Why not a complete list?

ERP can bring many benefits to a company—I’ve used it to elevate companies I’ve managed, and other businesses implement ERP with great results. In short, I have a lot of experience with the perks of ERP—but creating a complete list of ERP benefits and features would be impossible.

To understand why it is impossible, I’ll lay out the high-level problems many companies face and describe how an integrated ERP addresses these issues. This discussion will naturally cover the advantages and benefits of ERP. In some of these areas, I will include validating points from other experts in the industry. Then I’ll explain why a complete list is impossible.

Let’s start with the benefits of ERP and how it can solve big, persistent problems for companies:

Eliminate multiple systems and data sources

I hear over and over that companies looking for a new ERP system have outgrown their current system. What they really mean is they have outgrown their systems (plural). They are running their organization using multiple systems that are “integrated” by having meetings, developing spreadsheets, and hoping everyone remembers to do everything correctly.

Solutions are developed for each new problem that arises. A solution may involve a checklist, more spreadsheets, an Access database, or even new software to address a specific issue. But after this goes on for a while, companies find that there are so many different procedures, checklists, and spreadsheets, that no task is easy to complete.

As the company grows, the need for more administrative staff grows, and somehow, problems that were already “solved” keep popping up. Finally, someone in the organization reaches a point of clarity and says, “There has to be a better way.”

There is a better way: Purchase and implement one integrated ERP system that handles everything from quotes to cash. This results in one source for data, more information for users and executives, and fewer meetings and spreadsheets.

There is no magic here. ERP alone does not solve every issue; trained users of the ERP following proven procedures will bring about the desired results. Does this require work? Yes, but it’s work that pays dividends. It’s addressing the root cause of problems brought on by having a patchwork of solutions.

Here are some thoughts from others on this topic:

“Better information accuracy and availability is the primary benefit that drives all other ERP benefits. Advanced ERP systems collect, process, and store production, sales, supply, and customer data. Instead of maintaining many databases, you employ a single data system, eliminating regular checks and synchronization.”

David Reid, The VEM Group

“An integrated, centralized database that supports all business-essential processes is the biggest benefit of an ERP solution. As a result, siloed divisions and operations within the corporation can be seamlessly integrated. This integration allows for more ideas, more consistent decision making, and better customer experiences. It also aids in making more informed (and better) decisions.”

Bram Jansen, VPN Alert

“The one benefit I often cite regarding ERP is the cost reduction and scalability it offers. Instead of wasting resources on multiple systems that need dedicated staff, infrastructure, support teams, and licenses, I have consolidated all those costs into a single ERP solution. Instead of spending more on different systems, I have saved IT expenses by centralizing everything in one ERP. This also benefits me by reducing training requirements; it is always easier to learn just one system instead of interacting with multiple individual applications.”

Richard Lubicky, Real People Search

“An ERP system centralizes all core business processes in one location, providing real-time visibility into operations, from supply chain [logistics] to customer relationship management (CRM). The other significant advantage of an ERP system is data security. After all, at the guts of the ERP solution is data. Sharing data across functional silos (e.g. customer service, sales, marketing, business development) enhances collaboration throughout a corporation. It really has made operations related to data smoother and efficient.”

Daria Maltseva, KeyUA

“It's a tough task to manage security permits and access across multiple systems. [With an ERP system] organizations have the capacity to ensure that critical company data can be shared, without being compromised by using a common control system. Everything can be saved in a single, secure database that’s accessible from any location.”

Neil John, One Computer Guy

Eliminate repetitive data entry

An environment with multiple non-integrated systems and data sources has a close relative: repetitive data entry. The amount of repetitive data entry that goes on in this environment is probably more than you think.

Let’s say a manufacturing organization has an accounting system and a separate production system. A customer order is entered in the accounting system. To build what the customer wants, the same order has to be entered in the production system along with the customer information. Materials need to be used to build that order. These part numbers need to be entered in the production system for the bill of material, and they need to be entered into the accounting system so purchase orders for the materials can be created.

Next, the purchase orders are created and the materials come in. The accounting system can keep track of the inventory, but then material is used for a production order, and the accounting system has no idea what a production order is. The production system needs to be told which material requirements were satisfied, and that amount of inventory needs to be adjusted out of the accounting system.

That’s a lot of repetitive data entry—and the list still isn’t complete. There are many production orders with different due dates and levels of progress.

How does the company keep track of it all? Spreadsheets and meetings, of course! Chances are the list of orders and due dates for the meetings are produced from either the accounting or the production system, but the notes that arise out of the meeting are handwritten.

I could go on, but hopefully you get the point. The lack of integration causes gaps in information that a human has to fill with time and labor. Even if some of these steps were streamlined by exporting and importing data, the number and required order of steps make the process unstable and prone to errors.

Improve performance by reducing guessing

A major consequence of multiple non-integrated systems is that employees fill the information gap with guesses. They don’t guess because they are lazy; they guess because getting good data is too time-consuming.

In the accounting system/production system example from the previous section, no company does all the things needed to keep the data in both systems clean and in sync. It’s too difficult, so they come up with shortcuts to get by. These shortcuts leave gaps; those gaps are filled with guesses.

Here are some examples of reasonable business questions that I’ve seen answered by guesses, not facts:

• When is that order scheduled to be completed?
• What product line has the highest gross profit?
• What were the costs on a specific work order?
• What and when are the projected material shortages?

The slippery slope of guessing is at some point, a company can become comfortable with guesses over facts. If that happens, it’s not a long stretch before people start believing the guesses are facts.

I’ll take an educated guess over no answer any day, but a company should strive to make decisions based on facts. One of the benefits of ERP is that it can answer all of the questions above—no guesswork involved.

Here are some other opinions on this topic:

“You can use ERP solutions to forecast sales, costs, and the resources you need, such as materials, equipment, or people. ERP gives you the information you need to make informed decisions about production schedules and resource requirements. To avoid downtime or production delays, you must be able to foresee occurrences like equipment maintenance or order fulfillment. Better planning and resource management allows company executives to make more effective decisions and handle obstacles within the organization.”

Jared Bauman, 201creative

“Businesses face higher labor expenses as a result of inefficient operations and decentralized data. These can be particularly damaging to small- and medium-sized businesses (SMBs) with limited resources.

“ERP systems can automate and streamline daily tasks, allowing your workers to focus on revenue-generating activities. For example, the software can connect sales orders to accounting systems instantly or generate reports without the use of complex spreadsheets.

“ERP should be viewed as a technological strategy by businesses. It can help businesses attain flexibility and agility by efficiently automating and linking administrative and operational capabilities, such as finance, HR, purchasing, manufacturing, and distribution.”

Dan Close, We Buy Houses

Communicate more and talk less

Another ERP benefit is the easy flow of data to all the departments that need it. Customer demand creates work orders. Work orders create demand for raw materials and capacity. Materials are issued to work orders; labor is reported against work orders developing a real-time work in progress (WIP) value. Shipments are made against customer orders, and invoices are made against shipments.

The information flows not through conversations but through the system. It works when users follow a defined procedure that assures the proper information is available for downstream departments. You should still talk, but the conversations can begin with possible solutions to known problems as opposed to uncovering problems (the latter being basically every production meeting I’ve ever been to or conducted).

Here are some thoughts from others:

“An ERP software saves time and money by automating tasks and receiving real-time sales, inventory, customer activity, and financing reports. The ERP system is designed to help you improve your bottom line by streamlining processes and providing information about your business in a way that gives you real-time insight into where you are today, what challenges are out there, and where you're headed. Daily business processes run more smoothly with ERP.”

Marilyn Gaskell, True People Search

“ERP platforms, which are available on-premises or in the cloud, are frequently used by businesses as an integrated information repository. ERP collects data from various sources and arranges it according to the needs of the users. All of the records you need for your operations, from inventory details and sales reports to staff information and customer files, can be stored in this system and retrieved whenever you choose. When you and your employees need to pull files for specific objectives, especially when cooperating with other departments, this saves you and your staff time.”

Gerris Smith, Corporate Investigation Consulting

“Some think ERP systems are too costly. On the contrary, investing in a comprehensive ERP system may put you one step ahead of the competition simply by providing you with a level of [data] analysis that they do not have. The combination of real-time data and enhanced agility allows you to zero in on previously undiscovered competitive advantages, accelerate product development, and adapt swiftly to change.”

Jeff Mains, Champion Leadership Group LLC

Better predict what materials are needed—and when

I am always amazed when material managers at companies that don’t have an integrated ERP system manage to make sure the materials are there when production needs them. What they do with the incomplete information they get seems like an impossible task, but I see it played out over and over again. Can that many companies have the perfect person in that role? Can that many companies be that lucky?

Of course, they aren’t all that lucky. Upon closer examination, some trends emerge about the people in that role and what they do.

First, the person has usually been at the company or in the industry for many years and are good at educated guesses.

Second, they also tend to follow a simple rule for materials acquisition: When in doubt, buy it. They are filling the information gap with guesses and inventory. In other words, they are using the two tools they have. Good for them—but giving that person better tools will yield better results.

A benefit of ERP is that it provides material managers with data to execute against. They can buy—and not buy—with confidence and inventory levels will drop. Material resource planning (MRP) will organize all the material requirements, compare those requirements to inventory and projected inventory, and suggest what to buy and when to buy based on order policies.

MRP is based on simple math. It not only works, it works well. And when it doesn’t, it’s not the fault of the MRP—it’s more likely the fault of an untrained user. If an 11-year-old drives a car and gets into an accident, no one would blame the car.

Manage capacity

As bad as material managers have it, no one has it worse than schedulers. As a general rule, they get virtually no data beyond what orders are due when, but they are still responsible for making sure everything gets out on time. In addition, when sales needs an answer as to whether something can ship sooner, they ask the scheduler.

This poor person has one tool and one tool only: an educated guess. That’s why schedulers are usually longtime employees who know the manufacturing industry very well. They've “seen it all” and can predict better than anyone else what will or won’t happen.

Schedulers will absolutely benefit from the data an ERP brings, but the entire organization benefits. Every order on the shop floor represents a promise made to a customer. The question for every new order is: Can your organization fulfill the order by the customer’s request date without jeopardizing the promises already made?

Companies that manage their capacity through an ERP can get a best date available from the ERP at the time of order entry. A promise is made based on data. The scheduler’s job is then to execute the schedule and react to any roadblocks that arise. This is no easy task, but executing a realistic schedule is better than trying to execute a schedule that is impossible to follow.

Why is this list incomplete?

Creating an environment where data replaces guesses opens doors beyond the obvious ones I mentioned above. How well a company replaces guesses with facts has a direct impact on the benefits it will achieve as a result.

An organization like Visual South can guide companies through the process of implementation and training to get the most from an ERP system. We have been doing this successfully for over 20 years, but we can’t do it alone: a company’s commitment to replacing guesses with facts is directly related to the results they see.

Related: It’s Not a Solution Until It’s Implemented

Here's the other thing to consider when thinking about the benefits of ERP: We’ve seen employees use the data to streamline processes that weren’t even considered broken. Create the right environment to foster the creativity of your employees, and the list of benefits will grow year after year.

If you want to know more about how to get the most out of an ERP system, I recommend my eBook, ClearFocus, 6 Steps to Successfully Implement ERP.