This is part two of a the article “How ERP systems improve employee productivity” In addition to helping improve productivity in production operations, ERP systems can help most well-run manufacturing companies realize more of their business potential by equipping them to manage overhead and support operations.
SG&A costs: labor productivity beyond manufacturing operations
A typical manufacturing company has sales, general, and administrative (SG&A) costs of 13 to 14 percent. Because this overhead cost is a pure expense, any amount that can be eliminated flows directly to the bottom line. For example, a US$20 million company with 5 percent EBITDA (earnings before interest, taxes, depreciation, and amortization) profits that reduces its SG&A cost by just one percentage point through improved productivity will show an impressive 20 percent increase in EBITDA.
Here are some likely targets for cutting SG&A costs:
Responsive customer service: With information from an ERP system, service representatives can solve customer problems quickly, often on the first call. A collaborative work environment can open up parts of your systems for customers to use directly. Customer self service can yield a huge productivity increase, not only for your employees, but for your customers too.
Efficient financial reporting and management: Even something as simple as closing the books faster at the end of the month or quarter can have a profound impact. Integrated information sharing and standardized reporting and analysis can eliminate sneaker nets, which means your people spend less time figuring which set of numbers to use and more time on analysis, decision-making, and planning.
IT department productivity: Last but not least, productivity in the information technology (IT) department will likely soar once the maintenance of aging systems is eliminated. Spending less time repairing and integrating older, incomplete systems frees up time for IT staff to concentrate on extending user adoption, utilization, and improving overall benefit from the ERP system.
Customer satisfaction: the goal of increased productivity
Managers in today's manufacturing companies receive tons of data—about equipment, products, orders, deliveries, conditions, quality, and customers. Understanding how managing all that information contributes to increased customer satisfaction and ultimately better top- and bottom-line financial performance is the key to success. That's why so many companies are moving to platforms and systems that help integrate isolated silos of information, provide powerful analytics, and bring the power of the desktop to every management task.
Those companies know that building a fact–based, decision-making organization means putting the insight of your enterprise data into the hands of your staff. Equipped with the data available in ERP systems, and supported by powerful desktop tools, employees throughout the organization can achieve higher productivity and give customers faster, higher quality service.
About the Author: David Caruso
David Caruso is the founder and Principal of David Caruso & Associates, Inc, a consulting firm specializing in manufacturing, supply chain, and technology strategy. Before starting his own firm, David was senior vice president and director of research at AMR Research, and he has held several senior management positions in the ERP and supply chain software community. David has more than 30 years of industry experience, and he focuses his current research on analyzing the business value of IT and the effective use of technology to support the profitable growth of his clients.