Enterprise Resource Planning solutions (ERP) used to be the only game in town for SMEs. When a business grew to a certain point, the various software they used to run things became difficult to manage.
For example, they’d run separate software each for accounting, manufacturing, inventory, and customer resource management. It made sense for these businesses to graduate to an ERP to bring these together. But ERPs were born in a time when big corporations were the only players in the market. These companies could and still can make huge investments in servers, PCs, and networks. Additionally, ERPs were expensive to integrate and maintain.
So are they really worth it, speaking from point of view of an SME owner.
To answer this question we've made a detailed guide on ERPs and how useful they are/are not to SME businesses. We have made this guide after our experience discussing business problems with over 1000 SME owners in India.
- What is ERP?
- Advantages & Disadvantages of ERP
- What does your business need?
- Software selection Myths & Reality
- Is there a solution?
What is ERP
ERP stands for Enterprise Resource Planning. But what exactly does that mean?
ERP refers to software that helps you run your entire business. It integrates the core processes of a company in one place. These processes include finance, accounting, HR, sales, supply chain, services, and manufacturing among others. The software generally functions in real-time. It uses a common database for all its actions. Varied computer hardware and network configurations run such systems. In easy words, an ERP is a type of management software.
Some examples of top ERP vendors in market are:
- SAP- Founded in 1972 by five former IBM engineers, SAP is the undisputed market leader in the ERP space and is the third-largest software company in the world. Its current version has more than 30,000 relational database tables that allow it to handle extremely complex business situations.
- Oracle- Launched in 2004 Oracle was amongst the very first companies that provided ERP solutions. Oracle software is also a reliable product that can deal with huge database sizes and massive amounts of application workloads.
- SAGE Intacct: Sage is also a popular ERP solution available in the ERP market. Gain real-time financial and operational visibility throughout your business. Leverage comprehensive financial controls to ensure security and compliance.
At some point, your business may outgrow the technology you used to manage your system from the start. A lot of businesses in your shoes try ERP when their accounting software and inventory spreadsheets become too difficult to manage. But well-versed research is always advised before making that commitment.
Advantages & Disadvantages of ERP
The advantages presented by the ERP are:
- Optimization of business processes.
- Accurate and timely access to reliable information.
- The ability to share information between all components of the organization.
- Elimination of unnecessary operations and data.
- Reduction of time and costs of litigation.
- The performance of all work units that make up their business because better use time is increased. If you previously had to make reports and take them from one place to another, now the time is spent on other activities.
- To improve performance and save time, optimize the control and analysis of management decisions there in the long term, reduced costs for the company.
- Another obvious advantage is in terms of customer service because the response time is reduced attention to them.
- When a company has an ERP system is more competitive in the environment in which it operates.
Disadvantages presented by the ERP are:
- The installation of the ERP system is costly. ERP consultants are very expensive take approximately 60% of the budget.
- The success depends on the skills and experience of the workforce, including education and how to make the system work properly.
- Resistance in sharing internal information between departments can reduce the efficiency of the software.
- The systems can be difficult to use.
- Change of staff, companies can employ administrators who are not trained to manage the ERP system of the employing company, proposing changes in business practices that are not synchronized with the system.
- Your company may not need all the modules present in ERP, which makes it an unnecessary investment.
- The effectiveness of the ERP system may decrease if there is resistance to share information between business units or departments. Due to the strong changes that implementation of the ERP system brings in the culture of work, employees may be poorly trained or disinterested in making use of the same staff.
- The success of ERP mostly depends on the ability and skill of the workforce. You will have to spend a good time training your present workforce so that they use the system correctly.
Mind it that we aren't saying that ERP is evil and will tear your business apart.
There are a lot of success stories of ERP implementation too. This is where the size of your company comes into play. There is no doubt that there are differences in business processes and management between small & large companies. Small companies are usually multi-taskers, faster in reacting to change, flexible in their daily operations, and low on bureaucracy. But at the same time, this may be the first time that the company is thinking of going digital with its business procedures. Which makes the thought of implementation of complex ERPs into their system a bad idea.
At the same time, large companies usually need more routines in order to manage their business efficiently. The areas of responsibility amongst departments are divided clearly into large companies. Therefore they actually benefit from an integrated system. As for training, a big company has enough time and financial resources to train its employees. You can't say the same for small businesses. What we're trying to say here is that ERP is not meant for SMEs.
Read More on how company size matters in ERP implementation
So should SMEs not follow the path of digitisation at all.
Well No. Here's what SME owners really need.
ERP Alternative = ERP - (Complications + Unnecessary modules+ Big Investment)
What does your business need?
We kind of have an idea of what your business may be needing.
Your business has outgrown the technology you are using currently to manage it. A lot of businesses in your shoes think of ERP when their accounting software and inventory spreadsheets become too difficult to manage. What they should understand though is that complex ERPs aren't the only option available. They should look for a more cost-effective, integrated, easier to use solution.
It's not a piece of news that ERPs are expensive. Most of them also have a one-time payment structure ie. you are supposed to make the investment even before your business is really streamlined.
Read more on ERP Cost and some key points to consider during software selection
To understand what kind of solution you need, you need to firstly know the loopholes you are trying to fill with the solution.
Here are some really common challenges that SMEs face before they think of switching to ERP-
1) To Streamline Documentation Process
Documents like invoices, legal contracts, proposals, transaction records, and other essential material, are high priority papers for all businesses. Missing even one of them can create a problem in the system So SMEs need a good document processing system to streamline their documentation processes.
2) Instant access to important information
This is one of those things that any small business owner, at least in my experience is looking for, especially at the time of pandemic while working with less staff. Something like a dashboard that can give immediate access to all of your important and critical business information, all in one place.
3) To take Data Driven decisions
When money is already tight, it is always advised to make data-driven decisions in business. But SME owners mostly cannot find time because of other business processes or they don't know how they can analyze their data. So this is where they think of using technology to their business's rescue.
4) To Optimize Payment collection process
According to a study, 30% of payments made to small businesses are made late. There’s a culture in India of slow payment, which is bad news for small and medium-sized enterprises (SMEs). SMEs highly rely heavily on prompt payment of invoices to meet their running costs and stay in a positive cash-flow position. Most SME owners wish that their payments are collected in a more effortless manner.
5) To solve Inventory Problems
SME owners mostly know-how inventory management is absolutely necessary to run an efficient business and to make money in the process. Still, their inventory management process mostly faces these issues.
- High cost of inventory
- Consistent stockouts
- High amount of obsolete inventory
- High amount of working capital
- Spreadsheet data-entry errors
- Lost contacts of suppliers
Thus they want to solve these problems in their inventory management process.
Thus to solve the above problems SMEs think that ERP is the only solution that their business requires. What they don't realize is that ERPs are meant for bigger organizations. The requirement of business purely depends upon the size of the business Switching to a solution before defining requirements can prove to be a big disaster for your business
Software Selection: Myths & Reality
There are many things to take into consideration while making a decision to invest in any solution for business. Some of these selection criteria may be wrong for SMEs.Here is a list of these myths followed by a list of things to really consider while selecting a solution for businesses.
Myth 1- You can't go wrong with SAP or Oracle
Being a small fish in a big pond is no fun!
Tier One software companies like SAP and Oracle would like you to believe that choosing their solutions is the only safe company and career decision. This is not true. SAP and Oracle use system integrators to implement their systems. These companies may have no experience in your specific line of business. Also, most of the modules present in these ERPs may not be useful for your business at all. These solutions are also quite expensive and difficult to operate. Finding a solution with the functionality that supports your industry, out of the box, is key to a successful and on-budget implementation.
Myth 2: Understanding your Business needs is not necessary
Why are you thinking of switching to an ERP? How many needs is ERP going to fulfill for your business? Are all ERP modules useful for your team? Will your team be able to switch to a complex ERP? Is there a better & affordable solution available? These are some questions you should know an answer for before switching to any solution.
Myths 3: All digital solutions are of same kind
This is one of the most common myths that SME owners have towards digitisation. There are many solutions available in the market. Just like different businesses have different needs, there are different solutions that can cater your needs.
For example a retail shop owner and a small manufacturing enterprise owner may both be thinking of digitizaton of their business processes, but both of them will have different needs thus different solution.
Things to keep in mind while making a decision
While searching for digital solution, business owners should keep in mind the following things-
- Make a List Of Requirements- Make a list of things that you want to benefit from any Software that you’ll be using. Make a list of requirements that your business has, the number of departments, and their necessities.
- Look at all the options- There are numerous digital solutions in the market, therefore do not limit yourself with just the ones everyone else is using. Read their reviews find out what kind of companies should use which software.
- Professionalism- The digital solution you will be opting for will act as a partner in your business as it will be taking part in the entire business. The right platform for your business should have solid customer support that will help you in on-boarding and will be available when you or your team faces any trouble.
- Intelligence- All products are intelligent but not all of them share the same amount of intelligence. Examine the intelligence of the solutions that you have shortlisted and how far can it support the growth of your business.
- User Friendly- Read and scrutinize deeply about its flexibility. When you purchase a product you would want to use it as fast as possible and hence make sure that it is user-friendly and your employees can adapt to it quickly.
- Budget- . Budget is a factor you should consider while shortlisting software for selection as you cannot just go ahead with software that claims to be on the top of the market and have a shortage in the budget for your business.
- Free Trials/Demo- The most important factor is taking a trial of the software. This makes everything easier for you. You can easily learn about the functions of a software when you actually use it and check on your own whether or not is it useful for your business.
Read More - Best ERP Sotwares to use in 2021
Is There A Solution?
We know you are looking for a solution since you turned up to this article. You are looking for a cost effective, integrated and easy to use solution. This is what we had in mind when we made TranZact. We believe that digital transformation should be easy, because everyone deserves to work smarter—not harder. We want every Indian SME to use our product without having to think over silly amounts of money, thus we have made a free product for SMEs. Here is how what we provide is different from ERP
- Our product is easy to use with 27*7 customer support.
- We're sure your team knows how to operate desktop and use Excel. Yep. that's the only qualification you need for onboarding.
- Are you concerned about your business data? Data security is paramount at TranZact. We have integrated multiple layers of security measures to keep all your sensitive data completely safe, secure, and end-to-end encrypted.
- Our basic product is free. Yes, you heard it right! We want all SMEs to use our product and derive value from it and then only switch to the paid version if they want to.
- Data-driven decisions are a must in any business especially in SMEs where funds are tight. Our product provides separate Business Intelligence and other reports in real-time so that you are enabled to make more data-driven decisions.
- Integration of Tally brings efficiency to accounting and reduces the scope of human error.
At some point, your business may outgrow the technology you used to manage your system from the start. A lot of businesses in your shoes try ERP when their accounting software and inventory spreadsheets become too difficult to manage. The whole point of this guide is to make you realize that investing big amounts of money on complex ERPs may not be a good idea with a business your size. Instead using an integrated, cost-effective, and easier-to-use solution may be a good idea.
There’s one thing that unites all the companies no matter what industry you are in. It’s scalability. Why do you need a solution. You want an opportunity to reach all business goals that you think of. It’s good to keep this idea in mind all the time when you are viewing information about digitizing your business.
Hoping this helps you make a better decision