How an ERP System Can Reduce Your IT Spending

The right ERP system can save manufacturing companies a good deal of money in long-term IT costs — but don’t take my word for it.

Let’s look at some numbers.

The first number is 47%. That’s the percentage of manufacturing companies looking for ERP, according to SelectHub.

The largest component of the technology budget for manufacturing companies is business operations (Deloitte study) — and leading manufacturing companies improve operating margins by 12% by effectively using an ERP system (Aberdeen study).

These numbers are powerful … but what do they mean for you? You need more than high-level stats or insight into the competition to make critical decisions that are going to affect your company’s future and the day-to-day lives of all your employees.

This is what I’m going to break down for you in the rest of this article: How an ERP system realistically, practically and operationally affects your IT spending.

Less IT Spend on Legacy Applications

Implementing a modern ERP means moving away from most (if not all) of your legacy technology and disparate systems.

You’re bringing your people the right tools for the job and providing them with a solution that will improve critical business processes within the organization. The result is less reliance on spreadsheets, third-party applications, and legacy technology solutions — and an end to your IT people having to manage tricky, error-prone integrations between them all.

Where you’ll see the reduced IT spending here is by getting rid of clunky old applications, and the troubleshooting and custom development that comes with them.

Reduced Maintenance and Management Costs

Technology sprawl is a real challenge for growing manufacturing companies. One of the big benefits of an ERP system is that it helps consolidate infrastructure. This consolidation isn’t a one-time benefit, either — it prevents sprawl from happening again in the future.

Consolidating IT infrastructure reduces the direct costs (hardware, software) and the indirect costs (time, energy and effort spent) your IT team spends managing, maintaining and troubleshooting critical systems.

Let’s look at this from a people perspective, too. Spending energy and effort keeping legacy systems status-quo, not truly helping the organization grow and evolve … this can be demotivating for your IT team over time.

Increased Operational Efficiencies and Capabilities

ERP enables efficiency across the entire IT stack as well as these core manufacturing business processes:

• Supply chain management
• Manufacturing execution
• Warehouse management
• Product lifecycle management
• Customer relationship management

A recent case study I saw from IQMS reported that after its ERP implementation, Mar-Bal reaped $270,000 in savings annually across its four plants, plus nearly 5,000 potential machine hours that were no longer lost to downtime for monthly physical inventory checks. This was enabled by a built-in monitoring system that tracked every aspect of part production, giving Mar-Bal the ability to optimize performance on the fly and proactively address potential problems. Talk about efficiency!

For a small-to-midsized manufacturing company, savings like that can go a long way. But IT costs individually aren’t the biggest benefit we hear manufacturing companies raving about. Rather, it’s the business benefits that seem to make the most impact — building digital business capabilities, improved availability of information, executing critical processes more quickly and with fewer errors, and much less duplication of effort.

Improved Ability to Manage Change

As I write this, we are still in the middle of the first wave of the COVID-19 pandemic — so when I’m thinking of “change management” now, it’s radically different than how I would have thought about it even six months ago. No one could have accurately predicted this crisis, and no manufacturing company could have prepared enough for the massive business shifts that happened as a result.

That said, some companies were able to manage the changes without killing the IT team with custom integrations and development — and ERP systems have played a role.

• A modern ERP enables allows critical corporate functions like accounting and purchasing to work remotely.
• Having access to real-time data from an ERP system enables managers to more effectively schedule on-site staff to maintain physical distancing measures.
• As supply chains shift and evolve, a modern ERP gives manufacturing companies improved visibility to coming changes and the ability to prepare in advance for alternative materials and components.

An ERP System Can Transform Your IT Budget — and So Much More

From a bottom-line perspective, an ERP can help reduce your spending on software and hardware, and eliminate the disruptions caused by legacy systems needing to be updated, patched, or integrated with yet another third-party application.

But from a top-line perspective, when an ERP system is selected and implemented properly, it improves how your people, process and technology are empowered to serve your organization. You and your employees will be more prepared to manage growth and change — and that’s worth even more, in my book.

If this article got you thinking about how your decisions impact your people, check out this short video next. It might just change your perspective.