Five steps to measure ERP's value

Return on investment (ROI) from an enterprise resource planning (ERP) project can be realized by forming a team, documenting the state of business processes, and more.


Courtesy of: on UnsplashPeople often ask about the value an organization can expect when investing in a new enterprise technology solution.Through experience it is clear that return on investment (ROI) from an enterprise resource planning (ERP) project depends on proper planning using a 5-step ERP methodology:

1. Forming a team of process owners to serve as the ERP project team. This team, led by its chief process owner, develops a strategy to review all business processes impacted by an ERP solution. It identifies all functions by department and business process flow and gathers and analyzes reports from sales, shop floor data collection, inventory, accounting, quality, etc.

2. Documenting the current state of business processes to find strategic areas for improvement. An ERP project is the ideal time to take a hard look at business processes that may have evolved in various ways over time with little documentation. Now is the time to reexamine all processes to determine their strategic value, and to identify waste. By documenting the current state, the team finds the ways to fully leverage the best practices afforded by modern ERP systems.

3. Educating business process owners on best practices of current ERP systems. A comprehensive and strategic approach to education is a necessary ingredient for successful technology transformation. It's tempting to skip this step, however, working with industry analysts, expert consultants and vendors will illustrate best practices. In most cases, the team will identify solutions to the problems of wasted processes, redundant data, and unnecessary manual steps uncovered by the current-state mapping and documentation exercise.

4. Reviewing current processes to define the desired improved future state. Here is where the team develops best-fit business process flows. Waste in current processes is found and best practices and future state requirements are identified as the team creates the "to-be" maps of the future state. The team looks at ways of reducing waste within existing systems, identifies midterm improvements that require IT investment and spells out the functional improvements enabled by the new workflow from the ERP.

5. Make the business case for change. Finally, the team reviews the list of benefits identified in the previous business process improvement steps, documenting ROI for each. It's critical to link the improved processes to improved performance by optimizing current state metrics. The team can document how the investment in an ERP system will reduce inventory costs, reduce stock-outs, improve cycle time, etc.

Enterprises following these five steps during an ERP software selection project will achieve considerable value from their new ERP solutions. With proper planning and execution, manufacturers and distributors will meet their business process improvement goals, whether it's adding automation or reducing cycle time, for true business transformation.

This article originally appeared on Ultra Consultants' Blog. Ultra Consultants is a CFE Media content partner.

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