How to evaluate the ROI of an ERP like SAP Business One
Having an ERP solution for your business isn’t a small affair. It takes a good load of investment and like any investment, it needs to have a ‘Return on Investment’ or (simply) ROI.
We will be talking about all the benefits that your ERP software would greet your company with and how your company would gain efficiency and cut cost simultaneously.
For the ease of understanding, let’s break down the discussion with some of the standard reports that SAP Business One ERP generates, and look at how these reports would help cut down the ad-hoc cost for your business to increase ROI.
While we have dedicated an entire post for SAP Business One Standard reports (HERE), we will only take few references to the reports to make matters clear.
Better Forecasting
Industries have relied on effective forecasting since ages. Without a proper forecast in place, there is a potential risk of either overstocking or running out of stock. Both the scenarios are not healthy as they are directly associated with cost. The ERP software is customizable to a level where all your historic spend and sales are obtained with just a click. These reports give you trend of how your company performed in last the previous years and what should be your target for the current or coming years.
Below are a couple of standard reports that help you make the perfect forecasting for your industry
| Purchase Order Analysis | This report is used for displaying the information of purchase orders created and the transactions that have taken place in the last few months or years |
| Stock requirement list | Help analyze material requirement and plan accordingly (considering current stocks and requirements in future) |
Inventory Management
Managing inventory is so vast that it can be maintained as a standalone module. Scaling companies always bet big on inventory management. This is because the storage and warehousing are one of the major cost incurred by Companies worldwide. Not maintain or managing the inventory can result in an ad-hoc cost.
Below Reports help Plan your Inventory Better
| Inventory turnover | This report will help you in getting the information on the inventory turnover ratio. |
| Stock Overview Report | This Report details the overall Stock available across every location |
| Plant Stock availability | This report provides an overview of the stock situation of a given material in selected plants. If there are multiple plants where the same material exists, this report can give the information on stocks at various places |
As an example, let’s talk about a wholesale supermarket, which deals with tons of inventory across various locations. An ERP system would cascade and keep an identification of the lot using unique values which can be easily differentiated. This would help the supermarket business to identify the fast moving stock, surplus, rejections, defects, etc., for quick decision making. Also, it helps business owners make critical decisions across various metrics, like most bought inventory in a particular region.
These decisions not only help keep the unwanted cost in check but also help find opportunities to manage your inventory to be more effective and profitable.
Strategy building
There isn’t a growth if there isn’t a strategy behind it. Every company needs a solid strategy and the only thing that helps in building one is clear and concise reports. With Enterprise resource planning, all your business data is condensed at one place which is easy to read. ERP system has proved itself to be the best way of arranging the data for better strategies.
Let’s take that supermarket example again and look at how the below reports would help make strategic decisions.
| Slow moving items | Help you to identify slow-moving items. |
| Dead Stock items | Help you to identify dead inventory |
| Usage value | This report identifies the share of the usage value to the total usage. You can also see the report graphically for a selected material in detail screen. |
We have discussed that the ERP maintains the inventory very effectively. Let’s say the owner realized (from the report) that one particular brand of product is selling on an average of 1000 units a month in location A and average of 50 in location B. His strategic approach towards this would be to have the stock maintained at location A and make some more room at location B by replacing the excess stock with something that sells higher in that location.
Another example is if a particular location has some products moving faster, his display stack would be rearranged to include the high – profitable (but slow moving) products along with the fast moving ones so that the customers have better visibility of the stack. This strategy may have customers buy some of the products that might result in better sales and profits to the business.
Vendor Identification
Knowing the right type of vendor to work with greatly improves the chances of increasing profits. A business might be working with numerous vendors for the same type of purchase. The decision depends on the Supplier type, region, contracted vs non-contracted etc. Sometimes it becomes difficult to keep a track of the vendors and might result in awarding the projects to vendors which aren’t cost effective (or) missing out on vendors who would have the best deal at a particular season.
Let’s analyze few of the reports that SAP Business one ERP generates with reference to vendor consolidation
| Vendor master list | This report can give you the list of suppliers |
| Vendor rating | This report is used to extract information of supplier performance on various parameters such as delivery, quality, cost etc. |
| Vendor information system | This report is used for displaying the vendor payment information based on due date, overdue, currency etc. |
| Vendor payment history | This report is used for determining the current payment status for vendors. The report carries out an analysis of the vendor open items according to the user-defined time pattern. |
The above reports give you real-time information of the vendors dealing with your business on various criteria. This would make it easy for you to decide which vendor to go for first when a need arises. Also, having a strategic approach to selecting the contracted vendor (vs non-contracted) greatly increases profitability and client-vendor relationship.
While these are some of the direct and tangible ways you can increase ROI, there are numerous intangible things that are tagged with an ERP implementation that affects the cost and profitability drastically. Some of these intangible benefits are listed below.
Higher efficiency
No Company would want to indulge in a repetitive and manual process which is time taking and monotonous. While the efficiency of any business is calculated on the basis of effective utilization of time, an ERP system actually does that for the business. It minimizes the need to manually enter the data, manually keep track of your business activities etc.
With an ERP software in place, the business can easily collect data from any of the departments and maintain an up-to-date and error-free record. This information can later be pulled out for making strategic decisions to reduce redundancy and improve efficiency. The more efficient the business gets, the greater are its opportunities for a profitable turnover.
More productive time
Consider a Manufacturing unit where there are tons of records and data that needs to be noted and referenced every day. This would require a dedicated time of a couple of resources for data entry alone. With ERP, that is cut down to almost none. SAP Business one can integrate other 3rd party applications to save and manage data. This minimizes the need for any resource cost that may incur due to manual and redundant work.
Security
There is one thing that you might never have to worry about with ERP implemented in your business, that is Data Security. The system will improvise the consistency and accuracy of your data while keeping it most secured. The Enterprise Resource Planning Software comes with inbuilt firewalls which prevents any leakage of data while keeping the phishing in check.
Your ERP software would also allow you to have restrictions on the data across each level; which means, the access for managers and supervisors can be customized to involve more visibility into company’s insights, which a business doesn’t want its analysts to know about.
Better management
When you have better visibility of your business, the management becomes so much easier. ERP system’s main USP is how they store and categorize the data. Unlike the age-old methodologies, ERP uses technology to help you look at your business more clearly. As a Company or department head, it becomes much easier to manage, assign and segregate the requirements, thus decreasing the need to go through the redundant process.
Employee satisfaction
One of the intangible benefits which add a lot of value to a business is Employee Satisfaction Index. Every employee wants to be productive and learn new things. As a business, your chances of having employees walk out of the manual labor and use the time for something informative, drastically increases with ERP in place.
There is always a cost involved with the resource addition; similar is the case when you have to find a replacement for your valuable resource. Not only you are betting on the knowledge and ease of the resource, who has been associated with your company for long, you also have to factor the skills that the resource develops over time within your company. Retaining employees and moving them through the hierarchy not only would save you cost, but also ensures a smooth and scalable business opportunity.
Client retention
With a robust management system in place and clear consciousness over the business, it becomes easy to manage everyday operations of a business. This, in turn, makes sure that the client deliveries or requirements are catered effectively and there are no lags in the process.
Be it a long-term relationship with the client or a spot order requirement, a clean and hassle-less delivery will always ensure that the client remains intact with your business. This would ensure that your business is never going to run out of requirements and there is no dearth of revenues being generated.
All the above factors are best practices to maximize your ROI. While this is mostly the functional practice, the effective ROI calculation is a detailed procedure which needs to be carried out with real time data. A financial Expert would be able to draw out real equations depending on the industry your business is operating in. If you require any help with such financial calculations, feel free to drop your email in the comment section and we will contact you (or) you can also write to us at bdm@aswinitech.com.