How to calculate (and maximise) the ROI of ERP
There’s no denying that Enterprise Resource Planning (ERP) software is an investment. Manufacturers and cabinetmakers looking to implement an ERP are smart to weigh up the cost against the potential benefits.
This guide will briefly outline the return on investment (ROI) you can expect from implementing a fit-for-purpose manufacturing ERP.
What is an ERP?
ERP software brings all your planning and design, operational, financial, personnel and sales data into a simplified system.
ERP software provides a centralised source of truth rather than connecting different software platforms like some kind of Frankenstein’s monster of management.
All your information is in one place. Data automatically syncs across your operation in real-time, so different teams work from the same page. And most importantly, management gets the tools to make better business decisions.
How much does a manufacturing ERP cost?
Manufacturing ERPs range from a few hundred dollars a month to a few hundred thousand dollars over several years.
The cost depends on your organisation’s size, complexity, and requirements, plus ongoing support, hosting, features, custom developments and more.
The easiest way to understand how much an ERP will cost is to source quotes from providers.
ERP returns for Australian manufacturers
Benefits come in many forms. Of course, higher profits and lower costs are two of the most notable bottom-line benefits. But it’s important to factor in the range of returns, both tangible and intangible when projecting the long-term ROI of ERP.
Cost savings
- Eliminate unnecessary overtime pay
- Optimise production processes
- Reduce downtime
- Estimate costs more accurately
- Manage cashflow
Reduced waste (time, materials and money)
- Identify production bottlenecks
- Streamline ordering
- Simplify back-office processes
- Implement continuous improvement processes
- Embrace Lean or Agile processing
- Total transparency over your business
Increased productivity
- Track jobs in real-time
- Optimise resource capacity
- Schedule jobs more efficiently
- Better collaboration between teams
- Continuous improvement yields ongoing benefits
- Better production and financial tracking
Win more business
- Mature lead management
- Improved customer and supplier relationships
- Shorter delivery timelines
- More accurate production
- Fewer mistakes and mix-ups
How to calculate the ROI of ERP
Putting a dollar value on ROI is tricky with all those benefits in the mix. So it may help to divide the benefits in three ways:
1. Financial
Estimating the financial returns of implementing an ERP software is relatively straightforward.
- Add up the expected returns, e.g. increased profits, eliminated overtime, higher productivity
- Subtract the expected costs, including direct costs and an allowance for training your team
This will give you a baseline figure to work with. But remember, this is likely a short-term figure and not the complete picture.
2. Operational
Implementing an ERP improves productivity across your operation. Whether you’re a sole trader, small business or multi-site manufacturer, operational ROI continues to build over time.
Estimating this figure involves financial forecasting. Work with your ERP provider and accountant to understand the potential upsides, then create scenarios that project those returns into the future.
3. Management
With the total transparency of an end-to-end manufacturing ERP like Jobman, management can access insights, trends and forecasts to make strategic decisions more confidently:
- Targeting high-potential customers
- Offering a new service or product
- Focusing on high-profit services
- Investing in new equipment or training
- Expanding capability
- Hiring new people
ERP software enables businesses to break through the ceiling and grow sustainably. While it’s tricky to put a figure on that growth, a business coach or consultant might be able to offer a range.
Many happy returns from Jobman, the best manufacturing ERP
As the leading ERP for manufacturers, cabinetmakers and carpenters, Jobman delivers real returns for hundreds of businesses in Australia, New Zealand and Europe.
We’re projecting big things for you. Contact us for a consultation to see how Jobman can support sustainable long-term business growth.
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