When Does ERP Make Sense for a Small Business?

It used to be that only large businesses had the opportunity to improve their critical business practices and information flow by using enterprise resource planning software solutions. However, software makers now provide ERP solutions targeting small businesses. With successful ERP implementation, small businesses with definable data management needs can gain a major competitive advantage.

What Does ERP Do?

The goal of ERP is to have a computer system that is fully integrated: All of the applications talk to each other. Traditionally a business might have one computer system for inventory tracking, one for order management, one for accounting, one for payroll, one for marketing, and so on. If the computer systems cannot communicate with each other, the data must be manually transmitted by obtaining the data from one system and rekeying it into another. ERP eliminates this step by centralizing and standardizing the information that each system uses, so instead of having separate databases for each application, there is one central database for all of the applications. ERP also automates business processes that were once manual, for example, the transmission of an order from the front office to the factory floor. Finally, because all information is always available to every system all of the time, highly accurate real-time information can be obtained.

ERP in Action

ERP completely removes the step of porting. The process of porting data from one system to another requires a repeated labor expense and introduces a high possibility for errors to creep into data. ERP by nature also automates business processes. Any aspect of the process that involves the ERP application can be prescribed, so that any task is done the same way each time, thus increasing efficiency and reducing errors. It also allows for best practices to be built into the system, increasing employee productivity. The ability of an integrated system to provide real-time, big-picture data can also be of great benefit to marketing, accounting, and management teams, enabling them to make decisions with more accurate and up-to-date information.

Not for Everyone

ERP implementation isn't a cheap turnkey proposition. The cost of integrating an ERP solution in a small business costs much less than in a large business, but it still requires a substantial monetary investment. Additionally, ERP implementation is a complex, long-term project. Without the proper preparation, software selection, and management, running ERP software is doomed for failure.

Moreover, the real challenge comes after the software is in place. After all, ERP is only a tool; the end users must work with the new system instead of doing things the way they have always done them. The best practices are built in. So if working with ERP reduces efficiency, the wrong system is being used. In this manner, implementing ERP requires not only a capital commitment but also an intellectual one.

The Payoff

Committing to such a large project requires several things. First a company must map out the entire structure of the business from the perspective of business processes. Are there places where data is manually transferred from one system to another? Are there processes that could be automated but are not? Are there data usage overlaps in the system? The goal is to determine how detrimental these inefficiencies are to the operation of your business. If the effects are significant, the next step is to determine whether your business has the resources to complete the implementation, capital or otherwise. If it does, you must select an ERP solution that matches your industry and current business practices, offers a full range of options, and does not force you into a single vendor.

Finally the ERP must be able to pay for itself in a reasonable amount of time. If a business can foresee and avoid potential pitfalls in the implementation process, an ERP solution can significantly increase efficiency and reduce errors, allowing your business to stay competitive and reduce its costs.