How to conquer the world (using an ERP)
Confused which ERP you will need once you leave Xero behind? And how will it integrate with your current systems... read on:
Last night, I ended up watching Terminator, a movie I used to love when growing up. As ever, I started thinking about FinOps... is world destruction the logical conclusion for process efficiencies and automation?!
Any company at scale, whether military, financial or other, has to reconcile information from many different sources, and integrate this in order to drive effective decision making. This has to be performed in an automated, reliable and timely manner. If it doesn't do this it can't stay competitive, because it won't be using the data available to drive new insights, and ultimately more profit.
Most large companies, presumably Skynet included, will use some sort of ERP system, which implements and integrates all their processes needed into one single system that improves the flow of information, materials and cash. Will this eventually lead to fully conscious robots taking over... not yet.
ERP is probably an acronym that you hear a lot of; but you might not have any idea what it means. Understanding that ERP stands for Enterprise Resource Planning doesn’t necessarily help either.
The good news is that you will be aware of some ERP systems. Hopefully the names SAP, NetSuite or Sage ring a bell.
It’s essentially a central database which integrates all the current systems into one. Think of it as the central brain of your business; it is the one focal point of your business where all the necessary information is stored, accessed and analysed.
Stored - information from all systems is obtained and sanitised so that it can be compared.
Accessed - all the information can be accessed in one central point. For example, with customer data you will be able to see purchase history, shipment tracking, apply tax rules, manage the customer issues and refunds all in one system.
Analysed - the different data can be grouped together and collectively evaluated to streamline business processes; such as product ordering.
In Terminator, Skynet is already a global company (and yes, I know, completely fake). It obviously won't have had an ERP system from the start. That would be a waste of cash - which is especially important for startups. So, at which stage would Skynet have had to invest in an ERP system? And how would they know when it was the right time to invest in ERP integration?
There will come a point in a company’s journey when the answer is definitely a yes.
For instance, I challenge you to find a FTSE 250 company that doesn’t use an ERP system.
So definitely yes in the long-term, which beckons the next question...
The annoying answer: it doesn’t depend solely on the size of your business but also on the needs of your business (which are ultimately decided by your operations).
The wonderful thing about an ERP is that it is scalable - it can be as complex or simple as required - depending on your requirements; which are specific to each business.
For example, if you are a manufacturing business then you will want an ERP system much earlier on. This is because automation and data analysis are momentous in ensuring a fluid flow of product, from the raw goods needed to manufacture the product, all the way to sending the goods to the customers.
A lot of times though, especially when in the growth stage, ERP implementation will occur as a result of inefficiencies or because of a discrepancy in the business. There will be a process that is taking a lot of time, or one that is providing inadequate results or information. For instance, it is taking a lot of time to apply the right tax to products being sold overseas. Or you might not be getting the amount of customer data you need to provide more targeted selling.
Here are some common problems/inefficiencies that ERP Integration can fix:
Too much workforce - if you having to hire a large workforce to do back-end processes such as billing, tax and reporting then it is time to invest in an ERP
Risk of errors - if data needs to be converted, or manual calculations performed, then automation through ERP is a solution
Customer insights - if you are unable to fully understand your sales process all the way from production creation to product delivery (and plan the appropriate resources) then an ERP will help manage your resources so that you can provide the best service. Issues such as product delays, incorrect invoicing and the inability to evaluate customer history might be a reason for ERP integration
Monitor the company - a simple issue on the face of things, but very useful to fix in reality. If your company is at the point where you have a lot of different systems, with differing data which takes a long time to combine - then an ERP will enable you to measure the performance of the company (and any other relevant factors) so that you can make the best strategic decisions given the data.
As a startup you, there are a number of factors that you will need to take into account in order to choose the best ERP integration method.
For the purposes of simplicity I have defined early stage as being in the region of 50 employees. This will change depending on your specific circumstances (e.g. you might be in an industry that hires a lot of contractors).
For this stage, I would recommend integrating a modular ERP system. This method of ERP Integration allows you handpick the components you need in your ERP system to bring the efficiencies that you need, for the best price. This gives you the flexibility that your business needs. This option won't be right for everyone, but it is the place that I would start.
As an example, Odoo is an open source ERP software aimed at startups and growth companies. It follows a simple model, where you choose the Apps that you need (such as invoicing, CRM, eCommerce etc.), the number of users a month and then you pay a monthly subscription fee for each of the components you need. As your company grows, you can easily introduce more apps and extra integrations as you see fit. The downside is of course the fact that this is open source software; technical support will be lacking. Furthermore, it doesn't have the budget or skills that other larger companies such as Netsuite have; meaning that it probably isn't the best option for the long-term as your company provides more bespoke systems in place.
Another great option, particularly in the start up stage, and the one I would personally recommend, would be Xero. You can integrate additional apps through the Xero App marketplace depending on your specific needs. For example, if you are a manufacturing business, then you can integrate Katana inventory management software into Xero. If you are spending a lot of time on excel or in google sheets, think about the process that you are doing. For example, it might be creating management accounts. 9 times out of 10 there will be an app out there that you can implement to save resources, and mitigate risk from manual processes.
For the purposes of simplicity I have defined later stage as having more than 50 employees.
Later stage is where things start to become a bit more complicated. It depends on the systems you currently have in place, their levels of interaction with one another and your plans for expansion. Usually, it will be at this stage that you have some big aspirations such as expanding globally or obtaining investment. As part of these plans, you should map out the information you will need and processes required to operate the business smoothly. It will become pretty clear whether or not you need to upgrade your ERP system to one that is a standalone system. For example, a lot of our clients end up transitioning to Netsuite from Xero because they are beginning to operate internationally or are introducing new product lines. Xero starts to struggle in these sorts of areas as it isn't made for this scale of operation. Hence, Netsuite is the next logical choice.
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