How to Measure Your ERP Implementation ROI
Are you thinking of implementing an Enterprise Resource Planning (ERP) solution for your food production business? Before opting for a specific vendor, you need to make sure your ERP investment is worth it and will increase efficiency and automation inside your organization.
If you calculate your possible return on investment (ROI) before you are live on your new ERP system, you’ll stand a better chance to get the most benefit out of it. Plus, your decision-making process will be more straightforward.
Measuring your ERP ROI can be tricky since it accounts for much more than just the cost of the ERP solution and its benefits. So, how do you determine your company’s bottom line accurately?
In this article, we’re going to take a closer look at the aspects that can affect your ERP ROI to help you estimate it correctly.
ERP ROI Analysis
ERP project will be one of the most significant expenditures for your food manufacturing company. That’s why, before moving ahead and implementing a new ERP system, you should be aware of all the factors and benefits that will impact its value.
ERP software will cover such parts of your business, like sales, marketing, operations, finances, planning, legal, accounting, and many more. If implemented wisely, an ERP solution can also improve and automate a lot of these processes. So, you must know what to look for in a food ERP solution.
“Why a food production business needs an ERP? The same reason why all manufacturers need an ERP: Having an integrated system that ties together all aspects of the business together in an organized way will very likely improve the efficiency with which the business operates. This can have a direct impact on profitability. My feeling is that the greatest root causes of strife in a manufacturing organization are information deficits – Which customer has ordered what? How much raw materials do we have on hand? What is our cost of doing business? Every business that reaches a certain size and has hands-on involvement in the manufacture of their product eventually reaches a point where an ERP system offers a practical solution to improving business performance and profitability.”
David Altemir, President/Senior Consultant at Altemir Consulting
Let’s take a look at cost factors and implementation benefits you should consider when calculating your ERP ROI.
The Cost of ERP
Depending on a vendor and your business needs, the cost of the ERP solution (aka required investment) will vary, and you should fully understand and evaluate it beforehand.
On-premise vs. cloud
If your new ERP software is deployed on-premise, then you should expect to spend money on hardware, such as getting new servers and networking equipment. However, if you choose a cloud-based ERP solution, the hardware costs will be reduced significantly.
For example, bcFood’s ERP system is based on Microsoft Dynamics 365 Business Central that brings all your business tasks, data, and reports to a single environment. Thus, you shouldn’t worry about unexpected hardware costs.
A new ERP system requires your employees to be ready to navigate it and use it properly for the processes throughout your organization. Will you need to hire a coach/consultant to help your staff get used to the changes? Will it be necessary to buy extra promotional materials or hold training classes? Will you need to hire more managers to be able to streamline new production processes more effectively? Whatever the cost, you should count it towards the total price of your ERP.
Choosing a suitable ERP system is the first step, but then you might need to add various customizations, configurations, deployment, and testing to the final cost. Whether you decide to pay overtime for your current employees to do it or hire an outsource company for that, you should still expect extra expenditures.
Your ERP implementation budget might include:
- User training
- Go live preparation
- Go live
- Post-go-live support
- Month-end support, internet, etc
Does the ERP software require a one-time fee or monthly cloud fees? What types of licenses will you need, and how many of them? You might come across the need to acquire more licenses than you thought initially. That’s why you should be ready for these expenses and try to define the number of users who’ll need full access to the functions of your new ERP system.
Even though buying ERP software is a one-time thing, you shouldn’t forget about the costs that come with its yearly maintenance and support. What type of support does your vendor provide? How much will your annual maintenance cost be? It’s critical that you include these expenses into the total cost of the ERP for your food production business.
The technology is evolving, and so is your ERP system. Before settling on a particular vendor, you should know how many upgrades they provide, and how much it will cost you. You wouldn’t want to use the outdated software as well as pay for expensive upgrades a few times per year. So, make sure you are aware of all the costs associated with your ERP system improvements.
Now that you have a clear picture of the cost of your initial investment in an ERP solution, it’s time to count the value of the benefits ERP systems can bring to your food production business.
“The ROI is a result of:
- Cost Savings – efficiencies gained through the elimination of duplicate entry, availability of real-time information, business analytics and the resulting improvement in management decisions
- Revenue Enhancement – better visibility into customer behavior, integration of CRM, prospect conversion, quoting, and conversion of quotes to orders, along with sales behavior analytics
- Compliance – reduction of effort spent on maintaining compliance in the areas of traceability, recall management, quality reporting, and maintaining quality standards resulting in higher customer satisfaction and lower returns.”
Princess Ruff, Digital Marketing Strategist at The Attivo Group
ERP Business Benefits
The value of your ERP project is more subjective than its costs as there are a few things that are intangible and cannot be counted easily. So, let’s take a look at what benefits you can expect from ERP software implementation.
With the help of an ERP system, you’ll be able to streamline and automate your business operations, and as a result, reduce operating costs. So, go ahead and calculate your new monthly operating expenses and compare them to the current number. Now, you have the first metric of your ERP value.
ERP software can provide you with better ways of tracking deliveries and other operations much more efficiently. It means that you might boost your production and accelerate internal and external communication. For example, our bcFood ERP software provides you with excellent traceability and helps you make your food manufacturing business more transparent.
Usually, an ERP system will make inventory management a much easier process for your employees. It means that inventory checking will take less time, and you might save money on billable hours.
Easier returns and recalls
Having an ERP solution is critical for the food manufacturing industry. It lets you keep track of all the recalls and address them in a matter of minutes. This makes your business more reputable and saves you not only time but also money.
Shorter sales cycle
Keep all your customers in one system and be able to address their needs and concerns quickly. ERP system allows you to manage your buyers efficiently and grow more sales. If you leverage your ERP’s customer relationship management, you might see a drastic increase in revenue.
Better supply chain management
When calculating the value of your ERP system, you should also consider the reduced cost of goods. Thanks to the streamlined supply chain, you might find your enterprise manufacturing more goods and landing more contracts.
bcFood’s ERP solution lets you keep track of all your contracts and provide your customers with the latest information about your products and deals. A better supply chain can impact your ERP return on investment in a very positive way.
Now, let’s take a more in-depth look at the metrics that aren’t as easy to measure as the ones mentioned above.
If you take the time and effort to choose the right ERP solution for your food production business and implement it well, you can expect that it’ll make the daily lives of your employees less stressful. And if your staff starts loving their job more, there’s a bigger chance they’d want to stick in your company for a longer time.
Automation is one of the best perks of ERP software, and it takes care of a lot of mundane tasks your employees don’t like doing. In short, an ERP system can make your enterprise a better place to be for your team members.
Faster decision making
With the help of better visibility, you’ll be able to make business decisions much faster and, consequently, contribute to its growth.
ERP software allows you to keep all the essential information and documentation in one safe place. Thanks to the modern cloud-based technology, you’ll be able to access your business documentation from anywhere and cut on work hours dedicated to documenting.
How to Calculate Your ERP Return on Investment
Now that you’ve got your ERP total cost and value, let’s see how you can measure the possible ROI of the ERP implementation.
ERP ROI Calculator:
ROI = [(Value of Investment – Cost of Investment) / Cost of investment] x 100%
ROI = Net Benefits/Project Investment
What does your ROI look like? Is it bigger or lower from what you expected? Maybe you can add more business benefits to the equation, like, for example, competitiveness. ERP can make your food production company more reputable in the eyes of customers and let you beat your competitors by having more time to focus on the quality of your products.
Whatever your initial ERP ROI analysis turns out, remember that it’s not an overnight process. It might take years until you see your ERP return on investment grow. Yet, Enterprise Resource Planning software is a long-term investment that will help you bring your food manufacturing business to a new level.
“The Return On Investment of an ERP implementation can only be calculated several years after its (successful) implementation and usage. First of all, calculate the cost of the ERP: not only taking into consideration external consulting but also your internal cost, which doesn’t stop at adding Full Time Equivalents together. You must also include all related costs, from the blueprint to management reporting, not forgetting post-implementation hyper care collateral costs. After each period – for example, a year, depending on your project goal, ask each Global Business Process Owner to provide an overview of pre-implementation overall cost/revenue per period and the current one.
By checking these numbers, you will be able to assess the ROI. For example, if you used to spend $10M/year for raw materials purchasing, but with the help of you new ERP you negotiated new global contracts and cut down your procurement costs to $8M on Y1 and $7 on Y2, then at the end of year 2 you’ll have saved $5M. If your ERP implementation cost was below
this saving, it has been worthy by year 2. If it is above, then you might have to wait longer to see a positive ROI or reconsider your choices.”
Yoann Bierling, International Project Manager at New Simple As Possible ERP
Also, you should understand that every business is different, and you should have a clear picture of your goals before you decide to spend money on any ERP solution. It will help you avoid paying for the ERP features that your business doesn’t need.
Find the Right Vendor & Get Started
Analyzing the ROI of ERP implementation isn’t an exact science, nor is it easy. Yet, it’s one of the most vital steps you should take before choosing your ERP vendor.
At bcFood, we know that selecting the right ERP software for your business is a time-consuming process that requires a significant investment. That’s why we tailored our ERP solution specifically for food production businesses that want to become more efficient and see a positive ROI.
Do you want to learn more about the benefits of ERP implementation for a food manufacturing enterprise and see whether it’ll be a good fit for your business? Then don’t hesitate to contact our ERP experts. We’ll be happy to help you have a clearer picture of your ERP return on investment.