Entrepreneurship isn’t an easy feat, especially when you don’t have tons of money to play around. And out of the various challenges faced by startups and SMEs, investing in the right technologies is certainly amongst the trickiest challenge. The key here is to keep up with the technology and innovation that drives your company, while not wasting any precious capital by investing in technologies that aren’t in line with your business bottom line.
Now, when we are talking about the significance of the intelligent investment for startups and SMEs, it’s a fair question to ask if investing in ERP is worth it.
That’s precisely the question we will be looking to decode in this blog by looking at the various benefits of ERP for startups and SMEs, while also detailing the potential disadvantages of implementing an ERP system.
In general, irrespective of the size or model of the business, an ERP system is meant to assist you in enhancing your workflow process for increased efficiency and higher customization & flexibility; leading to smooth sailing for the business.
Table of Content:
Introduction to ERP Software
Now, before we look into the benefits or limitations of an ERP system, it would be better to briefly decode the system and debunk some myths about ERP.
A Brief Overview
Keeping it to the most basic definition, an ERP system comprise of tools and features that help businesses to centralize their database and automate various routine tasks for greater efficiency and reliability. The ultimate goal of implementing an ERP system into the business workflow processes is to relieve the team of redundant tasks and direct them towards most instinctual tasks to generate more value for clients. By creating a central repository for the entire business database, an ERP system ensure timely and remote access of important data across all business functions for increased productivity and subsequently more revenue for the business.
What makes an ERP system truly unique is its capacity to optimize all business functions. In simpler words, an ERP system is end-to-end business mobility and growth solution offering various functionalities including;
- Inventory Management
- Human Resources
- Customer Relationship Management (CRM)
- Analytics and Reporting
What are the primary business benefits of an ERP system?
Now that we have a brief introduction and functioning of an ERP system, let’s now quickly discuss what are the primary business benefits of an ERP system.
Below we have listed down some of the primary benefits of an ERP system:
- Optimization of workflow processes
- Remote and instant access to business data
- Easy sharing of relevant information across all business functions
- Automation of redundant and time-consuming operations
- Lowering of costs of litigation
- Elimination of redundant data
- Maximizing the operational efficiency
- Optimization of control and analysis of management
- Improved customer support with customized and flexible services
- A more competitive business model with the ability to compete with national and international businesses
What are the benefits of ERP systems for startups?
While many startups and SMEs see an Enterprise Resource Planning (ERP) system a tool meant for large organizations, in reality, the system is equally beneficial for startups and small businesses. There are various specific benefits of ERP systems for startups from customer servicing to efficient operations and from maximizing productivity to lowering the cost of operations. Below, we will specifically be looking into the benefits of ERP systems for startups and how it can help startups to sustain and grow in a highly competitive marketplace.
Benefits of ERP Systems for Startups:
Synchronization among Departments
In today’s digital business environment, it’s not uncommon for businesses to operate and manage different business functions from remote locations. In fact, the key to success in today’s digital age is to manage remote business operations efficiently with robust intra-function synchronization amongst various departments.
With a robust ERP system implemented into the business workflow process, it becomes possible for startups to easily and effectively manage remote operations with a central data repository and encourage collaboration between different departments. It also enables filtering and merging of data coming from different business functions like warehouses into a unified data repository.
Faster Turnaround Time
Enterprise resource planning (ERP) is almost synonymous with efficiency and productivity. With a robust ERP system integrated into the business workflow process, it’s become easier to have real-time insights into all aspects of business and take immediate well-informed decisions based on stats metrics. All of this leads to more efficiency and faster turnaround time; crucial to keep the competitive advantage.
By integrating all core business functions; the ERP system creates a unified data flow, which can be accessed remotely by all operational teams with access permission. This leads to better coordination and collaboration amongst different teams; subsequently resulting in increased productivity and revenue for the startup.
Managing Operating Costs
Lack of capital is one of the biggest challenges faced by all startups. Any capital with a startup got to be utilized with utmost diligence. Also, in order to be competitive in the industry, startups need to keep their operational costs to a bare minimum. The key to minimizing the operational cost is to negate any changes in data redundancy or duplicity. By implementing a robust ERP system, startups get to leverage superior data synchronization and identify any operational loopholes leaking money.
Decision Support Systems
Enabling the top management to make well-informed and timely decisions is among some of the top benefits of ERP systems. Since ERP systems come with various modules to cover almost all essential business functions, it enables executives and leaders to get insights into the business health and take any necessary steps with an agile approach to keep the competitive advantage.
What are the benefits of ERP systems for SMEs and Enterprises?
ERP systems aren’t just useful and beneficial for startups, rather they also offer high-value to SMEs and enterprises by enabling them to optimize their business functions and automate redundant tasks for greater efficiency. Now that we are done with the benefits of the ERP systems for startups, let’s take a look at some of the benefits of ERP for SMEs and enterprises.
Synchronizing the flow of information
In order to compete with the established and large businesses, SMEs and enterprises are required to keep up with the operational and production pace. This can only be achieved with a consistent and fast flow of data and information amongst various business functions. For instance, the operational function of any SME needs to be integrated with the finance function to ensure the timely release of payments and tracking all business transactions. A robust ERP system enables SMEs and enterprises to create a central data repository for all business functions; thus ensuring timely flow of information across all business departments.
By ensuring a fast and consistent flow of information across business functions through a central repository, the ERP system enables faster coordination amongst employees resulting in improved efficiency and higher productivity for SMEs. The ERP system maintains all critical data like vendors’ lists, bill of material, operational processes, and others, which can be accessed by all relevant team members to create consistency and coordination in work processes; saving time and improving the productivity for SMEs.
Maintaining Control and Reducing operational costs
One of the most challenging tasks for SMEs and enterprises is to scale their business; which often requires impeccable control over data and controlled scalability of operational structure. Many SMEs with inadequate planning and resources end up collapsing utterly in their bet to scale and grow. The ERP system is the ultimate resource for SMEs looking to expand and scale their operations while maintaining complete control over their operations and avoiding any unwanted chaos. Contrary to the simpler and inefficiency tools like spreadsheet or QuickBooks, which are better-off for the very limited scale of operations; an ERP system gives businesses the intelligence and power of automation they need to keep up with their growing needs and handle more complex business processes including higher transactions and greater operational procedures. Also, by controlling the scalability dimensions of the business; ERP system ensures lower operational costs for businesses; which remain crucial for all SMEs looking to remain competitive and relevant against the national or international competition.
The greatest strength of SMEs and enterprises against the industry giants is their agility and flexibility to adapt to varying market needs. While the industry giants fail to implement change across their business functions given their clumsy operational lines and legacy systems, SMEs are in a better position to adapt and mold their operations as per the changing market conditions. A dedicated ERP system offers SMEs greater flexibility they require to keep agile workflow processes and incorporate any necessary changes to data management or in any other business functions to keep the competitive advantage.
Long term planning
Keeping records for all business transactions is crucial for the sustainability and growth of SMEs. However, many traditional budgetary tools like spreadsheets or physical receipts aren’t the best option when you are looking for long-term sustainability. Not only these practices are inefficient; limiting the productivity of SMEs, but also there are greater chances of errors of loss of crucial data. Alternatively, with a dedicated ERP system, SMEs are in a better position to keep up with their data storing requirements, while also keeping an efficient system for tracking business transactions on a daily basis.
Intelligent decision making
Last but not least, the ERP system enables business leaders and top management to make well-informed and intelligent business decisions backed by data and business insights. All reputed ERP system comes with robust reporting and management features that enable the leaders & executives to get real-time access into the performance of all business functions through dashboards. They can also generate interactive reports with stats metrics for all business functions, enabling them to monitor the health and performance of all functions and make intelligent data-backed decisions.
Best ERP system implementation practices to gain full benefits out of it?
Now that we are done with the benefits of ERP for startups, SMEs and enterprises let’s move on to an important aspect – the implementation of the ERP system. It is important because to be able to leverage the full potential of an ERP system it’s important to thoroughly plan and execute the implementation strategy while taking on board all stakeholders including the executives and team members who will be the end-user for the new system. Below we have come up with the best ERP system implementation practices that will enable businesses to leverage the full potential for their investment.
Prioritizing the Key Business Requirements
The first step for ERP implementation starts with an understanding of your key business requirements. As we said earlier, the ERP system comes with various modules for individual business functions like accounting, marketing, sales, customer service, operations, and others. Also, each of these modules come with at higher costs, which means the best way for businesses to minimize their investment and maximize the utility of ERP is to understand their need from the ERP system and prioritize the ERP modules they need the most.
Key Performance Metrics
An ERP system doesn’t come cheap, especially when we talk about startups and SMEs; already battling their way through the limited capital. Thereby, when you do invest in an ERP system, you need to make sure that you are exploiting the full potential of the system and reaping its benefits. But how do you measure the success of the investment? The most definite and obvious way to measure the success of your investment into an ERP system is to develop key performance indicators (KPIs) that will enable you to quantify the performance improvement in business functions post-implementation of the ERP. It will also help you to measure tangible improvements into the business functions to help assess if the investment is worth its value or not.
Invest in Training
Moving on, another crucial step when it comes to leveraging the full potential of your investment in the ERP system is to invest in the training of all the stakeholders; especially the employees who will be the end-user of the system. One of the most common reasons why many businesses fail to realize the full potential of an ERP implementation of improving their business performance is because they fail to invest in upping the skills of their employees for the new system. Not consulting the employees and other stakeholders for the implementation is also one of the most common reasons why many businesses struggle to implement the system effectively; as they face internal resistance towards the change implementation. Thereby, before you invest in the ERP system itself, make sure you invest in your employees and other stakeholders by taking them into confidence about the new system and upping their skills in line with the new system.
Early Data Migration
Last but not least, you need to ensure early and complete data migration onto the ERP system for successful implementation. Remember, your business data is amongst the most crucial and precious asset and any loss here would translate into the loss of revenue and even business reputation. Thereby, when you are looking to implement the ERP system, make sure you give adequate attention and resource for early and complete migration of data from old to the new system.
Disadvantages of ERP Systems in 2020
With all the benefits and advantages of the ERP system that we have discussed above, you must be thinking about the potential downsides and limitations of the system, right? Well, it’s only rational to think that any system would have its due share of limitations or downsides for the business and ERP systems are no exceptions. There are certain risks and drawbacks that come with the implementation of ERP systems and below we will be looking at some of the major drawbacks of implementing a new ERP system.
Well, the most obvious drawback of ERP implementation is the cost of the system, which could easily run up to five figures for a single license. Ok, not all ERP systems come with such huge implementation costs, but even if we are at the lower end, the cost is still the single biggest drawback and limitation of the ERP system that deter businesses to implement. In fact, only the upfront cost of the ERP implementation can be prohibitive for most businesses; especially startups and SMEs. And while SMEs or startups can minimize the upfront costs by choosing a cloud ERP solution, they would still have to pay monthly subscription charges; which again isn’t the cheapest investment.
Implementation and Maintenance Cost
Even if you make up your mind to invest with the huge upfront and monthly subscription cost, there are other major investments that come with the ERP system and the implementation cost is one of the major investments; which may cost you as much as four times. Before you decide to implement an ERP system into the business workflow process; you need to consider the manpower and time required to effectively implement and maintain the system. In many cases, you may need to hire separate IT staff or outsource the implementation and maintenance needs to a professional ERP consultant (again an additional major monthly investment). Also, you would have to consider the costs of employees training for the new system, while also taking into consideration the costs required to purchase requisite hardware like servers or other mobile devices.
A better and more affordable alternative for SMEs and startups is to choose Cloud-based ERP software which is offered as SAAS (Software as a Service). With a cloud-based ERP solution, businesses not only save the upfront costs of the implementation but also save huge costs on the maintenance and hardware purchase for the new system. However, while a cloud-based ERP system may reduce the overall implementation costs, it will still be a major investment for businesses.
The endless possibilities for customization are perhaps one of the best aspects of an ERP system, however, on the downside unplanned customizations may get out of hands pretty quickly. While customizing may seem an exciting prospect for business, it isn’t an easy feat to achieve and requires lots of time, expertise, and money to implement correctly. Also, not adequately allotting the resources and money required for customization often results in utter failure and loss of money for businesses. Thereby, if you are looking to customize your software, make sure you got the expertise, resources, and time required to achieve it effectively.
Folio3 is Your Perfect Dynamics ERP Partner
Folio3 is a leading global IT service provider that excels in implementing customized and high-value IT solutions to meet your unique business needs. Our experienced and expert programmers and IT professionals collaborate with clients closely to develop the most innovative and perfect solution specifically designed to improve the efficiency and productivity of your business. We are one of the premium Microsoft Dynamics 365 ERP implementation partners with hundreds of successful implementation jobs completed. Our vast industry experience and strong development expertise enable us to offer our clients the best in class, most affordable, and completely bespoke IT solutions that meet and exceed their expectations.
Are ERP systems worth it amid the COVID-19 pandemic?
Covid-19 has certainly tanked the global economy with hundreds of thousands of businesses going out of operations completely, whereas, hundreds of thousands of others barely surviving. And while all of this might not seem the ideal environment for businesses to make any major investment like an ERP system, however, given the various benefits of the system to streamline the workflow processes and improve efficiency, as well as, the potential economic recovery as the world slowly get over the crippling financial impacts of the Covid-19 definitely makes ERP a worthy investment; provided businesses prioritize their need of the system and choose the most urgently required modules to minimize cost implications.
Why is ERP important for financial and banking sectors?
Given the massive and complex data of banking and other financial sectors, ERP system with its extensive integration of features and various modules is the best solution to integrate data and information into a central repository for consistent information flow and improved productivity.