Strategies for Business Performance Improvement with ERP
When Performance is measured, performance improves!
What is Business Performance Improvement?
Business Performance improvement involves measuring the current level of performance in an organization and then modifying the processes to improve operational efficiency, cut costs efficiently, and increase revenues.
Companies must focus on achieving improvement in the following areas:
Inputs Required: E.g. Focus on reducing working capital, materials, reorder time, etc.
Throughput: Focus on Improving Process efficiency by reducing time, eliminating wastes & making optimum utilization of resources
Output: Focus on improving product quality and functionality. Focus on saving unit costs by eliminating redundant activities/purchases that incur significant costs
What are the pillars of Business Process Improvement?
According to renowned business consultant and management guru Ram Charan, the pillars for business performance improvement are Leadership, Organizational Culture, and Discipline.
Leaders/Senior management must build a culture of performance improvement. They should explain the significance of performance improvement and make employees aware of their roles & responsibilities towards achieving this goal.
When people in the company are aligned with this vision, there will be a better collaboration, cooperation, teamwork and it will facilitate implementing various business and financial disciplines across the organization.
Leaders must develop the discipline and culture to continuously monitor business performance and make data-based informed decisions to make adjustments in processes for achieving business performance improvement.
How to measure Business Performance?
Business Performance is measured by keeping track of the appropriate business metrics or key performance indicators (KPIs). This lays down the foundations for developing strategies for growth & progress. Similarly, regular KPI monitoring helps control, analyze, and optimize the performance to improve productivity and efficiency of resources.
We have compiled a list of manufacturing KPIs to measure across important processes, departments, and functions such as plant & machinery, inventory, purchases, sales, quality, and customers.
ERP for Business Performance Improvement
Having a single unified source of accurate data across the organization; access to real-time information and business intelligence tools to track trends and analyze performance are the foundation for making informed decisions to achieve business performance improvement.
As a company focused on developing ERP software for manufacturing SMEs we have helped several clients to leverage ERP software and digital technology to lay the foundation to achieve business performance improvement by providing:
1. Automation of Processes:
ERP software digitizes and automates business processes such as planning, production, purchasing, inventory, sales, marketing, finance, human resources across various departments, locations, and business verticals.
2. Real-Time Single Source of Accurate Data:
ERP software gathers real-time accurate information across processes, departments, locations of organization. Companies can define rules & guidelines
3. Streamline Processes & Workflows:
ERP software enables companies to define and implement business flow, to describe rules & guidelines as well as implement validations and checks, set up alerts and notifications for early warnings, and managing by exception. ERP makes this information available to the right people at the right time based on their defined roles & authorities.
4. Business Intelligence Tools:
ERP provides business intelligence tools, one glance dashboards, and various reports, to analyze past trends, make informed decisions for ensuring business performance improvement.
How does ERP Software help achieve Business Performance Improvement?
1. ERP software helps implement Business Discipline in operations
ERP enables companies to define and implement business flow, to define rules & guidelines as well as implement validations and checks for all major activities in the organization.
Companies can perform day to day checks for ensuring the business disciplines are being followed. They can measure the impact on improving the business. This forms the basis for business performance improvement.
Examples of how ERP helps define & implement business discipline are:
- Inventory: Implement inventory control methods, define warehouse management rules, reorder limits to ensure optimum inventory.
- Procurement: Maintain Purchase lead, time, Purchase Order Cycle time, Reduce Purchase Order Cost, Avoid emergency purchase, Ensure a minimum number of suppliers to ensure effective Procurement.
- Maintenance: Define maintenance schedule, set reminders to ensure preventive maintenance.
- Production: Prepare a detailed production plan, schedule, and adhere to it.
- Finances: Define rules for income receivables & payments due to monitor them closely and ensure timely payments.
- Sales: Define Credit control policy, Pricing & Discount metrics, Define & monitor Sales plan
- Budget Implementation: Define stringent budgets for each unit/department and carry out analysis for a variance.
- Quality Inspection: Define every stage of inspection, ensure proper quality control.
- Gate Control: Link all inward outward vehicle movements with some documentation such as Gate Pass, Sales Invoice, Good received, Rejection Note, etc.
2. ERP Software helps implement Financial Discipline
ERP consolidates all financial data and provides complete visibility into every department, operation, and function of the company. With ERP companies can ensure stringent budgets & control on spending, avoid unplanned expenses, ensure positive cash flow, achieve optimum inventory, and ensure Healthy working capital.
Here are some examples of how ERP helps companies create rules for Financial Discipline:
- Companies can allocate budgets for each function, and department and clearly specify where to spend the money.
- All incoming amounts due from customers/third parties should be received on or before a certain date.
- Payments due to vendors/suppliers/government should be made 2 days before the due date.
- Inventory should not exceed XX quantity or value of the inventory should not exceed XX amount etc.
3. Implement principles of Lean Enterprise with ERP
Lean involves studying current processes, identifying problem areas, blockages, wastes for achieving continuous improvement. ERP software integrates important processes, automates functions, so that you can monitor, control and manage resources such as manpower, machines, materials, energy, time efficiently
Examples of how ERP helps implement principles of Lean enterprise are:
a. Standard Processes & Well defined Workflows:
With ERP software a company can implement standard business processes, reduce manual work, eliminate redundant processes, define exceptions, and ensure well-defined workflows. This saves significant time and effort and brings speed in processes.
b. Just in Time Production:
With ERP, companies can accurately forecast demand based on orders or historical data and plan production accordingly. This helps achieve just in time production, based on demands. Thus, companies can order just enough quantity of materials and just in time.
c. Lean Inventory:
With the inventory module, companies gather insights into inventory trends and effectively manage usage of inventory based on just in time production plans. Thus companies can maintain a lean inventory to ensure smooth production. This reduces inventory holding costs.
d. Maintain Quality Standards:
The quality module of ERP allows companies to define raw material quality parameters, define a permissible quality range, record the actual quality of raw material received. This ensures good quality procurement, production, and end-products.
e. Improve Supply Chain:
The supply chain module of ERP helps companies to establish long term supply contracts at negotiated prices, reduce storage space required, lower costs of transportation by selecting the best possible modes. This makes the supply chain more efficient and effective and ensures the best value to the customer.
ERP Software enables Business Performance Improvement by implementing business discipline, financial discipline, and principles of lean. All these make processes more efficient, improves productivity, reduce costs, improves cash flows, bring speed in business, and provide a competitive edge.