Why Do Small and Midsize Companies Need ERP?
ERP (Enterprise Resource Planning) is a packaged software that provides an integrated core business system. ERP has been implemented mainly by large companies. However, in recent years, it has become more active among small and medium-sized enterprises. In the background, there are issues that are unique to small and midsize companies, and ERP implementation makes it possible to solve these issues. Let's take a closer look at the benefits of EPR implementation for small and medium enterprises.
Table of Contents:
- Challenges faced by small and midsize companies
- Why do small and midsize companies need ERP?
- Benefits of implementing ERP for small and medium-sized businesses
- Summary
Challenges faced by small and midsize companies
SMEs are defined by their capitalization and number of employees.
1. Insufficient human resources
It can be said that students' preference for major companies remains high. Companies with a large scale of operations appeal to students because of their ease of working, including benefits and easy access to holidays, as well as the brand power of their corporate name. In addition, the declining population of young workers due to the accelerating aging of society is also making it difficult for small and medium-sized companies to attract human resources.
2. Insufficient and aging systems
Many small and medium-sized companies are now implementing IT tools for customer management, production management, etc. However, updating existing systems and switching to the latest models is costly and time-consuming, so in many cases, it is postponed. In addition, the need for corporate internal control is increasing due to changes in the social environment, but the existing systems may not be able to cope. The inability to introduce or update appropriate IT tools has led to a negative cycle of lower labor productivity.
3. Succession problem
Not only the shortage of human resources but also the succession problem is a primary issue. There are many founders of small and medium-sized enterprises. And even if the management ages, there are many cases where a suitable successor cannot be found and business succession is not possible, and it will go out of business. Dependence on family management and lack of human resource development and business succession measures are also contributing factors.
Why do small and midsize companies need ERP?
By implementing ERP, companies can centrally manage data within the organization and effectively utilize management resources. In addition, the ability to seamlessly link each department will strengthen the internal support system and improve the quality of customer service. These implementation benefits are important for corporate activities, regardless of the size of the company. So, why is it that small and medium-sized companies need ERP?
1. Small and midsize companies are more likely to benefit
It is easier for small and medium-sized enterprises with simple organizational structures and business flows to standardize and optimize their operations. Therefore, it has the advantage of being easy to benefit from ERP implementation.
2. Increase in low-cost cloud-based ERP
There is an image that ERP deployment costs are high, but if you fit your business into ERP instead of customizing the system to your business, the deployment cost will be reduced. In addition, there are many cloud-based ERPs that can be deployed at a low cost these days, so there are more choices.
3. Responding to the strengthening of internal controls
There is an increasing need to strengthen internal control for large companies and the entire company, and there is an urgent need to take measures to prevent fraudulent activities. You can use ERP to strengthen your internal controls.
Benefits of Implementing ERP for SMEs
This section lists the specific benefits of implementing ERP for small and medium-sized companies. The second half is the benefits of cloud-based ERP.
1. Strengthen mobility unique to SMEs
In order to go above and equal to the business strategies of large companies that make use of their capital strengths, speedy and flexible management activities that take advantage of the compactness of SMEs are a primary weapon. ERP can further enhance this mobility.
In order to create a faster and more flexible management foundation, it is necessary to make quick management decisions by visualizing management resources in real-time. To that end, ERP provides visibility into all information across the organization, further powering small business management.
2.Visualize management resources and operate them efficiently
Small and medium-sized enterprises (SMEs) have limited resources in terms of both economic and human resources. With the need for lean management resources, it will not be easy to create the environment to achieve efficiency using only human resources. ERP provides a guideline for the complete visualization and efficient operation of management resources such as financial accounting, human resource management, inventory management, and purchasing management.
By aiming for more wasteful resource management than ever before, we will be working to solve various management issues, such as improving profit margins and eliminating the shortage of human resources.
3. Strengthen the financial system by adopting monthly closing
Many small business owners are so busy with their daily operations that they don't have time to organize the financial structure of their companies. However, if you don't keep yourself informed about your current financial situation and future financial needs, you may miss out on great business opportunities.
With the management accounting and financial accounting functions that ERP provides, you can visualize your company's financial status in real-time and easily incorporate monthly closing to strengthen your financial system.
4. Quick and low-cost implementation (Cloud ERP)
This is the unique benefit of Cloud ERP. The best thing about cloud ERP is that it can be deployed quickly and at a lower cost. When implementing ERP on-premises, it is not uncommon to take more than a year from infrastructure procurement to cutover (full-scale operation). This is a huge burden for small and medium-sized companies.
On the other hand, cloud ERP does not require infrastructure procurement, etc., and after a service contract and test operation, it leads to a cutover. In many cases, the cutover can be completed in as little as three months, making it possible to build an integrated system environment in a short period of time and at a low cost without putting pressure on the financial side.
5. Reduce the cost of operation and maintenance (Cloud ERP)
Due to the nature of cloud ERP as a service provided via the Internet, all hardware maintenance and system operation is handled by the cloud ERP vendor. As a result, user companies do not have to bear the burden of operation and maintenance, nor do they need to pay annual maintenance fees, as is often the case with on-premise ERP.
It will be easy to make a budget plan by reducing maintenance and operation costs that tend to be black boxes and clarifying the cost structure.
6. Enabling external access (Cloud ERP)
Cloud ERP over the Internet is not limited to access on the corporate network, such as on-premises ERP. For example, managers can accurately understand the current state of their company even from a business trip, and salespeople can enter customer information and create daily reports from the go.
Just by enabling external access, you can expand the scope of your business and create a business strategy with ERP as the centerpiece.
7. Support for DX (Cloud ERP)
Digital Transformation (DX) is a strategy to switch a company's system environment and business model to a digital thinking style by focusing on four platforms.
A. Cloud computing
A generic term for services provided on the Internet. Since 2006, it has rapidly increased its presence, and now it is an indispensable technology to point to corporate infrastructure.
B. Mobility
Small portable devices such as smartphones and tablets that have exploded around the world
C. Big data and analytics
Integrate and analyze all kinds of management data that has been accumulated as unnecessary to date to discover new knowledge that is useful for business.
D. Social
Utilize SNS, which is already used by billions of users worldwide, as a business platform.
By considering a DX-conscious ERP implementation, you will have the system infrastructure to respond quickly to rapidly changing business and deal with the various management issues and problems that will arise in 2025.
8. Initiatives to solve business succession problems (cloud)
In recent years, "business succession" has become a growing problem for small and medium-sized businesses. Despite the aging of business owners, many small and medium-sized enterprises may be forced out of business due to a lack of successors and delays in business succession planning.
The first important thing to solve this problem is to create an attractive company. We solve business succession problems by creating companies that you want to succeed or companies that other companies want to acquire.
Cloud EPRs contribute to this in many ways, such as increasing the attractiveness of having an up-to-date system environment and making it easier to share information in mergers and acquisitions by having an ERP.
Summary
Small and medium-sized enterprises have chronic problems such as shortage of human resources and low productivity, but ERP implementation can solve the problems. Rather, small and medium-sized enterprises have the advantage of having a simple organization and business workflow and are more likely to benefit from operational efficiency and optimization.
By centralizing organizational data, management resources can be allocated more efficiently, and the unique mobility of small and medium-sized companies can be demonstrated.
Cloud-based ERP can also reduce the burden of costs that are a concern.