If you have the resources internally, the following list should provide a good starting point for your own ROI calculations.
- Purchase and implementation costs
- Computer hardware, operating system, database, networking and tools including installation, startup and testing
- Application software (ERP) license, installation, tailoring, data conversion/loading
- Procedure development, testing and documentation
- User training
- Vendor and consultation assistance with implementation
Note: Cloud/SaaS systems are priced differently with little or no upfront (capital) cost but higher ongoing (operating) costs. Nevertheless, ROI analysis is still valid as long as the timeframe (expected lifecycle) is appropriate.
Many will be replacements and changes (up or down) from existing costs.
- IT departmental costs for utilities, personnel, consultants and support
- Software annual licensing/maintenance fees
- Continued training for skills enhancement and new employees
- Budget for system expansion and enhancement
- ERP project justification: return on investment (ROI)
Direct benefits fall into two general categories: 1) cost savings and cost avoidance; and 2) increased revenue and profit. However, all benefits from ERP flow from:
- Having greater visibility to demand and schedules
- Closer management of materials, equipment and personnel
- The ability to better manage workflow and production schedules
- Greater coordination of resources to efficiently deliver the right products in the right quantities at the right time
Cost Savings and Cost Avoidance
- Inventory reduction, including materials, parts, finished goods and work-in-process
- Increased productivity and throughput in the plant
- Reduced scrap, rework, expediting and wasted materials
- Less overtime, expediting, premium freight and additional setups due to last-minute schedule changes
Increased Revenue Opportunities
- Increased sales due to better customer service, improved quality, better on-time delivery and shorter lead time
- Sales and margin improvements due to faster time-to-market for new products and product variants, cost reductions
These are a little harder to identify and measure, but can be at least as valuable as direct savings and return.
- Improved retention and higher productivity from employees who are less frustrated and more effective in their jobs
- Less panic, disruption, and chaos in the plant and in the office due to fewer last minute changes and surprises; more stable schedules; less expediting
- Smarter moves in the market – pricing decisions, specials, product releases or changes, inventory deployment, to name a few – due to better information and insight into market conditions, customer needs and competitive activity
There are many more factors to consider when developing a complete ROI statement. Just be sure to go through the process and document the results, not only to justify funding the project, but also to provide visibility and motivation to all project participants. This ensures they know the project is worthwhile, important to the survival and success of the company in the coming years, and that there is a benefit for each and every employee, department and functional area throughout the company.