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INDEX

What is ERP and Why Does it Matter for SMBs? . . . . . . . . . . . . . . . . . . . . . . . 2

The Pitfalls of Relying on Spreadsheets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 - 3

The Answer: ERP Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 - 5

Why Do We Need ERP Software? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Comparison of Company Performance Using ERP . . . . . . . . . . . . . . . . . 6 - 7

Possible Cost Savings from Implementing ERP . . . . . . . . . . . . . . . . . . . 7 - 8

Today’s ERP is Designed for Small Business . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Key Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

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WHAT IS ERP AND WHY DOES IT MATTER FOR SMBS?

EXECUTIVE SUMMARY

Every business understands the importance of operating as efficiently aspossible to drive the highest possible profit margins. They also know that consistent, standardized processes are a key factor in achieving that goal. Most larger companies have realized the value of enterprise resource planning (ERP) software in automating and streamlining business processes. However, smaller and midsize businesses (SMBs) tend to rely on disconnected software systems and spreadsheets to manage their data and processes. As a result, they are hampered in their efforts to run as efficiently as possible.

This paper explores these issues and explains why SMBs need to take advantage of ERP software if they intend to grow, thrive and establish a competitive advantage.

THE PITFALLS OF RELYING ON SPREADSHEETS

Companies that contain costs to drive higher profits generate competitive advantage in their market. One step to achieving that goal is ensuring efficient operations through standardized business processes. The other is to use the data generated as part of these business processes to make smart business decisions.

Unfortunately, too many SMBs struggle to extract the right information at the right time to make business decisions because of reliance on a patchwork of standalone tools that don’t share information. These include spreadsheets, accounting systems, desktop applications, and homegrown applications (many lacking code documentation).

Morever, as companies grow, they hire people and often decentralize portions of their organization. The more distributed the organization becomes, the easier it is for an organization to lose sight of its goals and what is really going on in day-to-

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day operations. Reliance on multiple systems and spreadsheets further complicates matters.

According to a research report by Aberdeen Group1, businesses under $50 million in revenue typically manage their business using a combination of the following:

Most businesses relying on a mish-mash of systems transfer data from these systems into spreadsheets. While many small businesses are comfortable using spreadsheets to run their business, doing so can lead to numerous issues. Here’s why.

Because spreadsheets are usually updated manually, it’s difficult to check for errors. Any errors quickly snowball and can impact numerous calculations that serve as the basis for important decisions.

There’s no way to track a history of changes made in a spreadsheet. Without an audit trail, it’s impossible to understand who did what and why.

Spreadsheets often get shared via email, making it easy for sensitive data to end up in the wrong hands and be exposed. Requiring a password to access a spreadsheet is not a very secure measure since many free and inexpensive tools can be used to crack such passwords.

Over time, spreadsheets become large and unwieldy. As a result, it takes longer and longer to run calculations and the chances increase for links and formulas to break down in some manner. In addition, it becomes incredibly frustrating to generate reports to reflect new data.

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All of these expose the company to multiple risks. Moreover, these challenges leave SMBs (particularly manufacturers and complex service providers) struggling to grow. That’s because these shortcomings end up negatively impacting the business across multiple departments, leaving SMBs with:

Fortunately, SMBs can now take advantage of software designed to address these precise issues: enterprise resource planning (ERP). An enterprise resource planning (ERP) system helps organizations track information across all depart-ments and business functions, from accounting to human resources to sales and beyond.

ERP emerged in the early 1990s as companies recognized the need to share information between operation systems, such as manufacturing resource planning (MRP) and supply chain management (SCM), and other administrative and support systems. As a result, ERP software was introduced as a broader system that integrated each of these applications.

While implementing an ERP solution has been historically perceived as a significant investment, this is no longer the case. Solutions targeted to small businesses have made the benefits of ERP software available to growing businesses of all sizes.

THE ANSWER: ERP SOFTWARE

Inaccurate forecasts that impact manufacturing schedules and inventory levels

Lack of accurate status about customer accounts

Incomplete or inaccurate order tracking

Underutilized or overstrained capacity

Cost overruns and missed deadlines that hurt customer relationships

Lack of visibility into the revenue cycle

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Lower administrative and operational costs

Improved on-time delivery

Faster decision-making

Higher customer satisfaction

Larger pipeline of new business

Better knowledge into daily operations

ERP software streamlines business processes while eliminating the need for spreadsheets. As a result, businesses realize numerous benefits:

The table below identifies some of the more common ERP modules and features and their basic function.

Table

MODULE FUNCTION FEATURES

Accounting

Business Intelligence (BI)

Human Resources (HR)

Inventory Management

Manufacturing

Customer Relationship Management (CRM)

Manage financial transactions and pro-vide unified reporting

Analyze and report business data to improve the quality of decision making

General ledger (GL), accounts receivable (AR), accounts payable (AP) and payroll.

Analytics, data mining, reporting and forecasting

Work in Process (WIP), Finished Goods levels

Raw materials shipments from suppliers, supplier management/performance

Personnel management, employee evaluation, learning and benefits administration

Sales force automation, integration with marketing automation, customer service and technical support (case management)

Bill-of-Material (BOM), Manufacturing Resource Planning (MRP), Manufacturing Requirements Scheduling (MRS)

Manage interactions with prospects, customers, suppliers, channels

Manage and report on workforce

Manage product inventory

Manage suppliers and their shipments

Manage manufacturing forecasting and operations

Supply Chain Management (SCM)

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WHY DO WE NEED ERP SOFTWARE?

Without the visibility that ERP provides, SMBs may be missing opportunities for growth. As businesses grow, ERP software helps them manage greater cash flow, track increased spending and stay organized. The stability that ERP provides helps best-in-class SMBs better prepare for growth. ERP software not only helps SMBs better serve current customers and growbusiness with them, but it also improves visibility of strategic partnerships. At the end of the day, a properly implemented ERP system and strategy allows SMBs to compete with larger enterprises.

As the table below shows, SMBs using ERP outperform those not using it.

TABLE 2: COMPARISON OF COMPANY PERFORMANCE USING ERP2.

BEST IN CLASS SMBS

AVERAGESMBS

LAGGARD SMBS

Days to Close

Days Sales Outstanding

Operating Margin Growth

Inventory turns

Operational costs

Administrative costs

Inventory

Complete and on-time delivery

Improvement on Delivery After ERP Implementation

2.7 DAYS

33 DAYS

96%

21%

61% IMPROVEMENT

24% REDUCTION

23% REDUCTION

23% IMPROVEMENT

18% REDUCTION

34% IMPROVEMENT

16% REDUCTION

15% REDUCTION

15% IMPROVEMENT

11% REDUCTION

16% IMPROVEMENT

8% REDUCTION

10% REDUCTION

9% IMPROVEMENT

9% REDUCTION

5.2 DAYS

44 DAYS

88%

11%

8.5 DAYS

67 DAYS

79%

0%

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In addition to improving financial performance, ERP software can help SMBs mitigate risk:

With ERP software, SMBs gain that visibility.

In addition, SMBs can actually reduce costs by implementing ERP.

TABLE 3: POSSIBLE COST SAVINGS FROM IMPLEMENTING ERP

Only 45% of SMBs have visibility into business processes across functions and departments to discover adverse events and mitigate impact

Only 23% of SMBs are integrating disparate desktop and enterprise applications to give managers full visibility into the business

FINANCIAL EXAMPLE:

REVENUE COMPANY$30MM

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(7% of revenue; assuming total Sales, General & Administrative

expenses of 10-11%)

GENERAL & ADMINISTRATIVE (G&A) EXPENSES$2.1mm

(Average of 16% for average

SMBs and 24% for best-in-class)

G&A SAVINGS FROM ERP

($2.1MM * 20%)

FORECAST SAVINGS FROM ERP IMPLEMENTATION

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20%

$420,000

TODAY’S ERP IS DESIGNED FOR SMALL BUSINESS

Though ERP software now exists for SMBs that can be implemented in as little as a few months, the key is to choose software that can be customized to suit a business’ specific needs. That said, it can be challenging to find the right resources – whether a systems integrator or reseller – that can handle this type of customization. “The challenge is making sure the domain expertise is available in the geography you’re operating in,” says Gartner analyst Dan Miklovic.

Xeo Software has developed a new model to address this challenge. Specifically, it offers SMBs a hybrid approach for customized ERP software that combines industry-specific customization with flexible delivery (i.e., hosting) and financial models that offset the upfront investment.

SUMMARY: TAKE ADVANTAGE OF ERP TODAY

SMBs that implement ERP realize both internal (employee-facing) and external (customer-facing) benefits to SMBs that deliver measurable financial impact. And with SaaS and hybrid ERP deployment models, even startups and small businesses can use ERP software to level the playing field with their much bigger competitors.

Getting started with ERP does not require large cash outlays and complicated deployments. That’s because SaaS and hybrid models allow businesses to avoid large upfront capital expenses and instead fund ERP software as an operating expense line item in the budget.

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KEY TAKEAWAYS

SOURCE REFERENCES

SMBs running their businesses on spreadsheets and desktop applications are exposing their organizations to risk (data security, compliance/audit, employee departure)

Cost savings from improving operations can often fund an entire ERPimplementation

SMBs that implement ERP realize not only cost savings but improvements in financial performance related to inventory, process, on-time delivery, sales pipeline, customer satisfaction, and improved insights for decision making

ERP software enables businesses to scale for growth

A hybrid ERP model blends the best of custom features from software development and cost savings from SaaS

01. Aberdeen Group, To ERP or Not to ERP for SMBs: What Can ERP Do for Me? 2012

02. Aberdeen Group, ERP in SME: Setting the Stage for Growth, 2011

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