Five years ago, Matthew Grant, general manager of Sailrite Enterprises Inc., a family-run manufacturer of sailing equipment and fabric, wasn't thinking about buying enterprise resource planning (ERP) software. But when the e-commerce side of the Churubusco, Ind.-based business began to pick up, and Sailrite's collection of software packages for accounting, retail and mail-order couldn't keep up with the orders, Grant realized he needed to take a different technology tack.
What he needed, in fact, was an ERP package.
"Before, we had to enter everything into the different systems two or three times. Every time you've got separate packages, things become more complicated, and there's more room for error," Grant explained. "So when the Web orders got to the point where they were a significant percentage of sales, we had more errors."
In 2002, Sailrite bought Everest Advanced Edition software from iCode Inc. in Chantilly, Va. It spent approximately $40,000. Sailrite recouped its entire investment within the first year, Grant said -- including saving $17,000 to $22,000 annually through fewer back-ordered items and lowered shipping costs, as well as realizing a 35% increase in Web sales.
An ERP package is a suite of integrated software modules for running different aspects of a business, such as human resources (HR), payroll, accounting, purchasing, shipping, e-commerce, supply chain management, customer relationship management and inventory. In addition to offering a wider range of features than individual off-the-shelf packages you might buy at an office supply store, ERP enables information to flow between modules. Data, therefore, needs to be entered into the system only once to have it automatically available to all the other applications. For example, when new employees join the firm, a manager enters their personnel information into the payroll or HR application, and that data is recognized by all the other necessary modules.
ERP offers insight
Besides eliminating the need to reenter data into multiple systems, an ERP package can also help small companies get a better grasp on their business operations and finances.
"The very first thing you've got to do is get your financials in order -- understand what you're making, how are you billing, how are you meeting payroll. It always starts with financials," said Katherine Jones, research director for enterprise applications at Aberdeen Group in Boston. "You want to make sure you've got grown-up financials, especially if you're thinking of one day getting acquired by a bigger company." That holds true for compliance, such as the Sarbanes-Oxley Act that requires public companies document their financial reporting processes and internal controls, as well as other regulations specific to individual industries. ERP software can help small companies meet the myriad of regulations.
A business can also benefit from ERP's ability to provide reports and analyze business operations. "You can get more business intelligence about your organization," said Helen Chan, a senior analyst at Boston-based Yankee Group. "If you keep all your data in an Excel file, there are only a few ways for you to look at it. You can't generate sophisticated reports on that. With an ERP system, you're able to view data in different ways. For instance, you can look at it from a customer viewpoint -- who are your most profitable customers, how much do they buy, what do they buy?"
That is a benefit that Matt Gair, co-founder of Melior Inc., said he appreciates. Melior, a Dallas-based maker of security devices, uses all of NetSuite Inc.'s ERP software, except for the Web Store module.
"It empowers you to see things you haven't seen before, thanks to the business intelligence aspect. Otherwise, you wouldn't have insight into what your company is doing, what your margins are, where you're bleeding cash, what sales issues you have. All of the analysis ratios are there," Gair said.
One other advantage of NetSuite's software is that it is a Web-based, hosted product, meaning that Melior subscribes to it as a service rather than installing and running it locally on its computers. While Gair pays a monthly fee, he doesn't need to worry about maintenance, upgrades or even hardware costs, such as a server to run ERP. Fewer technology responsibilities usually appeal to smaller businesses.
"My total cost of ownership is zero," Gair said. "There's the monthly expense, but no other quantifiable TCO. No bandwidth costs, no servers, no update patch management issues, and I don't have to diversify my security people to deal with the ERP application."
San Mateo, Calif.-based NetSuite also saves the company from having to hire more staff, such as field consultants and, even, a human resources director. "I don't have an HR director. I don't have to; everything is there in NetSuite," Gair said.
ERP software features to consider
Small business managers who plan to grow their business should select an ERP package capable of scaling to meet potential needs. "Some companies try to be so conservative in their purchases that they buy something that is too
small," explained Aberdeen's Jones. "You want scalability, in terms of both the number of users and in functionality. How many transactions can it handle, how much volume of products, how many people touching it, etc."The way I look at it is that you don't get ahead unless you make the tough decisions. You just have to say 'damn the torpedoes' and plunge ahead.
general managerSailrite Enterprises
Out-of-the-box functionality is also important. As Sailrite's Grant said: "I didn't want something that needed to be customized. I wanted to have all the features already in it, and then just use the ones we wanted."
That's a common sentiment, according to John Dobbins, executive vice president of IDT Consulting Inc., in Itasca, Ill. "Customers are looking for the product to be very specific to their needs. They're not looking to buy customizations anymore, but out-of-the-box solutions from vendors that have experience in their industry."
To cater to that need, many ERP vendors offer packages designed for specific industries, which meet the unique needs of, say, construction companies or retail firms.
The price tag for an ERP package
The cost of an ERP system is one hurdle many small business owners are reluctant to cross. While a small, standalone accounting package such as Intuit's QuickBooks might cost a couple of hundred dollars, an ERP suite starts in the thousands of dollars and can easily run into the tens of thousands. For instance, iCode's Windows-based package is priced at slightly under $1,500 per user. Other suites run from $5,000 to $50,000, depending on the number of users.
Ditto for hosted a ERP application: NetSuite starts at $2,000 per year for two small business users at the basic level, and $4,800 per year for two users on its standard version.
But many small business owners who have made the jump to ERP say it was definitely worth the investment. "The way I look at it is you don't get ahead unless you make the tough decisions," Grant said. "You just have to say 'damn the torpedoes' and plunge ahead."
Sue Hildreth is a freelance writer and editor based in Waltham, Mass. Let us know what you think about this story; email firstname.lastname@example.org.