Is your business ready for ERP?

At some point, a growing company will need to consider the transition from a simple accounting package to a software system which reflects the growing complexity of the organisation and which brings the ability to provide improved oversight over a range of business processes and functions.

Probably the biggest immediate difference between an accounting package and an ERP system is the cost. That in itself might serve as a major turnoff for the growing business.

After all, money is needed for working capital, to ease cash flow and to acquire essentials such as plant and machinery, premises and stock. And when you are looking at a R500 000 ask for a software system for 10 or 15 users, that's a big ask. It is also far more than what you're likely to pay for a bookkeeping program.

Cost will grab the business owner's attention, but savvy customers will appreciate that you get what you pay for. If you buy an accounting system at Makro, that is what you will get. The off-the-shelf accounting package requires no services and no specialised skill to set up and little or no maintenance; however, it remains very limited in what it can do for your business. Don't expect that to take control of all your business needs.

But spending on ERP is an investment and here's why.

When you buy an ERP system, you're getting a lot more than just the software; there are three components to the cost of ERP, being licensing, maintenance and the need for professional services for implementation. Over and above that, you are buying business processes which incorporate best practices. That means essential functions benefit from proven efficiency. Deploying ERP also provides an opportunity to examine your business and enjoy exposure to the knowledge of the consultants who will work with your company.

Most ERP software comes with predefined business processes or workflows. These will facilitate common processes such as purchasing, sales, logistics workflows and many more. Companies accustomed to using a standard accounting package or spreadsheet are likely to bypass steps in a best-practice workflow, perhaps out of convenience or even ignorance.

While that may be OK for a small company, as the business grows it should incorporate the best practice approach since these additional steps exist for very good reason. For example, control is probably the biggest challenge as a business grows. In early days, the business owner is able to do everything and manage everything; as the company expands, he must delegate responsibility and rely on others. If the system is able to support and automate some of that delegation through workflows, maintaining control is far more likely.

The ERP consultant will compare what the business is presently doing and what the software does for the same process. Most business owners appreciate that the ERP system's way is right; there may be additional steps, but better control results. Be that as it may, the likelihood of a level of customisation remains; typically, with the implementations we have done, up to 85% of the ERP processes are standard with a small element of customisation the norm.

Companies which are losing control on accuracy should consider making the move to ERP. If what keeps you awake at night are questions like what stock is on hand and where, what the status of the debtors book is, whether or not the General Ledger is up to date, chances are your business needs to make the move from an accounting system to ERP.

While any system (that includes bookkeeping software) ends up in a General Ledger (GL), the ERP solution does far more, adding operations on top of the GL grouped by department. The system can handle multiple locations in real-time, providing visibility and management across branches, while personnel can use various components of the same system from different locations at the same time.

It is also far more detailed, with the bigger record structures; the information which is captured and passed up and down the supply chain not only supports better management but provides for more advanced functionalities such as business intelligence and customer relationship management.

In terms of detailed business requirements, ERP also provides for escalations, approvals and workflow management, while solutions can also integrate with third party applications to meet unique or specialised business requirements. As an information-driven solution, it also delivers more insight through reports, exception notifications and insights into key performance indicators. All this information supports effective decision-making and eases day-to-day management of the increasingly complex organisation.

Remember, though, that ERP is an investment and not a short-term purchase. As such, the decision is not one that should be taken up lightly. Significantly, introducing a system for the first time can result in a good deal of pain and even emotion. If the process is not done 'hands on', the business might lose the investment. Implementations take not only money, but also commitment and focus over a not-inconsiderable period of time.

It can't be denied that there is a bad rap with ERP, but this is not a failure of the software or the concept. Rather, many failed projects come down to a lack of change management and the possibility of unrealistic expectations created in the sales process. The reality is that ERP is hard work which takes an investment of time and money. It does not and will not magically solve business problems or result in an instantly smooth-running company.