There is no doubt that small companies and big companies function differently. Small companies are multi-taskers, fast in reacting to change, and flexible in their daily operations. Meanwhile, large companies usually need more routine in order to manage the business properly. The areas of responsibility among departments are divided clearly, and it takes more time to pass information from one management level to another. After talking to a lot of SME businesses in India and understanding their problems we have come to a conclusion that ERP implementation may be good for big businesses but they are not a good idea for small businesses.
Read More - ERP for SMEs? Think again
These are the top reasons why ERP implementation fails in small companies-
For SMEs, it might be the first or second time they have implemented a business management system. Therefore, in order to have a successful project they need to educate themselves really fast on what matters when implementing an ERP system. Else they'll have to hire a professional ERP consultant and trust their professionalism. Since most of the workforce is not very tech-savvy especially in Indian SMEs, it'll take a lot of time and resources to educate them.
At the same time, big companies already must be having a business management system, to begin with. Thus it won't be new to them. Also, it won't cost them a lot to train their employees. This is because they must be having a big team so that there'll always be some employees to take care of tasks when other employees are taking the training.
Thus SMEs shouldn't go with ERPs. They should instead look for a more cost-effective solution.
This is one thing that is beneficial to big companies that have a complex structure. But for small companies, this is a major disadvantage. Since ERP software is capable of so much, it can be hard for users to focus on singular tasks. Training can reduce the confusion, though for some companies all the applications offered by ERP systems are simply too much.
- Inventory Management
- Order Management
- Warehouse Management
- Supply Chain Management
- Customer Relationship Management
- Professional Services Automation
- Workforce Management
- Human Resources Management
- Marketing Automation
As good as all of these modules look, a lot of them may not be useful for SMEs. An SME usually doesn't have an HR department or a workforce management department. They also won't need marketing automation for a business their size. So a lot of what small businesses will pay for in an ERP will actually not be useful. This should be taken into consideration before making such a hefty investment.
The average range of costs for the software and services associated with an ERP implementation is around 20 Lakhs. But that’s just the beginning. Annual software maintenance costs are usually in the ballpark of 20% of the initial license cost. This still doesn’t fully capture the total cost of ownership (TCO) of a typical ERP system.
Why are these costs so high? The reason is that ERP systems are designed to be comprehensive, one-size-fits-all platforms for running all aspects of a very large, often multinational corporation. Tailoring a gigantic industry-agnostic system to meet the specific needs of an SME is very costly and inefficient. Because of this level of customization, most ERP systems are failures for these kinds of companies. There is no reason to pay for functionality you don’t need and then spend additional money customizing and configuring that same system to accommodate how you do business when easier and cost-effective solutions are available.
SMEs have a small team of around 15-50 people. Thus all of the tasks are dependent on this team itself. When introduced to a new complicated system these employees may fall behind in the completion of their tasks, which can get a lot of unsatisfied clients and business losses. Thus upgrading to a complicated & rigid ERP system may not be a very good idea. Instead to digitize your business using a powerful but simple cloud-based product may be a good idea.
Read More - 4 ERP Failure Stories and How to Not Be One
It is pretty clear from the above article that for SMEs the disadvantages of ERP outweigh the advantages. Although it’s worth checking over first as every business is different. Can you afford a complete software overhaul? Are your employees receptive to training? How long will it take before the long-term benefits outweigh the initial drawbacks? These are some of the questions you should know the answer to before ERP implementation. If you decide that you don't want to spend money on ERP, it doesn't mean you can digitize your business. You can take the first step to digital transformation with an easy to use inexpensive platform made for small businesses like TranZact. It'll help you streamline your business processes from customer inquiry to dispatch.
Make a wise decision.