What’s the Payback of an ERP System for Job Shops and Contract Manufacturers?
Feb 24, 2017
By: Mark Stevens
In job shops and contract manufacturing operations, ROI is largely based on tangible assets—property, equipment, etc.—and the results of those investments, like additional production or increased warehouse capacity. What’s equally as important, but not so easily quantified, are the benefits derived from intangibles such as software investments, including an Enterprise Resource Planning (ERP) system.
It’s common knowledge that an ERP system will streamline your company’s business processes, refine operations, improve customer service, and more. What’s not quite as well known is how to calculate the impact of these advantages to answer the overriding question: Is an ERP system a worthy investment?
The estimated three years between ERP system implementation and realization of ROI can be an initial hurdle to an apples-to-apples dollar comparison between your current baseline costs against projected ERP system “payback.” However, understanding the advantages of using an ERP system helps you gauge its actual value for your company:
- Improved visibility: Unlike legacy applications, an ERP system provides access to real-time data across the enterprise, increasing visibility and integrating business areas that have key decision making responsibilities, particularly as it relates to finances and strategic forecasting related to in-house time and production management.
- Cost management: An ERP system keeps the inventory balance in check because it simplifies tracking what parts are needed and on-hand, and prevents tying up cash in overstocked shelves or, conversely, costly downtime caused by stockouts. Likewise, accounting departments armed with real-time data can consolidate a number of administrative and financial functions allowing them to to better monitor processes in order to alleviate auditing errors and non-compliance issues and fees; they’re also able to more accurately predict budget versus actual (BVA) transactions that could dictate surpluses or shortfalls.
- Enhanced service: Customer service is business-critical. Accuracy is paramount in billing, shipping, tracking and follow-up. An ERP system can delve into item fill rates, order fill rates, deliveries and invoicing so you know with certainty that you’re fulfilling your promises to customers, evolving to their expectations and proactively identifying and addressing trends.
- Improved productivity: Through better allocation of in-house time and resources, you’ll realize efficiencies in employee processes and, ultimately, outcomes on the floor. From a data perspective, having real-time numbers virtually eliminates miscommunication between departments and/or rework caused by inaccurate information.
- Increased profitability: Taken in total, an ERP system is driven by metrics. Having that information quite literally at your fingertips in easy-to-interpret dashboard reports helps you monitor and correct business practices that might otherwise go undetected and erode your profitability.
Making smart decisions about investments and ROI is imperative for all businesses. Contact Wipfli today to explore how an ERP system will help set up your job shop or contract manufacturing operation for success.