Seven Signs That Indicate You Need ERP Software

“Do we need ERP?” or maybe even an upgrade.  A question that has no doubt passed through many a board member’s head. Unfortunately,  there is no definitive answer. When ERP becomes a necessity differs from business to business. For many, it will come down to cost – but that goes without saying!  There’s different ERP for different needs and different budgets so as long as you select the correct one, cost savings are soon to follow. However, this is just a glorious bonus to what you could really be saving: Your sanity!

Here are our seven signs you could salvage your sanity with ERP!

 

 

1) An Infinite Regress of Spreadsheets

If Excel and occasional databases are your main support programmes, and one ad-hoc coping mechanism inevitably gives birth to another, then your system is unsustainable.

Spreadsheets, for example, require more admin time and re-keying of data, which makes errors more likely.

Errors in spreadsheets are hard to detect and have to be searched for manually. This means that business critical decisions can be made on erroneous data.

More spreadsheets are also indicative of wider gaps between different systems. You might not rely entirely on spreadsheets, but if they start to proliferate it tends to indicate that your current systems are insufficient for the task you are trying to achieve. Spreadsheets are rarely able to fill the gaps adequately.

Gradient Consulting’s Mike Smith suggests that if something of the above exists, you ask the following questions:

  • How many silos of information exist?
  • How many different systems, spreadsheets, manual books are there as well as perhaps a main accounting system?

A spreadsheet is often an employee’s or a department’s way of filling a gap.

Allied to these are such questions as “how difficult is it to create a single report that is an accurate reflection of the current status of the business?” Or “how much re-keying of data is going on between the individual systems lurking in the various departments?”

If the answer to the above is lots, very many hours and days, then, if it is available, a single solution with a comprehensive single store of data and information could deliver huge efficiencies in working.

A Real-Life Example: A genuine example was one client, a manufacturer, who had legacy systems going back nearly 30 years. Sales, Purchase, Nominal and Stock (from a value point of view) was covered by one system; whilst, Inventory (physical), Routings, Production, Recipes etc. were covered by other separate systems, not linked. The differing product types made, were each a spreadsheet within production planning. Various other technical aspects of the business were also handled via spreadsheets or databases. Monthly Management Accounts involved printing out info from one system and hand cranking into an accounting spreadsheet.

Extreme perhaps, but variants on this theme are common and may sound familiar to you. Businesses grow and change, so the requirements from company systems similarly change, and coping occurs.

A single integrated solution saves this client over 30% of employee time in efficiency and instant information. It enabled both an increase in throughput and a reduction in unit cost.”

2) Discrepancies in Reports

Proliferating spreadsheets are just one symptom of gaps in the system. Another is discrepancies in reports. Differing monthly reports are normally a result of using two systems to record data.

Mike Moore of Complex Clear tells us more:

“Many businesses operating with older, legacy systems find themselves trying to reconcile two versions of the truth. The version as told to them by their stock control and sales order processing systems, and another version presented by their accounting system.

This is because the old way of doing things was to have a business system that took care of operations and a separate accounting system that handled the sales and purchase ledgers and, of course, the nominal ledger for management reporting.

Most companies would wrestle with information each month end, trying to shoe-horn data from their sales, production and Inventory systems’ reports into journals for posting through to their nominal ledger. After much massaging and tweaking reports would emerge: a Profit & Loss statement and a Balance Sheet and the board would be happy.

Many businesses still operate in this kind of environment and become an expert at living and dealing with the implications. Managers will have their favourite versions of the ‘truth’, a Purchasing Manager may look at his buying performance based on standard cost whereas a Sales Manager might prefer to see a report using actual. Neither report will agree with the P&L statement coming out of the Management Reporting system – which is the one the Finance Director is relying on!

A Real-Life Example: One client that I worked with recently had been living with an arrangement like this for over ten years, they had become experts at ‘fudging the facts’ depending on what questions were being asked and by whom. The pressure only really became intolerable whenever the end of year audit came around and called for a consistent set of management reports: but trying to explain away the fact that the stock value in the accounting system was 20% higher than value in the stock control system was a challenge, and trying to account for why the physical stock take value was different to either of them only compounded the issue!

The installation of a fully integrated ERP system (SYSPRO in this case) offered a solution. Financial transactions could be created in real-time, so in synch with operational transactions and rules were implemented within the system that created a nominal ledger journal whenever a transaction that has a financial implication is posted. This effectively keeps an accurate running total in the financial system of the value of stock and the value of material received that hasn’t yet been invoiced.

The benefit to the business has been significant: not only is there now only ‘one version of the truth’ but there have been significant savings in terms of administrative time and effort.

Critically, the picture of the performance of the business is radically different from what it was before; previously fuzzy concepts such as Work-in-Progress and Exchange Rate Gains/Losses are now crystal clear. But most importantly, management information can be trusted once more – by the directors and auditors alike.”

3) Lack of Visibility of Business Critical Data

Try This Test:

  • Find the number of sales made on today’s date over the past five years.
  • Find your average sales margin.

Can you find this information easily? Is it easy to compare the data on screen? With an ERP solution you’d be able to find this information near instantly. Moreover you can see real-time data ticking away as you work. This kind of visibility is very difficult to deliver when using disparate systems.

John Walsh at Changing IT recommends trying the following tests:

  1. Produce a Top 20/ranked Customer list based on sales Profits achieved, rather than just sales Revenues.
    If you can’t do this, you can’t measure your Sales Team performance properly (highest Revenue-based Customers are often NOT the highest when measured by Profit-based (after Sales Discounts) factors).
  2. Can a customer facing user find the following information instantly:
    Customer activities, Credit Status & Payment Status, Returns, Complaints, Sales, Orders in process, Quotes, Recent Visit Report(s), Trends for Sales, Orders, Profit contributed, Price & Delivery/Availability Promise.

4) Complaints from employees that “the system doesn’t…”

If employee grumbles start to increase and you hear complaints that the current way of working “doesn’t do this” then it’s time to think about investing in something that fills the gap. People who work day-to-day wrangling the data that informs your decisions are well positioned to identify the problems that are holding them back. Listen to them. Even if employees cannot identify a specific solution, the fact that they are expressing discontent with current ways of working could well be because current ways of working are not suitable for what you are trying to do.

Frustration about processes normally indicate that your current processes, rather than enabling employees are obstructing them.

So what kind of inadequacies are crucial enough in and of themselves to warrant a software purchase?

John Walsh at Changing IT recommends the following:

If your system can’t do the following you should considering upgrading:

  • If Quality Control Procedures (internal and external for the key Suppliers) are not integral to the wider business systems
  • If your key business documents (Drawings, Product Specs, Descriptions, Images, Process Instructions are not centrally held and not Version Managed and thus not Release Process managed)
  • If you cannot reliably measure variances wherever they occur in the business including Materials, Labour, Plant & Equipment, Transportation, Warehousing, Expenses, Marketing, Admin Overheads
  • If the impact of variable supply lead times and volatile currencies for purchased components and raw materials cannot be be quickly modelled and when necessary rapidly updated to the Planning system (grouped commodity types, by supplier, by country of origin etc)

5) Lack of Faith in Data

If your data is inaccurate enough to be regularly questioned by management rather than used to make changes based on business performance then something is seriously wrong. Likewise if your manufacturing department has very little faith in Sales Forecasts and therefore doesn’t plan according to them, then you’ve got problems that could be solved by an ERP system. Changing IT list this as one of indicators that ERP is needed:

“If the exec/management team spend more time questioning the monthly Accounts instead of taking actions/executing initiatives based on what they show in terms of business performance”

Mike Moore of Complex Clear expands on this:

“Discrepancies in data means that no one is really happy because everyone knows that the stock value is – at best – out of date, and more likely incorrect, over or under-stating the value of inventory and giving a false impression of the balance sheet asset performance. Cost of sales becomes a cause of suspicion too, and Work-in-Progress would be anyone’s guess (usually a case of an educated estimate from a production planner).

The reason for the confusion and lack of confidence in the figures was simple: transactions occurred in real-time in the stock control, SOP and production system but were not mirrored by real time journals being created in the nominal ledger. Instead these had to be created periodically, either by good old-fashioned re-keying or, at best, by a regular update through some kind of system-to-system interface.

In most cases the link between the two systems was unreliable and the system became (and stayed) out of step. Important questions about the key performance of a business were always answered with a “… well that depends, the nominal ledger says … but the stock report says …”

6) If you are installing system upgrades or new technology

If legacy systems are requiring upgrades or you are being forced onto a new operating system then now is the time to consider overhauling your entire process. An upgrade on one piece of software may mean that a certain capability that you were relying on changes drastically and this can make that software incompatible with another system you’re using. This is also a complaint that can prompt upgrading ERP software. Maintaining disparate systems also creates a lot of needless IT work. If you are being forced to change the status quo because your technology is just too old then why not see this as a prompt to do a comprehensive assessment of your processes?

7) If Your Business is Growing

Business growth is a great thing, but it comes with growing pains. Growth means more customers, employees, data and in turn more complex processes. This often requires best of breed packages like CRM to manage the business, but again it is hard to integrate these systems without one central hub which is exactly how an ERP solution will function.

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