The benefits of ERP for manufacturers and distributors

There are a number of challenges that are keeping manufacturers and distributors awake at night. The most dangerous of these is the uncontrollable forces driving fundamental changes in the industry and include the  global pandemic, international trade wars, the rise of globalization, changing regulations and emerging technologies, to name but a few. While the industry figures out how to navigate these external shifts, there is still the need to resolve a number of fundamental internal pain points that have been around for the last decade.  The most critical of these being that many businesses are still reliant on manual or paper-based systems and on top of that, management systems are ageing and disparate.

In order to address these challenges, the IDC predicts that global spending on digital transformation technologies and services is forecast to grow 10.4% to $1.3 trillion in the next year. In a recent SYSPRO study  around the role of the CFO in a post pandemic future, over 52 percent of CFO’s identified the investment in enterprise technology such as ERP, BI, and CRM as a key strategic focus area to address the challenges presented by these recent industry disruptions.

While the stats show an increased uptake in technologies such as Enterprise Resource Planning (ERP), for many businesses, there has been a hesitation around the adoption of ERP.  Concerns center around costs and time considerations, while many still believe their legacy systems are doing enough to keep the lights on. ERP implementations are also a complex task for most businesses. According to a report by Technology Evaluation Centers, ‘Buying and implementing an ERP system is one of the most complex projects a business will take on—no matter the size of the company. In fact, nearly 50% of ERP implementations fail the first time around.’

While those figures are distressingly high, the key to a successful ERP implementation is to understand the key objectives of your ERP implementation, and how the ERP solution will address the pain points in your organization, and how it will improve your customers’ experience.  The organization needs to be very clear on the expected outcome, and why.  To help crystalize those objectives, it’s vital to understand what ERP is, what it is not, and its key benefits.

What is ERP?

In summary, ERP systems standardize, automate and integrate the core business processes. The standardization of business processes allows the organization to consistently do things the same way and easily understand if a problem occurs. The automation of business processes reduces human effort and consequently error, while improving operational efficiency and productivity. By integrating disparate business processes, ERP simplifies data and information transfer across the organization, ensuring coherent information in all systems while also avoiding duplication of effort.  Disparate systems encourage discontinuity between processes and result in people working at cross purposes in different parts of the organization.  Simply put, the ERP becomes the heart of a business.

With a broad understanding of the function of an ERP solution, it is also important to breakdown some of its benefits for business:

ERP offers a single source of truth

As a single source of truth for companies, ERP allows businesses to operate with real-time data.  Leadership can therefore take decisions consensually as they share the same data and insights.  The business can also automate tasks, while eliminating the tracking of operations via spreadsheets, which in turn can drastically reduce manual errors, duplication of work and free up employees’ time so that they can focus on more important tasks.  The ERP platform also has the ability to connect to Internet of Things (IoT) devices to collect live data to assist in closely monitoring critical processes and quality. Having a shared yet single source of information ultimately provides the business with a complete and detailed view of their sales forecasts, incoming raw materials to meet those forecasts, manufacturing operations and progress of orders through the factory, distribution of orders to customers, cash position and account status for suppliers and customers, etc.  All of the key information required to make the business a success.

ERP allows for comprehensive compliance as well as traceability

Globally, manufacturers and distributors need to comply with a number of regulations to ensure a safe working environment, product traceability and adherence to regulatory reporting. The ERP system can produce the reports that are required to comply with the regulated reporting.

From defense contracting through to food and beverage production, granular traceability of product details such as supplier and material sources, material  changes, and customer deliveries of specific batches, as well as the ability to audit all material transactions are expected.  The requirements to successfully track and sort all of this data will require the cross-organization data collection of an ERP system.

For example, as more countries transition to electronic tax submissions, ERP easily supports digital tax returns and has the ability to separate and combine related tax data for enhanced tracking and monitoring of tax receipts and submissions. From a traceability perspective, a product recall system allows manufacturers to perform a full product recall quickly and efficiently by having instant access to all the critical information needed to track a suspect product, throughout the value chain.  It supplies the necessary information to identify, isolate and action the activities that need to occur within the predetermined recall time limit.

ERP offers accurate forecasts

With businesses increasingly shifting routes to market to remain competitive, having accurate and real-time visibility into inventory levels are vital to improve profitability as well as manage cashflow. The ERP system supports this and allows businesses to analyze forecasted demand, accurately predict production targets and meet demand levels. A strong point of any ERP is the assistance to manufacturers and distributors by automating the processes of balancing material supply, and product and service demand.  This allows them to optimize the ordering processes, take advantage of economic order quantities, batching and realizing economies of scale.

Keep your ERP objectives top of mind

While change is an inevitable, an ERP system can not only assist businesses to weather the storm but to succeed in adversity – as long as key objectives stay top of mind. It is important to select an ERP provider that understands your unique industry needs and can act as a trusted advisor to your organization. When implementing your ERP system, establish clear expectations and KPIs, define roles and responsibilities, and ensure that these are carefully measured and discussed. It is also vital to ensure there is executive sponsorship, sufficient executive involvement in the process of selecting and implementing the ERP, and in ensuring that the organization adopts it fully. In the absence of executive involvement, your ERP project timeline will probably suffer, and probably your whole implementation. Choosing and implementing ERP systems requires many important decisions. Having an executive guide and understand the process helps to improve decision making and avoid unnecessary delays.

By getting these fundamental elements in place right at the start of the journey, a business can reap the benefits of an ERP and achieve the desired ROI of the investment.