7+ Benefits of ERP in 2023 (Ultimate Guide)
Enterprise software systems are used in business to connect different departments and functions, making it possible for a company to get the job done right.
An ERP system is a subset of enterprise software that helps businesses plan and manage their core operations, such as finance, accounts payable, manufacturing, human resources, and supply chain.
If the business owner of a medium to large company is looking to invest in an ERP software system, knowing the benefits of ERP will help make the decision easier.
In this article, I will discuss the various advantages an ERP system can bring to one’s business and some of the challenges one might face when implementing it.
I’ll also explore which business might benefit the most from an ERP system and the signs that a company is ready to implement ERP.
Let’s get right into it.
What is ERP?
ERP stands for enterprise resource planning.
Being composed of software that helps businesses manage and automate their core processes and ensure that the various departments within a company work together efficiently, ERP is crucial as operations scale.
Similar to other major software solutions in business, ERP systems come with a host of benefits that can entice companies of all sizes to invest in this type of software.
The Benefits Of ERP
These are the best benefits an ERP system can offer.
1. Enhance Business Reporting
One of the top ERP benefits is that businesses can get enhanced information with better reporting tools that provide real-time data.
In practical terms, this means that managers can make better decisions, as they will have access to up-to-the-minute data.
This is a massive advantage over traditional business reporting methods, which can often be outdated by the time they are received.
In addition, having a single source of truth is invaluable when it comes to reporting.
This ensures that all reports are based on the same data set, eliminating the risk of conflicting information.
This also ensures that everyone in the organization is working from the same page.
2. Better Customer Service
Another benefit of ERP is the ability to provide better customer service.
When all your business processes are integrated, it gives you a 360-degree view of your customers.
You can quickly and easily access their order history, contact information, and other relevant data.
This allows you to provide them with a much higher level of service, as you will be able to respond to their inquiries more quickly and accurately.
In addition, having an integrated system will also help to improve your on-time delivery rate. All the relevant information will be in one place, making tracking orders easier and ensuring they are shipped on time.
3. Improve Inventory Management and Costs
When your business processes are integrated as part of an ERP system, you will better understand your inventory levels.
This means you can ensure you are only carrying as much inventory as you need without running the risk of too much or too little.
As a result of this, you’ll be able to build vendor relationships, which is a crucial area where ERP systems can provide cost savings, since you will likely get better terms and prices when you have a good relationship with your vendors.
In addition, when you have an integrated system, tracking and managing vendor performance becomes more accessible.
This can help you identify any issues early on and take corrective action before they become costly.
4. Boost Cash Flow
Another great benefit of ERP systems is that they can help to boost your cash flow since such systems provide you with better invoicing and collections tools.
With these tools, you will be able to get paid faster, which means that you will have more cash on hand to reinvest in your business or to pay down debt.
In addition, by having an integrated system, you will also be able to improve your Accounts Receivable turnover.
This metric measures how quickly you can collect payments from your customers.
A high turnover rate indicates that you are collecting payments rapidly, which can positively impact your cash flow or your ability to borrow money.
5. Better Data & Cloud Security
One benefit of ERP systems that some gloss over is improved data security.
When your business processes are integrated, your data will typically be spread across multiple servers.
This makes it more difficult for hackers to access your system and steal sensitive information.
An integrated system might also have dedicated security resources. These resources can help monitor your system for any potential threats and take action to protect your data.
6. Business Process Improvements
ERP systems can also help to improve your business processes.
Automating manual or routine tasks can free your employees to focus on more critical tasks that are more important in terms of moving your business forward.
Efficiency is the name of the game when it comes to business.
You can also improve your bottom line by automating tasks and improving your workflows.
7. Seamless Integration
One of the benefits of ERP software is that they can be easily integrated into your existing infrastructure.
Since they are designed to be scalable, you can easily add on modules as your business grows.
This allows you to start small and expand your system as your needs change.
8. Promote Cutting Operation Costs
Finally, if your business needs to cut operation costs, an ERP system can significantly assist you.
The main benefit, in this case, is that it provides real-time data analysis into resources that are being underutilized.
How To Know Your Business Is Ready For ERP
Enterprise resource planning software can’t just be a “nice to have” for your business.
There needs to be an apparent reason why an ERP system is required, and this needs to be communicated to the senior decision-makers in your company.
Here are the top signs that show your business is ready for an ERP system.
There Are Old Legacy Systems In Place
Enterprise resource planning systems help remove any reliance on old legacy systems.
With old systems, it can be challenging to find the right support, and making changes can be costly.
In some cases, businesses are forced to keep legacy systems running because they contain vital data that would be lost if the system was switched off.
This data can usually be migrated to an ERP solution, allowing you to switch off the old system and free up valuable resources.
The Business Wants To Scale Its Roadmaps
The right enterprise resource planning system helps with business scaling roadmaps.
As your business grows, you might need to consider opening up new geographical locations or expanding into new markets.
An effective ERP solution will map out a growth strategy that’s achievable and realistic.
After all, you want your roadmap to be a success story, not a cautionary tale – an ERP system can help ensure this.
Complex Sales Processes Are Killing A Business
Sales processes can be time-consuming and complicated.
They might even vary from one customer to the next.
When it comes to scalability, having a simple yet effective sales process is crucial.
Business functions that deal with invoicing, shipping, and payments must be automated as much as possible.
The goal is to make the sales process as streamlined and efficient as possible.
As such, if you know that your sales processes would benefit from automation, it might be time to look into an ERP system.
Rising Customer Expectations
Customer data is key to understanding what your clients need and want.
It’s also necessary to provide them with the best possible customer experience.
However, if you’re still using Excel spreadsheets or other outdated methods to store customer data, you’re not utilizing this data to its full potential.
An ERP system can help you get a 360-degree view of your customers through various data dashboards.
This way, you can better understand their needs and wants and offer them the best possible experience.
With business operations dealing with different departments, ERP solutions can be used to improve communication and collaboration.
Having core business processes that stakeholders can buy into and trust is essential for business success.
An ERP system can help ensure that processes are standardized and transparent across the organization.
This way, everyone is working with the same goal in mind, and there’s no confusion about what needs to be done.
Mergers Are Happening
An ERP system can be a game-changer in streamlining decision-making processes due to mergers.
This type of system can help reduce costs and improve efficiencies, ensuring profitability is the ultimate goal.
Whether it’s a small business being acquired or two large corporations merging, an ERP system can help make the transition smoother.
Lack Of Integration And Automation
Automation can give a competitive advantage to businesses.
The right ERP platform should be able to integrate with other software solutions that your business uses to automate repetitive tasks.
This allows employees to focus on more important things, such as strategic tasks that can help the business grow.
Conversely, a lack of integration and automation can be a hindrance to business growth, as it can lead to inefficiencies and errors.
Inefficient Reporting Methods
One of the leading enterprise resource planning advantages is that it can help improve reporting methods.
With the proper ERP implementation, businesses can generate accurate and timely reports, which are crucial when making sound business decisions.
Business growth and inflexible systems don’t go hand-in-hand.
As your business grows, you might need to change your processes and procedures.
However, if your systems are inflexible, making these changes might be difficult (if not impossible).
For example, let’s say your business is growing, and you need to add more products to your inventory.
With an inflexible system, this might require a lot of manual input and might be error-prone.
However, a flexible ERP system can automate this process, saving you time and money.
Compliance Is Not Up To Standard
Regulatory compliance is essential in many industries.
Whether environmental, health and safety, or data privacy regulations, businesses must comply with the set standards.
An ERP system can help with this by providing the necessary tools and features for businesses to meet these standards.
Considerations Before Implementing An ERP System
Even though business owners sometimes realize that the time is right for an ERP upgrade or that their current system can no longer support growth, they might not be entirely sure where to start.
Here are some factors that should be considered before implementing an ERP system.
Company size is one of the main factors when choosing an ERP system.
If you’re a small business, you might not need all the bells and whistles that come with a more comprehensive enterprise solution.
On the other hand, if you have a large, complex business, you’ll need an ERP system to handle all your needs.
A new system will come with various costs associated with it.
Whether it’s project management or business intelligence costs that need to be considered and factored into the installation of an ERP system, one needs to ensure they have the proper budget.
It would help if business owners also thought about the ongoing costs of maintenance, support, and training.
Training employees on how to use the new system can be costly, but it’s essential to ensure they’re adequately prepared.
You need to consider data conversion costs and resources if you’re switching from one ERP system to another.
Many systems have their own way of storing data, so you need to make sure all your data can be converted over to the new system.
Businesses That Can Make The Most Of An ERP System
Not all types of businesses will benefit from an ERP system.
For some businesses, the cost of an ERP system might not justify the benefits.
However, for others, the advantages of an ERP system might be too good to pass up.
Here are some specific businesses that can make the most of an ERP implementation.
E-commerce businesses need to be able to track inventory levels, customer orders, and shipping information.
An ERP system can help with this by providing a central place for storing all this information.
If you run a manufacturing business, you know how important it is to keep track of inventory levels and production schedules.
Whether you need to change your production schedule and inventory levels, or are looking for ways to improve your supply chain management, an ERP system can help.
A distribution business’ needs are similar to a wholesale business.
With the need for visibility into inventory levels and customer orders, an ERP system can help distribution businesses run more smoothly.
In practical terms, an ERP system as part of a distribution business can give business owners the ability to:
- Make more informed decisions about their business
- Improve customer satisfaction levels
- Increase operational efficiency
- Reduce costs
Construction businesses need to be able to track project progress, material costs, and employee hours.
An ERP system can help with this by providing a central place for all this information to be stored and accessed.
From tracking warranties to managing subcontractors, an ERP system can help construction businesses stay on top of their projects.
Benefits of ERP – FAQ
What Are ERP System Benefits When It Comes To The Customer Experience?
Enterprise Resource Planning ERP software provides several benefits when it comes to the customer experience, the main one being the ability to manage customer data better and use it to improve the customer experience.
By having this information readily available, businesses can provide a more personalized and tailored shopping experience for each customer while being on top of their risk management.
This leads to higher satisfaction rates when it comes to customer relationships.
How Important Is Business Data When Implementing An ERP System?
Any, and all, business data is essential when implementing an ERP system.
Businesses must carefully consider how they want to use ERP software applications to support their specific goals and objectives to get the most out of this implementation.
Accurate and up-to-date data is essential to making sound decisions about configuring and using the ERP system.
On the flip side, disruptions in business data need to be considered when planning on implementing such a system.
While one of the benefits of ERP systems is their ability to provide a single source of truth for business data, this can also be a disadvantage if the data is not accurate or not updated on time.
What Is A Cloud ERP System, And How Do You Optimize It For Your Business?
Many SaaS offerings are available for cloud ERP systems.
These offerings can be optimized in several ways, such as by choosing a system specifically designed for the cloud or working with a partner with experience in optimizing cloud ERP systems.
In addition, it is essential to ensure that the system is appropriately scaled and sized for the business’s specific needs, as this can help maximize efficiency and minimize costs.
As opposed to on-premise ERP systems, cloud ERP systems offer several advantages regarding flexibility and scalability.
For example, because they are hosted in the cloud, businesses can typically scale up or down their usage without making significant infrastructure changes.
With on-premise ERP systems, by contrast, businesses often have to purchase additional hardware and software licenses when they want to scale their usage.
What Are Data Silos Within ERP?
Data silos within ERP can occur when data is not adequately shared between different departments or business units.
This can lead to inefficiencies and duplicate data, a significant business problem.
To avoid this, it is essential to ensure that data is properly synchronized across all departments and business units so that everyone is working with the same information.
What Is Customer Relationship Management?
Customer relationship management (CRM) is a term that refers to the various processes and technologies that businesses use to manage their relationships with customers.
This includes everything from managing customer information to understanding customer buying patterns and preferences.
From data entry apps to forecasting tools, CRM software is designed to help businesses optimize customer interactions and improve customer satisfaction.
ERP systems offer many benefits for businesses in terms of customer experience, efficiency, and data management.
To get the most out of an ERP system, it is essential to carefully consider how it will be used and what specific goals and objectives it will support.
Additionally, regular maintenance and updates should be performed to ensure that the system always meets the needs of the business.
When used correctly, ERP systems can play a pivotal role in improving business operations and bottom-line growth.
Further reading on AdamEnfroy.com: Check out this comparison article reviewing SAP vs. Oracle, two of the most popular ERP vendors on the market today.
This can help you decide on the essential features your business needs and ensure you get the most out of your investment.
Additionally, knowing the difference between an ERP and CRM system can help your business determine the best one for your needs.
While both systems have pros and cons, they offer different types of functionality that can benefit various businesses.
Finally, if you want more control of your business contracts, the right CLM software can make a big difference, as it can automate many of the processes involved in contract management.