It’s prudent for manufacturing companies the measure the Return on Investment (ROI) of every long-term investment to evaluate the ERP system’s performance. Yet, many of them fail to understand the right way of calculation. It often happens because they overlook the significance of evaluating and documenting the company’s ERP software implementation objectives.
Even though it’s subjective, this evaluation and documentation will act as a base for measuring ROI in the long run. First, assign the value and timelines of each company’s objectives to calculate New Revenue after implementing the ERP for Manufacturing Industry. It will help qualify the ROI at the later stage by deducting the acquisition cost from benefits and dividing the result by the acquisition cost.
In this article, you will uncover the benefits and costs to consider to calculate the ROI of your manufacturing ERP solution.
Numerical Formula of ROI
Net Benefits (Benefits – Investment Cost) / Investment Cost
Benefits to Consider
- Cost Reduction
Manufacturing units should quantify the cost of reduction they would expect after implementing an ERP system, such as raw materials wastage, labor costs, failures, manual errors, and rework.
For example, a company expects a 30% decrease in raw material wastage or a 15% fall in labor costs after 2 years of manufacturing ERP software implementation. It will give you a figure to refer to for assessing performance while measuring the ERP system’s ROI.
- Improvement in Productivity
Determine the percentage of time each department spends on routine operations, like communication, coordination, documentation, etc. Then evaluate the percentage of time your management desires to reduce through ERP automation.
For instance, let’s say the production department in your manufacturing unit spends 30% of its time on routine activities, and management wants to bring it down to 10% after 2 years of ERP software implementation.
- Efficient Inventory Management
Figure out the current overstock, understock levels, and damaged inventory. Next, determine the percentage value of inventory management your manufacturing company wants to achieve by implementing the ERP. A high-performance manufacturing-specific ERP system can boost your optimum inventory levels to 90% or more.
- Information Security
Unsecured cloud or data on-premises can result in significant losses to your manufacturing facility due to cyber threats like theft, malware, virus, etc. With ERP implementation, you can prevent fraud and data loss via integrated information.
Consider the worth of your business data and the losses that can take place due to such threats. Next, evaluate what percentage of information security you want to increase after implementing ERP software.
Investment Cost to Consider
- Initial Costs
Initial costs include ERP’s cost of acquisition, like one-time license cost or implementation fee, and support cost. The cost might differ based on the number of company manufacturing plants. In addition, add the additional cost of hiring trained employees to operate the system efficiently.
Consultancy Costs
Consulting a professional ERP consultant can ensure the absolute success of the system implementation. With the help of a consultant, you can select an appropriate vendor and smoothen your implementation process.
- Maintenance Costs
If you have paid a time license fee, it’s crucial to consider the recurring cost of annual maintenance charges (AMC). In addition, remember to account for other maintenance costs, like upgrade costs, cost of additional modules, costs of additional reporting format, etc.
- User Costs
Determine the number of end users of manufacturing ERP software and the pricing model of each vendor. Most ERP software providers charge their clients based on the number of users, which can increase your costs with the company’s growth in the future. It’s always better to get an ERP system that provides your company with an unlimited user license to suit the business’s ever-changing needs.
To wrap it all up
A high-performance, fully integrated Manufacturing ERP Software in India has the potential to help manufacturing companies achieve their vital KPIs via comprehensive benefits at affordable prices. And figuring out the benefits that a company reaped by investing in the ERP software in the form of ROI can help determine if the investment was worthwhile. Moreover, you can decide whether to continue investing in manufacturing industry-specific ERP systems.
To achieve a higher ROI, always choose industry-specific ERP software having features, modules, and functionalities to support your manufacturing unit’s unique needs, demands, and processes.
