Are you wondering if your business needs to implement a new ERP system? If you are, then it might help to understand when and why other businesses choose to install ERP software.
At ERP Research, we help thousands of businesses every month to start this process, so we can certainly help you to understand the reasons for implementing ERP.
Lets review some of the top reasons we see businesses decide to implement ERP and the timing of these decisions:
Small businesses and startups don’t need ERP systems in the beginning. Perhaps when your business began its journey, there were only three of you and a few contractors. There was no finance team, no sales team and getting information was as simple as remembering it or checking your notepad. Otherwise, you might start to acquire 'point' solutions one by one which together form a pseudo ERP system.
We often see small companies and startups using a myriad of different applications, spreadsheets, paper-based processes and spreadsheets to manage their business.
But as your company grows, as you hire more people, and these people divide themselves into different teams and departments and you open new offices and annual sales quadruple – you need real infrastructure.
For this reason, growth is perhaps the number one reason we see organizations deciding to implement ERP systems. Because ERP software can provide your small but growing business the ability to continue to grow, without having to hire a proportional amount of employees to deal with the administrative byproduct this growth creates.
Typically, we see businesses with as little as $5 million in annual sales beginning to look at ERP software to take them to the next level. In other cases, we often see heavily funded, pre-revenue companies do this much earlier. Likewise, many large ‘midmarket’ companies or SMB’s outgrow their first ERP systems and have to implement new ones to continue to grow.
In our experience, fast-growing small businesses and startups tend to select Cloud-based ERP systems including Sage Intacct, Microsoft Dynamics and Oracle Netsuite. But this often depends on which industry you are in – so make sure you consult an expert and do your own research.
All industries are constantly undergoing changing trends, transformation, changing dynamics and trends which require changes to your business model - a key driver for implementing a new ERP system.
For example, in the manufacturing industry, we are increasingly seeing a move towards companies shifting towards service provider business models, and consequently, manufacturers need to become more like professional services firms. Aerospace and Defence companies are increasingly needing to provide maintenance contracts as well as finished goods, for example.
Whilst your manufacturing ERP system (whether its Epicor, Global Shop Solutions, Plex ERP or some other manufacturing specific ERP) may be great at handling production, quality management, MRP and so on, it might not be able to cope with the needs of a service provider.
You may need additional functionality for this, such as field service management, project management, maintenance and customer service - as well as the ability to handle more complex contracts, metered billing and more.
Acquisitions are another popular reason for implementing an ERP. There are multiple scenarios concerning ERP systems when it comes to acquisitions and this topic deserves its own article, if not a small textbook.
In short, both acquiree or acquirer may need to adopt the other ones ERP system, or both of you may need an entirely new ERP system.
What’s for sure is that there will be changes or modifications necessary to your ERP and overall IT strategy - as remaining the same is neither cost-effective, nor effective.
As we discuss above, growth is a key reason for implementing an ERP.
To grow, companies often need funds, which requires investors, which in turn requires you can convince investors you’ve got a scalable, sustainable business which creates the need to implement an ERP system.
You probably won’t need an ERP system to get seed funding and you’ll probably sail through Series A funding rounds without one too, but beyond this point your investors will want to see that you can have real operational rigor behind your business.
Our team has worked with dozens of startups and scale ups who have taken the time to implement ERP systems to provide their investors the confidence that they have an operationally robust business that is worth of hundreds of millions of dollars of investment.
ERP software can help your scale-up or startup to standardize, scale efficiently and remain compliant while doing so, helping them to protect the money they invested and helping you to persuade them to hand it over in the first place.
Disproportionately growing IT costs are another important reason why many organizations implement an ERP system. As is an increasing need for IT development, customization and integration – which takes up both time and money.
There are a few possible drivers for this.
Sometimes organizations are using old, unsupported ERP systems or system versions which require a lot of development to maintain. Great examples are ERP systems like Microsoft Dynamics Great Plains or SAP ECC 6.0.
Other times, the ERP system they are using isn’t fit for the type of business they are in, or for the type of business they have become. This leads to more spreadsheets, more integrations with point, ‘best of breed’ solutions and bending your existing ERP systems to do things they weren’t designed to do.
Selecting and implementing a new ERP when done correctly can alleviate increasing IT costs in the long run and enable you to integrate multiple business functions out of the box. Whether you’re in the manufacturing, professional services or not-for-profit space – when you choose an ERP that’s suited to your industry, you can often accommodate your unique processes as standard too.
Compliance issues can shut down your business overnight and cost you millions in lost sales, litigation, penalties and remediation. Compliance is also a key reason why many companies decide to implement ERP software.
For example, pharmaceutical & medical devices ERP systems can help you to manage and deal with various FDA and MHRA imposed measures, from batch management to serialization and beyond.
On the other hand, every company needs to ensure compliance with local accounting and tax measures and ERP software can help you to streamline this. This can be especially troublesome when you operate in multiple accounting and tax jurisdictions, each with different accounting standards and rules. It can be prohibitively expensive to sell into these countries or areas without implementing a robust, multi-entity, localized ERP system.