Most people realize that ERP systems improve communication and provide a repository for information and transaction history, but they don’t realize the many ways ERP contributes to improving a company’s profitability. Here’s a small sample of ways that ERP can help you make your small business more profitable.

1. Eliminate waste

ERP systems eliminate waste both in the front office and on the production floor. In the front office, ERP helps eliminate the spread of paper and the associated costs of sorting, filing and storing paper documents.

On the shop floor, ERP communicates changes in demand quickly and effortlessly, so the company is less likely to over-produce product when customers cancel orders or reduce demand.

2. Identify problems quickly

By capturing quality and productivity information, ERP can help you to identify process or material issues that result in costly scrap or rework. Reducing scrap and rework helps you to control costs, and the increased visibility helps you to identify process changes that improve future productivity as well. 

3. Reduce errors

ERP communicates information quickly and consistently to all areas of the business, ensuring that your entire team is marching to the same beat. Production knows exactly what item and quantity to produce, because it came from MRP calculations based on actual orders and forecasts. By directing warehouse people to the proper locations in the stockroom, ERP helps prevent shipping the wrong items to customers. Accounts payable is less likely to pay suppliers for erroneous invoice quantities or bad product because they have information they need readily available.

4. Make employees more productive

When employees have access to consistent reliable data with a few keystrokes, they are less likely to waste time creating and maintaining redundant information in spreadsheets. This helps reduce data errors, eliminates time spent reconciling disparities and enables employees to concentrate on the more important parts of their jobs.

For example, when a customer needs delivery information, a customer service representative (CSR) can bring current information right to their desktop and provide the information to the customer in a single phone call. Without ERP, the CSR often has to make several phone calls to get order status, or even find the order on the plant floor. The improved productivity goes right to the bottom line, and it increases customer satisfaction and loyalty.

5. Increase DIFOT

Delivery in full and on time, or DIFOT, is an important metric for many companies, because their customers measure them based on their performance to this metric. ERP helps improve DIFOT in many ways, including:

• MRP calculations alert planners to the need for materials in advance, ensuring you can manufacture products within your stated lead times.

• Production schedules reflect correct priorities and quantities, helping to ensure that you neither over produce nor under produce.

• Quality or process problems are immediately apparent, allowing you to rectify the issue before you create too much bad product that requires scrap or rework expenses.

• Warehouse personnel know exactly how many of each item to pick and pack, and the system directs them to the right storage location in the warehouse.

When you are able to ship orders perfectly nearly every time, you improve customer satisfaction which results in future orders. You don’t over produce materials that then must sit in stock unused until another order arrives. You have visibility into production problems that help reduce scrap and rework costs, and you have more-productive employees.

For a small or mid-sized company, the only way to remain competitive is to improve productivity and control costs. An effective ERP system does both, greatly improving overall profitability.