Maximizing ROI: Best Practices for ERP System Optimization
If you think merely investing in ERP system will solve your organization’s procedural and processes related issues, think again!?
Investment in ERP is a wise step. Following best practices for ERP implementation to get maximum output is even better. You need to devise plans and strategies to maximize ERP ROI.?
In context of ERP system, businesses world-wide face challenges of not getting the desired ROI only because they lack in strategies and approach. This edition of newsletter will highlight some amazing ERP system optimization practices to help you maximize ROI.?
Before going ahead let us do a quick recall of what is ERP, and how it is useful to an organization.
What is an ERP software?
Enterprise Resource planning or ERP is a business management software digitizes various processes of an organization and bring them all on a common central data base. With the help of ERP software, organization achieves operational efficiency and cost saving.
It enhances transparency within the organization and helps to take data-driven decision which eventually strengthens bottom-line of the organization.
What is ROI?
On a rudimentary level, ROI stands for Return on Investment. In simple words, ROI is the benefits, value additions, profit hike, and ease of work that you experience after an investment is made.
For ROI of an ERP system, it equals to sum of all the procedural streamlining, consolidation of data, monetary gains, simplicity, speed of work, increased profits, reduced data discrepancy, effective decision-making, cost savings, and much more that an ERP implementation brings to the organization.
Based on above explanation, it is obvious to divide ROI into two categories:?
Tangible ROI-
These are returns that you can measure and has some physical nature.?An ERP implementation is said to bring:
All these come into tangible ROI.
Intangible ROI-
Returns that you cannot calculate or measure, but it impacts productivity rdirectly are called Intangible ROI.
For example, higher productivity, streamlined processes, improved customer satisfaction, better decision-making, data accuracy, enhanced transparency and visibility, greater control, etc.
The challenge lies in quantifying non-tangible ROI and hence the concept of ERP ROI analysis and tools like ERP ROI calculator come into play.
Calculating ERP ROI:
Calculating ROI of an ERP implementation is necessary to justify the investment. The calculation process involves identifying all costs, benefits (both short term and long term) and gains.?
To calculate ROI of an ERP system, first calculate all the upfront cost associated with ERP. This includes the software cost, hardware cost, IT support cost, maintenance cost etc.?
Secondly, ERP system’s benefits must be calculated. Some benefits extend beyond financial savings, the non-tangible ones, we talked about in previous paragraphs. Business should consider short term benefits like operational efficiency and count long term benefits like customer satisfaction, market size expansion etc.?
One can calculate its financial equivalent only with proper understanding of operational processes and how they translate into cost saving or revenue generation.?
Formula for ERP ROI:
ERP ROI is calculated as follows:
ERP ROI = (Total ERP returns / Total ERP cost) * 100
Where Total ERP returns = Total?benefits – Total cost of ownership
Factors directly affecting ROI:?
Choice of ERP- Usually on-premises ERP costs more than cloud ERP. Hence, the choice directly impacts TCO (total cost of ownership) of ERP. Besides the choice, maintenance cost and user cost also impact TCO.?
Customization- A cost of customized ERP is more than that of an off-the-shelf ERP.?
Training- A complex ERP will require more training than an intuitive an easy-to-use ERP.?
Implementation process- The shorter the ERP implementation time, the sooner it will generates benefits.?
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Implementation steps-
Various ERP projects fail because they are not well thought of. The implementation steps are not well structured. This lacuna directly impacts ERP system ROI. Hence, before implementation, all the pre-requisites of ERP implementation must be fulfilled to ensure that all the boxed are ticked in the implementation process.??
Strategies to maximize ROI:
Following are the strategies which will help you to maximize ROI with your ERP system, helping you to unlock its potential and drive business success:
Define clear objectives:
First, decide the objectives of your ERP implementation. Prioritize your challenges and find a clear objective of the ERP investment. Establish a clear objective and related improvement metrics.
For example, if your objective is to improve operational efficiency, or enhance customer satisfaction, your clear metrics aligning these objectives can be to reduce order processing time or improve?on-time delivery rates.?
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Selection of software:
Software section plays a key role in ROI.?
- Software must cater to your challenges.
- It must be simple to use.
- It must be scalable.
- Choose industry specific software.
Training and support:?
Training to end-users is inevitable to ensure they are comfortable and proficient with the new system. Until felt confident, they won’t use it and the investment will not yield true value.?
Continuous support, and access to training resources will assist in resolving issues quickly and maintaining system efficiency.
Ease of implementation:??
Make sure that the system does not require much customization. Customization harms you in two ways. One, it increases time of implementation & complexity and second, it increases costs. Add customization only when it will make significant improvements.
Also, the vendor must provide clear implementation path. If the vendor outsources implementation, it can cause issues later. So, make it a point that implementation is easy and done by the vendor itself.?
Ensure proper data management:?
?Data is blood of an ERP system. Make sure that the data that you feed to the system is clean. Double check data integrity, accuracy, and security.?Establish data governing policies and standardize data before migration.
Reliable data will ensure apt reporting, informed decision making and enhanced ROI.?Regular data cleansing is also necessary.?
Continuous improvement:
Various key performance indicators (KPIs) like operational efficiency, cost reduction, customer satisfaction, and revenue growth can help evaluate the ERP system’s impact on the organization.?
Regular assessment of these KPIs helps to identify areas of improvement. With continuous feedback mechanism and adapting to the changing business needs, one can keep the system updated, relevant and effective.?
Leverage data analytics and reporting:
Data is useless until analyzed. Data analytics and reporting capabilities of ERP system provide valuable insights that will help to make informed decision. Leverage the capabilities of ERP and identify cost-saving opportunities, identify customer preferences, and increase ROI.?
Integration:
Integrate various tools like CRM, e-commerce platform etc., to enhance the capabilities of the whole eco-system.?It reduces disruption and enhances system effectiveness.?
Conclusion:
By embracing these factors, you can enhance the ROI of your ERP system. But always keep in mind that ERP ROI improvement is an ongoing journey. Regularly evaluate your ERP strategy, keep pace with current trends, and adopt business techniques that align with changing business needs.?
At this junction you need a flexible ERP system to give you advantage of continuous improvement without affecting your day-to-day work processes and procedures.
The one like BatchMaster ERP which is an industry-specific software. Easy to implement, available on cloud as well as on-premises, the software has catered more than 3000 clients across the globe in last 30 years.?With flexibility and scalability as intrinsic quality, the software can integrate with various finance and e-commerce platforms.?
If you are looking for an ERP software which facilitates for continuous evaluation to maximize ERP ROI, you can rely upon BatchMaster ERP. To know more about BatchMaster ERP software, please visit our website .