COMMON BUSINESS ISSUES
Can SME’s make ERP solutions work for them?
Until recently it was only larger companies that had the resources required to deploy ERP solutions. In recent years ERP solutions have become effective business solutions for SME’s as well. There are three primary drivers for this change:
- Since most large companies have already implemented ERP solutions , software companies have had to look to smaller organisations to continue their revenue growth
- The increased number of niche and industry specific vendors is causing lower software prices this making it affordable to smaller companies
- As many smaller companies embark on aggressive growth strategies, they are finding that ERP solutions provide them with a strong business process and technology infrastructure to support growth.
The improvement in information technology and drastic reduction in the prices of computer have made it possible even for the small organization to think about the ERP systems. The new era of PC advent of client server technology and scalable relational database systems, all have contributed for the ease of deployment of ERP systems.
There is big market for ERP for SME, given that there are over 20,000 small and mid size companies However, the awareness of the ERP concept among SMEs is less than 35%, compared to over 80% in large organizations as per a survey conducted by IDC.
The key operational business drivers for SME segment will be to increase operational efficiencies increase labour and capital productivity, reduce fixed and variable cost and integration with tier 1 supplier, subcontractors and distributors. The pressure from large OEM players to streamline their supply chains will force SMEs to streamline their operations and drive the demand for ERP in the SME sector.
In today’s service economy, small business owners desire closer control over the complex and specialized tasks involved in sales, services, supplier relationships, and working capital management. Control over these tasks requires transaction level revenue and cost data for both product sales and professional services at the customer, product/service, and sales rep and professional services resource level. It also means that ERPs that were originally built for manufacturing (most of today’s commercially available packages) do not work for most small businesses.
According to Gartner, 50% of small to medium-sized businesses (SMBs) have yet to deploy enterprise resource planning (ERP) solutions because of concerns about the level of resources required to make such an implementation. Large software firms have long underserved this ignored market. In order to better satisfy the needs of the SMB market segment, software vendors need to think small and act even smaller.
Enterprise Resource planning helps S.M.E.'s to enjoy unimaginable benefits. There are however some problems for SME's in the ERP market .They are not only from the addressed in the company's perspective but also in the vendor's perspective:-
- Costs
- The small size of the companies proves to be another challenge to the vendor. Since there are too many SME's in the market they demand a very low price from the vendor. It becomes practically impossible for the vendor to offer at such quotations as he would not even be guaranteed of a return in the costs. Small business ERP is not expensive software but still requires lot of work
- Choice
- There is a big dilemma for companies evaluating ERP solutions because they are unsure of choosing software offered by a branded player or a small player. That really makes no difference as long as the software and vendor suits all the requirements.
- Some companies debate that only a branded player can satisfy the requirements even though the recipient is a small concern. While the other argues that only small vendors are flexible when it comes to customizations.
- Customisation
- The bigger players have a trouble when it comes to offering solutions for SME'S. The level of customization and the work demanded by the SME's some times appear to be too much for a bigger player. Moreover their businesses have always been focused to corporate giants. So when it comes to the question of SME's it takes a great deal of time for them to understand the business and design software programs based on modality. On the other hand companies also find that small ERP vendors are not competent enough to match the requirements of the companies. So they approach the bigger companies.
- Reporting / Analysis
- Many ERPs have added capabilities to capture and access transaction level data, but they do not provide the data in a form that lends itself easily to ad hoc analysis by a small business owner. The key challenge in getting data out is how it is stored in the first place. In most systems there is only one chart of accounts for summarizing transaction data, residing in the general ledger. The segment numbers (extending to 24 digits and more) simply become too unwieldy to represent the detail of say 1500 customers by 15 sales reps by 35 product/service offerings. Even if the chart of accounts could be set up to get to this level of detail, it would be next to impossible to capture changes in the business (e.g., reorganizing sales territories) in the chart of accounts. Business owners expect, and rightfully so, that their systems should make it as easy to get to the numbers as opening up an Excel spreadsheet. The next generation of accounting/ ERP packages for SMB will take as their primary design guideline an emphasis on managerial accounting first and financial reporting second. They will utilize chart of accounts architectures and data-driven applications architectures and development environments that make it easy to access data, literally as easy as opening an Excel spreadsheet.
Market Information
What is ERP?
Historically companies have used paper based processes or separate software packages to manage multiple parts of their business, such as accounting, order entry, purchasing etc. ERP integrates all this functions into a single software package. The benefits of a single ERP solution can be broadly outlined as:
- Easier to train employees on one system
- Provides transparency of the business – all the information in one place
- Provides managers with a standard way of performing business processes
For example:
Take a customer order. Typically, when a customer places an order, that order begins a mostly paper-based journey from in-basket to in-basket around the company, often being keyed and rekeyed into different departments’ computer systems along the way. All that time spent hanging around in in-baskets causes delays and lost orders, and all the keying into different computer systems invites errors. Meanwhile, no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department, for example, to get into the warehouse’s computer system to see whether the item has been shipped.
ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling it. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order (the customer’s credit rating and order history from the finance module, the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module, for example).
People in these different departments all see the same information and can update it. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, you need only log in to the ERP system and track it down. With luck, the order process moves like a bolt of lightning through the organization, and customers get their orders faster and with fewer errors than before. ERP can apply that same benefit to the other major business processes, such as financial reporting.
How can ERP improve a business performance?
Today, even small companies must be able to succeed in a global marketplace. To do so, they need immediate access to critical data across an extended value chain. ERP automates the tasks involved in performing business processes such as order fulfilment, payments, material receipts, material requirement planning, invoicing etc., and make the same data available to all the other functions instantaneously.
ERP software is a strategic tool, which equips the enterprise with the necessary capabilities to integrate and synchronise isolated functions into streamlined business processes. It also optimizes the resources available in order to gain a competitive edge in the turbulent business environment.
Summary Benefits:-
- Reduction in cost of operations
- Greater visibility of financial and operational processes
- Reduced errors
- Improved efficiencies
- Better management of customer relationships
- Improved reporting to support managing the business
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