Businesses are always looking for ways to improve their bottom line. One way to do this is by implementing an ERP system. ERP systems can provide a number of benefits to businesses, including increased efficiency, improved customer service, and reduced costs.
But what is the return on investment (ROI) for an ERP system?
In this blog post, we will explore the total economic impact of an ERP system on your business. We will look at the benefits that an ERP system provides and how they can impact your bottom line.
ERP Market Size Statistics
Worldwide ERP Applications Market to reach $100.7 billion by 2025, compared with $95.2 billion in 2020 at a compound annual growth rate of 1.1%.(Source)
In 2020, the top 10 ERP software vendors accounted for nearly 33% of the global ERP applications market which grew 1.2% to approach nearly $95.2 billion in ERP license, maintenance and subscription revenues.
How Big is The Global Enterprise Resource Planning Market?
The Enterprise Resource Planning Market is expected to exceed more than US$ 49.50 Billion by 2027. (Source )
The major driving factors of Enterprise Resource Planning Market are:
Need for intelligibility in business processes.
Requirement of operational efficiency in industry development.
Growing demand of enterprise resource planning in medium and small enterprises.
Acceptance of mobile and cloud base applications.
Who needs an ERP and Why
ERP systems have become increasingly popular in recent years as businesses have recognized the benefits of having a single, integrated platform for all their data.
Rather than data living in silos, ERP systems bring all the different business functions together in one digital space. This has a number of advantages, such as allowing businesses to get a more holistic view of their operations and providing a single source of truth enterprise-wide.
ERP systems also make it easier to spot trends and opportunities, and make decisions based on real-time data.
The ERP usage by industries
Manufacturers were the first to adopt ERP after it evolved from manufacturing resource planning (MRP) systems decades ago. Now organisations in every industry , from non-for-profits, retailers and consulting firms, use ERP systems.
For 53% of IT decision-makers, ERP is an investment priority, in addition to CRM.
50% of companies are soon acquiring, upgrading or planning to update ERP systems soon.
Manufacturing companies are the No. 1 user of ERP software.
Users of ERP Software by Industries
Following manufacturers, distributors (18%), services (12%) and construction (4%) are the other industries most likely to use ERP software.
The Why Behind the Usage of ERP
In a survey of companies looking to purchase ERP software, 89% identified accounting as the most critical ERP function. Other responses included inventory and distribution (67%), CRM and sales (33%) and technology (21%).
Reasons for using ERP
40% of companies identified better functionality as their primary reason for implementing an ERP system.
ERP software is constantly evolving to meet the needs of businesses. As business needs become more complex, ERP software is becoming more advanced, with more customizable features and broader integrations.
The trend towards greater cloud adoption is driven by the need for ERP systems to be accessible from anywhere, and the trend towards intelligent systems is driven by the need for ERP systems to automate and streamline processes.
Gartner reports that cloud computing will be the main focus of the ERP market over the next 10 years.
The concept of on-premise ERP is becoming outdated. Today it’s being replaced by a cloud-based ERP that ensures accessibility, flexibility and functionality.
Thanks to migration to the cloud, it became possible to maintain the required volume of traffic and store data, providing access from any device and location.
Cloud-based ERP systems allow companies to:
Reduce initial development costs.
Speed up deployment and scaling times.
Simplify settings to suit their unique needs.
Private VS Public Cloud ERP Solution
In the ERP space, the term ‘cloud’ refers to the delivery model of the software—how it’s hosted and accessed. There are different approaches to cloud ERP, each with its own set of pros and cons.
Many companies assume that SaaS ERP, or ERP delivered as a true public cloud solution, is the best option.
But the truth is, there is no one-size-fits-all. You need to consider factors beyond the technology, like your business workflows and how much control you want over your data.
When you’re evaluating ERP solutions, delivery model should be given the same consideration as the software itself.
Public cloud ERP
Public cloud is a computing model where all the resources used to run the infrastructure are owned, operated, and managed by a third-party cloud provider. This type is typically known as SaaS ERP or software-as-a-service and means that the infrastructure is being shared by multiple users.
Private cloud ERP
Private cloud ERP solutions are typically owned and used by a single company. This means a single version of the ERP software and associated infrastructure only serves one company.
They can either be physically located onsite in the organization's data centers (an internal private cloud) or hosted by a third-party provider (external private cloud).
This model offers strong visibility and complete control over the infrastructure, which is often preferred by highly regulated industries or government agencies. With complete control, you can enforce high levels of compliance rules that your industry may require.
Out of the different cloud ERP variations, on-premise (aka private cloud) is the most customizable and offers a very wide range of functionality because it integrates with the majority of enterprise modules & tools.
Small and mid-sized businesses often choose the Odoo ERP system for the management of their business processes because it provides seamlessly integrated functional business apps called Odoo apps that form an ERP solution when combined. Heightened customer expectations, massive advancements in technology, and the rise of omni-channel commerce are some of the reasons why Ecommerce merchants often choose a solution like the CommerceCore™ Merchant Operating system.
How Can You Measure ERP ROI?
ERP ROI is determined by taking the expected cost of ERP and comparing it to the expected benefits (direct and indirect savings) of implementing the ERP system.
ERP ROI is calculated by adding the anticipated returns from ERP and then dividing the resulting amount by the TCO of ERP, the resulting quotient is ERP ROI. The larger the quotient, the better it is for business.
ERP ROI should not be confused with simple payback period, which only looks at direct costs and benefits. ERP ROI also factors in opportunity costs and other indirect benefits that are more difficult to quantify.
When done correctly, ERP ROI provides a comprehensive view of whether or not an ERP system is a good investment for a particular business.
Calculate the ROI of Your ERP Implementation
There are three major steps to calculating the ROI of an ERP upgrade:
Calculate the costs
Estimate the benefits
Calculate the ROI.
Forecasting the ERP Costs
ERP costs can vary depending on how you plan to deploy your solution.
If you're planning on using a cloud-based ERP system, you'll need to factor in the cost of a subscription.
On-premise ERP systems typically require a license fee, as well as the cost of hardware.
Both cloud and on-premise ERP systems often require consultancy fees for implementation and training.
Maintenance costs also need to be considered, as ERP systems require regular updates.
Don't forget about user costs. ERP systems can be complex, so you'll need to factor in the cost of training and support for your users.
By taking all of these factors into account, you can ensure that you have a clear understanding of the true cost of an ERP system.
Get the most out of your ERP investment
There are certain benefits that are common to most businesses, such as increased efficiency, reduced costs, improved decision-making, and enhanced customer satisfaction.
Usually, these benefits can be classified into three categories:
Direct cost savings,
Indirect cost savings,
Direct cost savings are those that result from a reduction in headcount or operational expenses.
Indirect cost savings are those that result from improved decision-making or enhanced customer satisfaction.
Intangible benefits are those that don't fall neatly into either category but nonetheless contribute to the overall success of the business.
As with any major business decision, calculating ERP ROI is essential to ensure that the expected benefits of implementing an ERP system outweigh the costs.
Tangible & Intangible Benefits of ERP ROI
The benefits that are measurable in monetary terms are tangible, while those that are not measurable in financial terms but have a huge business impact are intangible benefits.
Any interest, either tangible or intangible, will affect the business.
Here is list a few tangible benefits of implementing an ERP system:
Minimizes the overall operating costs
Increased inventory turns or billable hours
Accelerating response time for returns or recalls
Improved customer service
A decrease in material costs.
Having known tangible benefits, it is also essential to know about the intangible benefits of ERP software implementation:
Improved staff retention
Effectively fix errors
Centralizing documentation online
Enables faster decision making
It facilitates strategic planning
Faster access to data for timely decision making.