most impactful common issues that small to mid-size manufacturers generally face. Imaginary company ABC is a $50 million-dollar discrete ETO manufacturer of widgets that is embarking on an ERP evaluation from a 10-year-old system for some of the following reasons:
The above issues are just a few of the common problems that manufacturers face on a continual basis and, arguably, they represent a very simplified scenario. The point here is that with just 4 common issues, based on a $50 million manufacturer, a reasonable case can be made to identifying over $4 million in revenue and $500,000 in income impact. Even at a fraction of that amount, the need for an ERP evaluation would certainly be considered a high priority by the executive management team and result in high urgency.
In summary, before deciding to evaluate your current ERP needs, take the time to understand the specific issues that will be rectified through a new or upgraded solution and attach a reasonable dollar value to their resolution. If that dollar value negatively impacts your annual revenue by more than 5% it is likely that the assessment will receive the executive backing and urgency that it needs.
On an additional note, and as many of you are aware, choosing a new or upgraded ERP does not automatically mean you will realize all the value that you have calculated through compiling your issues. To truly maximize that value, you need to choose the ERP solution that’s right for you, find an implementation partner that understands your business, and spend the necessary time, effort, and money to make sure you implement it correctly.
For more information on evaluating and implementing ERP, see our full blog page.