When should you consider implementing ERP?

16-04-2021

Many of our clients ask the question if and when they should consider implementing an ERP system. In order to answer that question, it is firstly very important to understand what ERP means, what it does, and more important what is the user case and timing of the needs.

What is ERP?

ERP is an acronym that stands for Enterprise Resource Planning. In the basis it is a software system that manages and integrates all company’s core processes like finance, supply chain, operations, reporting, manufacturing, and human resource into one single system.

Enterprise Resource Planning

Each of these processes within a company are very different with regards to people involved, whether or not directly business-critical and the frequency of use, but at the same time they are connected in one way or the other. The core and most commonly used modules of ERP systems are:

Finance

Next to the standard functions of accounting systems, ERP offers dashboards so you can tap into real-time financial information anytime and anywhere.

Human resources

Modern solutions offer ways to manage company data and streamline employee management tasks like payroll, hiring, and tracking employee performance.

Manufacturing

This module optimizes project and cost management as well as production planning.

Supply chain

By having an integrated supply chain management system, it is easier to track down inventories in various warehouses and to efficiently handle the flow of goods from suppliers to customers.

The power of an ERP system is that it uses a central database. For example, a vendor or customer only needs to be entered one time and the record is used in both the finance module as well as in supply chain or customer service. That benefit is immediately also a disadvantage to certain parts of the organization. Quick and dirty (email) lists are history and input or adjustment of the data can only be done be dedicated users.

There is a significant number of ERP software vendors offering various packages and there are maybe even more specialized implementation partners. The choice should firstly depend on the needs of the company. In addition, the available budget should not be underestimated.

When does ERP become a need to have?

As the advantage of ERP lies in the integration of the various modules, only companies of a certain size and or growth path should consider purchasing such a system. For many companies , the existence of a production process, with a need to track its products and the components thereof with serial numbers, enforces ERP to become a requirement. This requirement can be driven by volumes and efficiency, but mostly also from a quality and regulatory point of view.

Another main driver can be the need for professional customer service. Once the company sells products and customers need support, it becomes imminent that the support agent has instant access to all relevant data of the product and the customer.

When does it not?

For a small (biotech) startup or even scale-up companies, with large (outsourced) research programs it is quite often more than sufficient to stick to a good accounting system with integrated purchase options. These companies do not have sales yet, have no inventories to manage and production (if any) is still only for research or prototyping.

The benefits of a full ERP package do not weigh into the costs of such a system and – at least as important- the organization might be too small to carry the heavy implementation effort and structured working processes that come with using such a system.

Conclusion

There is a large number of software solutions that can offer companies a perfect fit to manage their business processes. ERP is one option, and often a very good one, but not the ultimate for all organizations of for any stage of their development.

This is part of an ongoing blog series about early stage finance and fundraising. If you’re interested to be first informed on our next posts you can click on this link.

 

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