CEO’s and CFO’s of manufacturing companies are always striving to achieve inventory reduction, cut manufacturing costs and improve overall efficiency. However, a 2010 report showed that 26% of manufacturers still had not implemented an ERP system. This, despite studies proving that ERP systems help reduce inventory by 11% on average. Manufacturing companies with the best-in-class practices utilizing ERP systems were able to reduce inventory levels by 22%. Those same companies also saw almost a 20% reduction in overall costs.
What would a 20% reduction in overall costs mean to your company? Would it double, triple or even quadruple your bottom line? Could it mean that your sales increase 10, 15 or 20% because you can price more aggressively?
So why aren’t all manufacturers using ERP systems?
Many companies feel they are too small for an ERP system. Others feel the cost and time involved to implement ERP systems couldn’t possibly provide a return on the investment. Yet these companies likely don’t take into consideration the overall positive impact ERP systems can have on an organization. Manufacturers that have already implemented ERP are:
- Improving their inventory accuracy
- Experiencing faster month-close completions
- Meeting internal manufacturing schedules
- Shipping more orders complete and on time
- Streamlining and accelerating processes to improve efficiency and productivity
- Standardizing business processes
- Optimizing current capacity
Pressures to reduce costs, improve the overall customer experience and response time, and manage growth expectations are the norm. Having an ERP system in place to manage these pressures is crucial to surviving in the new economy. The business benefits achieved by manufacturing companies with ERP systems are measurable and the industry average results are significant:
- 13% reduction in operating costs (best-in-class is 20%)
- 10% reduction in administrative costs (best-in-class is 18%)
- 11% reduction in inventory (best-in-class is 22%)
- 12% improvement in internal schedule compliance (best-in-class is 18%)
- 13% improvement in complete and on-time shipments (best-in-class is 17%)
Furthermore, many of today’s ERP systems are much easier to implement and dramatically easier to use. This significantly reduces the cost of implementation and the time to payback. You can see payback in as little as twelve to eighteen months.
Why are ERP Systems so Effective?
ERP as a system provides a foundation for managing resources and business processes. This enables internal collaboration and organization, which improves business processes. Companies that use ERP systems have a baseline from which to build standardization and provide all users visibility to information and processes. This provides the foundation for organizational change and growth.
Best-in-class companies are three to four times more likely to have internal collaboration capabilities over companies without ERP systems. Even companies with ERP systems that perform below the industry average are 59% more likely to integrate and coordinate manufacturing operations with customer service, logistics and delivery.
Additionally, companies with ERP systems have visibility into their business processes and can quickly dig into details to make informed decisions and spot issues before they become problems. In fact, reporting capabilities – especially financial reporting – can be a key reason to implement an ERP system. Just over 10% of the companies without ERP systems have a single system of record keeping. For the remaining 90% of companies without ERP, the implementation of an ERP system could be justified by just the labor costs needed to respond to one audit.
So what should a company that doesn’t have ERP Do?
First, don’t let lack of information hold you back. Get more of the facts and the startling statistics in our free whitepaper “To ERP or Not to ERP”. Learn how utilizing an ERP system shouldn’t even be a question in today’s manufacturing world. Download your copy of “To ERP or Not to ERP” right now. Learn all the ways an ERP system can reduce manufacturing costs, including inventory reduction, and so much more.
If you are ready to take action and need practical advice on next steps to reduce costs, click here to sign up for our free business consultation.