Enterprise resource planning (ERP) systems deliver immense value by integrating core business functions, such as finance, inventory management, manufacturing, sales, project management and human resources (HR), with a single, unified platform that provides centralized access to critical data. With greater visibility into these functions, business leaders can increase efficiency, reduce costs and unlock new growth opportunities.
Quantifying that value — the return on investment (ROI) of your ERP — is crucial to building a business case that justifies an ERP investment in the first place. Further, the analysis that goes into quantifying the ROI of ERP helps businesses evaluate and anticipate the impact of an ERP system on their organizations and also refine their ERP approach over time so that the ERP’s value to the business continues to increase.
But because ERP systems have the potential to touch so many different aspects of a business, quantifying their impact — and, therefore, their ROI — can be complex. This is especially true for businesses migrating to cloud ERP systems, which deliver intangible benefits whose ROI is less easy to quantify in dollars. In this article, we break down the many benefits of ERP systems, how to accurately calculate their ROI and tips to help your company get the most value from its ERP investment.
Benefits of an ERP System
Before calculating the ROI of an ERP implementation, it is crucial to establish why your business is investing in an ERP and what it hopes to achieve. The following rundown of the benefits ERP systems can bring to a business, and how ERP generates those benefits, will help to articulate those expectations.
Data stored in a common database. ERP systems collect data from across an organization and house it all in a common database. That allows employees in general, and key business leaders in particular, to monitor the pulse of their business using a single, accurate and integrated view of business operations, from back-end finance processes and warehouse operations to lead generation and sales success.
Unified view limits silos. Working with a unified view of the organization breaks down data silos and saves a great deal of time when making informed business decisions. For instance, real-time insight into supply chains, inventory capacity and projected customer demand could help a manufacturer maximize output without exceeding the capabilities of its teams.
- Allows for companies to scale quickly. Cloud-based ERP systems, in particular, offer an attractive growth platform, especially for companies that need to scale up quickly to manage the growing complexity of their operations. Take supply-chain logistics provider Green Rabbit, which specializes in fast delivery of perishable goods. Green Rabbit adopted a cloud-based ERP to rapidly expand from startup to countrywide operation, helping its customers deliver tens of thousands of orders across America, every day, with zero delays or inventory errors.
- Mitigates human error. ERP systems also help businesses improve the timeliness of orders and payments with streamlined invoicing. In contrast, manual bookkeeping is slow and prone to human error, which can lead to unnecessary costs and delays. As the saying goes, time is money. The faster a business can process, ship and invoice an order, the faster it reaches the customer and the sooner the business gets paid.
- Reduces personnel needed to accomplish tasks. Much of the value businesses derive from ERP systems stems from the way ERP integrates processes that involve multiple departments. Consider a standard procure-to-pay process, which involves many teams and touch points, from sales to warehousing to fulfillment.
With an ERP, stakeholders throughout this chain can track and manage the entire process from a single system. For instance, a salesperson who just closed a major account can check the status of the order at any time and keep their customer updated, without having to rely on anyone else. This process increases efficiency and saves money, helping to build stronger customer relationships built on accountability and trust.