ERP Priorities

June 2012
Advice and Assistance for Manufacturers

I recently came across an analyst opinion piece stating that companies that have postponed system investments due to the shaky economy over the last couple years may now be ready to spend some money to upgrade capabilities for improved performance. Specifically, the piece was addressing improved prospects for ERP investment in 2012.

What I thought was most interesting was the list of application areas that were the highest priority for ERP investment this year. At the top of the list was finance and accounting. This is the area that most companies implement first, of course, but not one that will generate significant ROI in terms of cost savings or performance improvement. Enhanced management visibility is important, but companies looking for ROI should be looking at the main line functions that drive company spending and revenue.

Second on the list was purchasing management. Purchases can account for nearly half of cost-of-goods in many companies and there are certainly opportunities to tighten up the management of the procurement function. The focus of purchasing management should be centered on taking friction out of the process, and controlling the flow of goods rather than just reducing piece cost or otherwise pressuring the suppliers. Enhance communications and more of a partnership relationship with strategic suppliers enhances flexibility, responsiveness, quality and reliability that can generate value far in excess of whatever discounts or price reductions might be found.

Inventory was the third area listed. Inventory ties up a lot of cash and is often a great source of concern – both when there is too much and when there is too little (meaning shortages) – and is the area most often targeted to generate return on an ERP investment. The fact of the matter is that inventory control and inventory savings result from procedural discipline and improvements. But the software is often the excuse for making changes in inventory control that really generate savings. So be it – whatever it takes to focus management attention on inventory discipline, it is the results that count. Is inventory control a legitimate reason to invest in ERP? Absolutely. Not in the least because the planning and scheduling applications feed information into the inventory system that help you determine the right amount of inventory (and procurement priorities) needed to meet your production and customer service goals.

Going down the list form there, we find planning and scheduling, sales order management, manufacturing management, plant automation, and warehouse management. All of these were shown to be areas of concern that are motivating companies to invest in systems for the purpose of improving performance and generating a return on their investment.

Have you established a list of the highest priority areas within your business in terms of either your biggest challenges or the ripest areas for potential for improvement? Do you have a plan for investing (time, effort, and/or money) in improvements and what kind of return you might expect if you did so?