ERP, today, is one technology that poses as a robust podium imprinting every business transaction from corner to corner of an organization. Along with playing the major role in saving costs of an organization, ERP also acts as a source radiating operational, reporting and resource efficiencies. Food industry with its typically dynamic nature, frequently changing demands, seasonal variations, shifting trends, stringent getting food safety laws, rising raw material prices and growing consumer awareness is finding it difficult to survive without an ERP system.
But, what businessmen consider an ERP as?
Many food manufacturers are now recognizing and understanding that though an ERP is the biggest infrastructural investment to their organizations, it has proved to be an asset to many. They even believe that a well and timely implemented ERP is an unremitting source of cost saving with excellent operational competences facilitating companies to endure and prosper even in the hard times. So, they are ready to endow huge amount of money on ERP.
In that way, expecting the reclamation of investments is rather obvious.
However, the fact is-
ROI does not originate just by implementing an ERP. But, it comes from the process improvements supported by it. ERP is a gizmo that introduces countless new processes that can lead to drastic perfections in organizational performance. And, it is completely up to the organizations to elect which process(es) to opt. In other words, it depends on how well an organization use this gizmo.
Obviously, there are organizations that have acquired considerable profit, which is multiple times of their investment. At the same time, also there are organizations that have not acquired the preferred benefits. At this point of contradiction arises a question – “How to measure the ROI of your ERP system?”
Then, let’s discover the answer!
Actually, there is no pre-defined formula for calculating ROI; instead there exists a pre-defined structural flow for analyzing it.
To begin the evaluation, first determine the cost of various components incurred in the implementation of an ERP like consultant fees, licensing fees, product cost, maintenance cost, hardware cost, etc. The Maintenance cost is charged for a specific period of time. So, it should be added to determine the Total Cost of Ownership (TCO) for the respective period of time. The estimated expenditure should be staged over the time, used to figure TCO.
Continuing the process, the next step is to determine the expected benefits over a period of time. For determining this, one should generate an extensive and detailed report of various operations followed by extensive reference, study, and analysis of the data specified in them. This helps realize the benefits that have largely occurred from: reduction in inventory wastage (which is essential for an industry like food where most of the material is perishable), lowered operational and labor cost, improved production, and lesser or no recalls. These factors impact company’s profit and loss account directly. Money saved in these operations can be assigned to a yearly value of saving, based on the organization’s standard internal rate of return.
If the above paragraphs consider quantifiable elements, the points below determine non-quantifiable yet equally important elements that facilitate ROI.
Delivering Safe &Quality Food: Meeting regulatory compliance to assure safety is crucial for the food industry. So, whether it is packaging, labelling ingredients, allergen warnings, or shelf life regulations- ERP supports them all. By keeping warning letters at bay and speeding audits, a lot of resource time and money can be saved which can be put to other growth-driving activities.
Getting ready to grab opportunities: ERP keeps you ready to grab opportunities before they are taken away by your competitors. It helps innovating faster and comparatively cheaper, identifying the trends and patterns, and preparing for upcoming regulations- for e.g., some customers might only want to deal with GFSI-certified vendors. ERP helps you stay well-prepared so that you can hit the market at the right time with the right products, without creating a void or giving competitors market share to breed.
Brand Protection & Building: Growing cases of contamination and food recalls have put manufacturers in fear- the fear of the tainted brand image. Reasons for recalls could be many such as cross contamination, undeclared allergens, spoilage, improper labelling or packaging, etc. ERP gives a quick access to the entire data which is a great time saver and in a way speeds up the procedure while also drastically limiting its impact. Also ensuring that your customers remember you for better quality and faster response.
Customer loyalty & repeat business: By complying with regulations plus ensuring food quality and safety, you gain customer loyalty and repeated business. Moreover, ERP ensures timely deliveries while also accommodating last minute changes, customer specifications and customizations. Real-time visibility and customer portals help customers get the order status and all other information they want at the time they want. Result: Happy and satisfied customers.
Improved Operational Efficiency: Control on yield as well yield improvement, tracking of the production process to identify deviations, raw material requirement analysis, proper planning, and such, go a long way in helping manufacturers have seamless operations sans any halts or delays. This also helps in identifying problems just when they occur so that timely actions can be taken on them. Reduced wastage, raw material cost savings and last minute unwanted procurement is avoided putting company-pocket at ease.
Having an end-to-end ERP software system built specifically for food industry not just eliminates paper-work, it guarantees many other tangible and non-tangible benefits like: cost savings, reduced wastage, adherence to compliance, secured brand image, readiness for recalls, customer loyalty and more, which, in bottom line terms, translates to greater ROI.