The expected return on investment cost for the ERP to provide reasonable grounds for investment and power. ERP investment decision-making can bring quantifiable benefits and intangible benefits. Quantifiable benefits to the profitability and asset turnover have a major impact, and can potentially impact on the value of the stock.
This paper compares the implementation of ERP ERP before and after the implementation of corporate performance to illustrate the ERP system can be quantified and intangible benefits. In proving the rationality of ERP investment decisions may encounter other problems. For example, a company may consider the replacement of existing systems, rather than upgrade its implementation of an ERP package or re.
ERP system implementation failure would cause huge economic losses. Compared with the improvement of the system, usually the manufacturer to cost more to make up for the lack of system costs less than. For example, they need to deal with excess inventory or poor customer service. As a result of incomplete implementation of the failure or arising from use over time and decline of other reasons, manufacturers may not be able to benefit from the ERP implementation.
Implementation of ERP systems quantifiable benefits
A number of ERP systems on firm performance impact studies show that company size and industries involved in the implementation of the ERP system did not affect results. Whether in manufacturing standard products or custom products, or in discrete or process-based manufacturing environment for production, large and small companies can reap the benefits from the implementation. This chapter from the perspective of various improvements in the field to show quantifiable benefits.
Typical benefits
The most important quantifiable benefits include reduced inventory, reduced material costs, labor costs and indirect costs, and improve customer service and increase sales.
Reduce inventory - plans and scheduling operations in particular can improve inventory reduced by 20% or more. This is not just a one-time reduction of assets (stocks constitute the majority of assets), it can continue to keep the cost savings in inventory. Inventory storage costs include not only interest but also for storage, management, scrap processing, insurance, taxes, damages and costs resulting from shrinking and so on. Suppose the interest rate is 10%, inventory costs can be kept to 25% to 30%.
Implementation of the ERP system can help reduce inventory, because manufacturers only demand for production and procurement. Replacement demand is not sensitive to demand-driven sub-period reorder point planning. Date according to actual needs to coordinate shipments; may delay or cancel the order without the materials. BOM to secure matching suite, and to avoid some of the components of excess and shortage of some components. The planned bill of material changes can prevent the formation of scrap material inventory. By reducing parts shortages and practical scheduling scheme can accelerate the completion of manufacturing orders and reduce the rate of product inventory. Time production (JIT) concept applied to further reduce manufacturing lead time and the corresponding stocks.
Saving material costs - the procurement process can be optimized to improve the price negotiations with suppliers, thereby reducing the costs of 5% or more. Effective scheduling scheme allows buyers to focus on negotiations with suppliers and improving quality, shortage of materials without the reminder to buy materials and pay the price on the cost of additional energy. ERP system provides information on the negotiations, such as: classification by commodity group plan material requirements and supplier performance statistics. For suppliers to provide a more clear vision of the future needs can help them improve efficiency, then to lower material costs.
Reduce labor costs - and improved manufacturing processes to reduce material shortages and disruption, and reduce rework and overtime. A typical ERP can save 10% of the successful implementation of the direct labor costs and indirect labor costs. By the peak shortage of minimize operations and parts, ERP systems can also reduce the pace of work, material handling, additional installation, break and track partial operations have been placed on hold or process time. Production supervisor can better understand the necessary procedures, and adjust the capacity or load, in order to meet scheduling needs. Executives get more time to manage, guide and train staff. Production personnel will receive more time to develop better methods and to improve quality and increase production.
Improve customer service and sales - better coordination between sales and production can improve customer service and increase sales. By improving the customer contact management, production and commitment to achieve delivery and shorten the order to delivery lead time on ways to increase customer satisfaction and increase the volume of orders. Sales staff to focus on sales, rather than delay in delivery or confirmation of an apology to customers, therefore such things as time-consuming. Customized products in the environment, usually sales or customer rather than the technical staff can quickly identify the configuration and pricing. In summary, improved customer service can reduce the possibility of missed sales opportunities and increase at least 10% of the actual sales.
ERP system provides capabilities to respond to changing demands and diagnosis of shipping problems. Can also take corrective measures as soon as possible, for example: to determine the priority of transportation to notify customers of changes promised delivery dates, or changes to meet the needs of the production schedule.
Improve financial control - Improved collection procedures can be shortened to repay accounts payable time, then more funds available. To improve the basis for a quick and accurate delivery trading under the direct generate invoices, customer statements on time, and keep track of accounts in arrears. Order entry time and improve the credit verification process customer inquiry procedures could be further reduced the number of problem accounts. Optimization of the credit management and accounts receivable processing in particular can reduce the time the repayment of accounts payable at least 18%.
Through supplier discounts and cash planning, and paid only in line with the receipt of invoices and other methods of trade credit can be maximized. This can reduce the demand for cash.
Through the balance sheet is reflected in the implementation of ERP system benefits
Since the implementation of ERP systems and business processes brought about the improvement and optimization can directly impact the information a manufacturer's balance sheet. Figure 1 with an annual turnover of 1, 000 million in the manufacturer's simplified balance sheet as an example to illustrate these effects. Among them, the greatest impact is the impact of inventory and accounts receivable.
In this case, the amount of the company's stock is 300 million, the outstanding accounts receivable amount is 200 million. The industry average improved on previous research, the implementation of ERP systems can help manufacturers to reduce 20% of the inventory and accounts receivable decreased to 18%.
Reduce inventory - 20% reduction in the amount of inventory means that stock fall by 60 million. Improved procurement processes (and hence reduce the cost of materials) can also help to further reduce inventory.
Accounts receivable - to 73 days to maturity as the current accounts receivable. 18% of this repayment shortened to 60 days, to recover the 356,200 U.S. dollars in advance, payment will be those used for other purposes.
Reduce inventory - 20% reduction in the amount of inventory means that stock fall by 60 million. Improved procurement processes (and hence reduce the cost of materials) can also help to further reduce inventory.
Accounts receivable - to 73 days to maturity as the current accounts receivable. 18% of this repayment shortened to 60 days, to recover the 356,200 U.S. dollars in advance, payment will be those used for other purposes.
Reduction of inventory - the inventory of existing 3 million 20% reduction in the amount of savings in inventory storage fee means sustainable. 25% as the ratio of inventory storage fees, annual reduction of 15 million in inventory storage fees, see the column under the plan of management fees.
Saving material costs - the cost of materials to improve the procurement process can be reduced by 5%, that is, save 225 thousand U.S. dollars per year.
Reduce labor costs - overtime reduction and productivity improvement of 10% can reduce labor costs, that is, save one hundred thousand U.S. dollars per year.
Increase sales - improve customer service, sales could increase by 10%, which is not marked in Figure 3.1.
In the example, total annual revenue amounted to 475 thousand U.S. dollars, with the current pre-tax income of 500 thousand U.S. dollars is almost equivalent.
ERP system, the impact on key financial ratios
Ratio analysis is to understand the impact of ERP system, another way. Ratio can be illustrated by three effects - including the two ratios and liquidity, and the third with the operating cost.
Inventory turnover (cost of sales / inventory) - Low inventory turnover may indicate that excess inventory and obsolescence. Also may be more deep-seated problems, inadequate inventory may result in the production and sale of excess inventory required for the shortage. High turnover rates show better mobility and sound materials management and marketing planning. With an annual turnover of 1, 000 million company, for example, the current inventory turns of 2.5. If the inventory reduction of 20%, then the rate of turnover may be raised to 3.1.
Accounts receivable turnover days (365 * 1 / (core business net income / average accounts receivable balance)) - This ratio represents the average recovery of accounts receivable days. It is a measure of credit and receivables management methods. Overall, the accounts receivable turnover days longer accounts receivable bad debt more likely. Accounts receivable turnover days less, cash availability will be. If the accounts receivable turnover days decreased by 18%, the current 73 days accounts receivable turnover can be reduced to 60 days. In other words, early surrender of the 356,000 U.S. dollars to use for other purposes.
Return on assets (pre-tax profit / total assets) - This ratio is a measure of the effectiveness of resource management methods available. The need for a variety of calculations to determine the return on assets. In this example, through the effective implementation of the ERP system will return on assets increased to 12.9 from 5.9.
Performance evaluation based on ratio analysis can also scale the business and industry to compare similar companies. For this purpose, "Annual Report of" application of the relative ratio. Also used the relative ratio of the three ratios, namely: turnover, accounts receivable turnover ratio and return on assets. For analysis, you need to identify the industry in the medium and upper quartile of the ratio of the company. These can be broadly reflect the industry average performance and good performance. Through these ratios and their company's current performance compared, we can calculate how your company should also improve, to enhance competitiveness. By "BenchmarkReport.com" online with their analysis.
In an annual turnover of 1, 000 million in the manufacturer's sample application rate of turnover, if "research report" shows the same field, the median and upper quartile of the turnover rate is 4 and 6. To four cycles, the average inventory turnover performance converted into the amount of expected inventory, its value is 1.875 million U.S. dollars (or 7.5 million U.S. dollars divided by 4). If the example of the company's turnover rate is the rate, then the stock will be reduced by the amount of 1,125,000 U.S. dollars. As the ratio of inventory storage fee is 25%, saving 281,250 U.S. dollars annually.
The accounts receivable turnover days, assuming that the "Annual Report of the" Show 60 days and 50 days is the median and the four-digit industry. As an example of the annual turnover of 1, 000 million in the manufacturer's accounts receivable turnover days is 73 days; this cycle can be shortened to 60 days in accounts receivable decreased to 356,200 U.S. dollars (27,400 U.S. dollars through the day sales and reduction of 13 days calculated). This means more cash for other uses.
It is noteworthy example of the company's return on assets is 5.9. Hypothesis "Annual Report of the" Show 10 and 15 is the industry median and upper quartile, the return on assets improved to the same level of profits can be increased or accelerated asset turnover.
ERP system, the impact on stock prices
If the ERP system integration and information optimization to improve the balance sheet and increased profits, then these improvements should not affect the company's stock price. Although the stock price is affected by many factors, but by the profit rate increased and the balance sheet impact of changes in special is estimable. With an annual turnover of 1, 000 million revenue manufacturer and the typical example, assume that 10 million shares issued, the current share price is 30 dollars. Figure 3 shows the effective implementation of ERP systems on stock prices. Suppose the price / earnings multiples of 6, the sample may be the company's stock price rose to 58.8 U.S. dollars 30 U.S. dollars per share.
These calculations show that the implementation of ERP systems can have a major impact financial results, including balance sheets, income statements, key ratios and stock prices. (Http://space.itpub.net/13129063/viewspace-605075)