COO: What is ERP (Enterprise Resource Planning)?

From inside the forest of excel spreadsheets, if you, the COO or director of operations, can’t deliver a transparent real-time snap-shot of the company’s daily operations and sale-to-cash cycle, your company and your management team are going to be a day late and more than a dollar short. Why?

In the digital age, your customers, suppliers, and most definitely your competition are going to be, if not already, doing business digitally in a matter of minutes, not days.  Unless you intend to stay small – very small – it is time to start looking into what an enterprise resource planning system (ERP) can do to keep you competitive and give you the torque to pull away from the pack.

As the chief of operations, even if you have the leadership skills and the true grit to get your team to capture good sales and churn out a quality product, feeding data to a zoo of different software programs for eCommerce; invoicing, and in-the-field services, will take a big bite out of your bottom line.

You were hired to carry out the CEO’s vision, and likely expand the business and improve profitability.  As a rule of thumb from Accounting Today you will outgrow Quickbooks, and the other good, but non-integrating software, once you have 15 employees that need access to current and accurate master data to perform their jobs.

Take a page out of Amazon’s CEO Jeff Bezos book:  “In business, what’s dangerous is not to evolve.”  Taking your company to the next level, expanding your current product and service lines, and doing it better, faster, and cheaper than the competition, upgrading to an ERP system will be a business function necessity.

What is ERP?

ERP stands for Enterprise Resource Planning.  It is a customizable suite of business planning and financial accounting software that integrates your company’s core processes and specialized capabilities, and if used correctly, streamlines supply chain management.

As the chief operations manager, a correctly configured ERP system will produce detailed real-time business analytics from planning and sales, through warehouse operations, to delivery that is transparent to all the users who need to know.  It can track invoicing and approvals, the progress of orders, and anything that affects your company’s cash flow.

ERP software is not a Fortune 500-only tool either.  Travel agencies, advertisers, and especially manufacturers, great and small, are feeling the digital age disruption and are getting out of the excel spread sheet and whiteboard world and automating processes.  The time saved not only saves all involved money, but it can also give you the time to analyze your business and innovate.

What will be my company’s ROI?

No one is going to tell you that there is an easy, inexpensive way of implementing and ERP software system.  What you are going to hear is when implementation is done correctly, and is customized to what you need now and can scale up to what you will need in the future, you will see a return on investment.

Your ROI is going to arise from three basic factors:  being able to correctly forecast sales, product line profitability, and material and human resources requirements; second – from data transparency you and your employees will find the inefficiencies, streamline your processes, thus reducing time, money, and effort spent on current production, which will result in your company being able to keep a lean management team as you grow, further reducing future costs.

Kevin Ball wrote in Small Biz Daily, “By having your floor staff, accounts people, HR department and so on… working from the same common master database this can be done quickly and without the need for duplicate information.”

If you are a B2B, and you really want to streamline processes, you can even digitally integrate customer relations, supplier and/ or third-party provider functions into your ERP system, so not only will everyone be on the same page, but the customer experience and thus loyalty should improve as well.

An ERP software system will allow you and your CFO to analyze your business in real time, react to market drivers, and innovate your processes and products, and deliver on the CEO’s vision.

How does the COO get the C-Suite on Board for this investment?

You instinctively already know where your inefficiencies may lie, but this is the time to drill down a little bit deeper into you mountain of spreadsheet data and get the details such as cost over runs, rate of returning customers, delays in delivery, inventory, and very specifically your invoicing process, internal and external.

The next critical, and perhaps toughest, step is to get your CEO on board, as many quite rightly see their job as curbing expensive investments to protect investor interests. It is the CEO’s conviction and leadership that will make or break not just purchasing an ERP, but will also be decisive in a successful implementation, as the CEO is the “Chief Envision Officer.” The rest will be up to your joint leadership.

Before Your First Contact with an ERP Vendor

It is imperative that the departmental heads, managers, or team leads prepare a detailed GAP analysis on where the present legacy software systems work and why, and where they fall short and impacts.  These analyses should also uncover where the company’s strengths and weaknesses lie, especially the costs and the resource allocation.

As this is being done, always keep clear and present how you and the CEO want the company to evolve, because any ERP system purchased must be able to develop with you.  While you and ultimately the CEO are the decisions makers, instituting a collaborative effort, even a special team drawn from the different core departments, will set the tone, support positive communication, and increase buy-in from your workforce on your company’s future.

If you want to include interoperability with your customers, suppliers and third party vendors, speak with them as well.  They can give you a perspective on what they need, and how and when they need it.

Shopping Around

Rule No. 1 is to shop around.  Meet with more than one vendor, and ask for and contact their references.  Whatever you do, do not accept a pitch written in ERP-ese.  Get it in English.  And above all, and no matter the reputation, make sure the reseller is putting your company first.  You are trusting the reseller with the future of the company as the CEO trusts you.  Take your time and build a relationship based on trust.  If the reseller is impatient, keep shopping.

Additional considerations include the software’s ease of use and integration into your business model, and its scalability to match your projected growth.  Also be vigilant about support or ERP consulting, especially delivery and implementation timing.  Depending on the size of your company, you may need support that is located in your geographic vicinity, especially if your company does not yet have an IT specialist or department able to handle all aspects of the software, its modules, and possibly its interfaces with outside systems.