Page 34 - MetalForming September 2012

Is It Time to Purchase a New ERP System?
Cost Savings Experienced Since Implementing ERP
Worldclass 15%
5%
0%
*Manufacturing and distribution companies only
20%
10%
19%
All Others 19%
18%
Obsolete Inventory*
7%
7%
Inventory Costs*
8%
Operating Costs
Adminstrative Costs
Fig. 3
chases represent first-time ERP invest- ments by companies, many of which are small companies. Of these firms, 34 percent run their companies on desk- top applications and another 16 per- cent still use some combination of manual processes and spreadsheets. Yet almost half (47 percent) do have some enterprise applications—account- ing, for example, or applications that they describe as “legacy” applications.
How do you know when it is finally time to invest in a fully functional ERP system? Here are some signals:
• You lack control. Processes are manual; data is scattered in file cabi- nets, offline spreadsheets and across desktops. Data transfers repeatedly between desks, adding little value and introducing the risk of errors.
• You want to grow but you are run- ning blind, not able to understand where the real profit centers are with- in the company. Established products, or new products? Domestic sales or sales in emerging markets?
• You can’t meet customer demand. Inventory levels are rising, yet you’re missing ship dates. How can you better forecast demand, lean out your inven- tory, and produce just-in-time?
• Cash is tight, so decisions must be made. Should you finance your sup- ply-chain costs and invest in growth? Credit is tight—can you prove credit- worthiness to investors or creditors?
Justifying the Investment
Perhaps you are one of the unde- cided. Or, perhaps you have decided you need a new ERP system but still must convince the CEO or board of directors to take the plunge. How do you justify the investment? Projecting a return on your investment (ROI) is a good place to start, but often is over- looked when the patient has begun to die.
Why bother to project cost savings or other improvements when the com- pany’s survival should be enough to justify the purchase? The answer is simple: By establishing a baseline of metrics, setting goals and measuring results, you derive more value.
Other Improvements Experienced Since Implementing ERP
Worldclass
11%
30%
23%
20% 10% 0%
16%
All Others
9%
16%
11%
Improvement in % Complete and On-time Delivery
Reduction in Cycle Time*
Increase in Total Production Output (Unit Volume)**
*Manufacturing and distribution companies only **Manufacturing only
Fig. 4
Projected and Actual ROI Timeline
50%
40%
30% 27% 20%
10%
35%
22%
30%
Projected 46%
Actual
0%
0% <1 Year
1-2 Years
2-3 Years
14%
9% 6% 4% 3% 3%
3-4 Years 4-5 Years >5 Years
Fig. 5
rent release provides more opportuni- ty, at a lower cost than an upgrade.
What About First Time Purchases?
We asked survey respondents if they planned to purchase ERP software within the next 3 years. One-fourth said “yes” (Fig. 2), and 51 percent said
“no,” with the remainder unsure. Of those planning a new purchase in the next three years, 60 percent will be replacing their current system. This indicates that either the patients are dying, or decision-makers have begun to understand the benefits of not wait- ing for a terminal diagnosis.
Twenty percent of the new pur-
32 MetalForming/September 2012
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