Manufacturing companies more likely to overrun ERP budgets

////Manufacturing companies more likely to overrun ERP budgets

Being in the manufacturing or fabrication industries means dealing with technical, time-sensitive and violative processes on the work floor while also managing all the standard operational practices on the administrative side of things.

The wide variety of organizational needs is one reason that, according to Aberdeen Group, more than 70 percent of companies in the manufacturing field use enterprise resource planning software to improve operations and gain greater insight into functionality. Enhancing organizational insight through the use of ERP programs can help organizations stay competitive within their markets and locate cost and time savings. However, businesses need to be careful about ERP price and implementation timelines, or else many of these advantages can be significantly delayed.

Cost overruns a big risk
According to Enterprise Apps Today, manufacturers are at a significantly higher risk than average to spend too much on ERP software. The article, which cites research from Panorama Consulting, says 63 percent of manufacturing companies spend more than they had planned on their programs. Across all industries, the average was 53 percent. This increased trend of overspending should put organizations in this field on notice to tightly control ERP implementation and upgrade costs, as they can easily exceed expectations.

One way that organizations can address price issues with ERP is to use a component-based system like Microsoft Dynamics NAV. Instead of paying for costly implementations and customizations farther down the line, manufacturers can target individual areas for improvement. An issue like employee management can be addressed with a timekeeping software module without necessitating a wholesale upgrade. And simple, after-the-fact additions can be made to Dynamics NAV because of its customizable nature.

Avoid significant overspending
Panorama's research also revealed that while the average financial overrun for an over-budget ERP system was $1.7 million, that figure ballooned to $3 million for those inside the manufacturing industry. This may be due to companies not considering all the requirements that successful installations and upgrades involve. While choosing the right vendor and system is crucial, there are also time and cost requirements associated with training and connecting current software with a new ERP system.

Manufacturers should make sure they visualize a clear picture of all implementation and use costs and explore more efficient programs, like Microsoft Dynamics NAV, to keep their risk of cost overruns as low as possible.

Learn how to define your ERP strategy by downloading the white paper entitled "ERP in Manufacturing: Defining the ERP Strategy" from the DMS website today.