Cost control through ERP

The third quarter financial results make it clear that the slowdown continues and may prolong. A worst hit sector in the current crisis has been infrastructure, having been hit twice, first by the steep price rise of inputsin land prices raw materials cost--and now by the financial crunch and the larger global uncertainties. Many projects have either been shelved or delayed due to cost overrun or non-availability of funds. Projects being implemented are subjected to periodic financial reviews to meet targets within the set time-frame.

In the absence of cheap and easily available finances from banks and financial institutions, earnings targets have become a distant dream. This is especially so for companies dealing with developmental works, be they roads, houses, power or commercial space. Many companies have acquired huge land banks prices that were at least 15% higher than the current market prices. An increase in the cost of funding has added to the problems. It has become extremely difficult for these companies to market or produce their products at a price that can meet the market competition and give reasonable returns to the stakeholders.

Now the question is how to survive in these tough markets till the tide turns. The only mantra is better cost controls. Steps have been taken by companies to cut down salary bills by downsizing manpower and controlling other visible overheads. We have to create a system whereby all the resources are deployed to achieve optimum returns. Resources like finance, materials, manpower, transport, power consumption and the like are vital inputs in all infrastructural projects. The better we plan their usage the higher will be the return, and competing in the market will become easy.

However, to make cost controls effective and stringent, we need to implement systems which are fool-proof and technologically sound. An effective management information system (MIS) generated internally is reliable and quick. This helps management in making quick decisions and find alternatives without losing time. The solution comes through implementation of any good enterprise resource planning (ERP) software. The benefits to an organisation from ERP are immense.

Some benefits of implementing ERP are: better deployment of resources; continuous and uninterrupted flow of information required by management for decision making; and generation of reports on a real time basis. In certain cases, ERP has helped reduce inventory by 22%, operational costs by 19% and administrative costs by 22%. In 95% cases, ERP has helped in the timely completion of projects.

Decision-makers can access any desired information at any time from anywhere, thus quick and effective decision making becomes easy, more relevant and quick. In the recent past, implementation of ERP was considered costly, because of high-priced software. But ERP software is now available for all sections of business at very reasonable prices.

Taking care of basics makes implementation of ERP painless and successful. The crucial point is to decide the critical areas vital for the businesss sustenance. This will help in deciding the mode of ERP implementation i.e. a standard version or a customised version and reduce implementation period by 50% and the budget by 40%. Planning is a very critical stage in implementation.

A proper documented plan, based on extensive deliberations within and outside the company, helps ERP implementation. During the planning stage, the management must involve both the vendor and the actual user to make clear the ERP rationale to them. An important point to remember is not press the implementation team to customise the software beyond a certain level. The more you customise, the more the chances of letting a situation go out of control.

It is better to put down your queries before the implementation team and let them make the best decision for you. Dont keep adding new requirements at the implementation stage, as this can play havoc with the budget and project completion. Working on ERP is easy if a well-structured basic training is imparted to the employees. The selection of the ERP vendor is equally important. A vendor should be selected only after a reasonable verification of the costs, experience of the vendor and the quality of the back-end team.

The best way to sustain infrastructure projects in the current slowdown is to control and cut down the costs by redeploying the available resources in the most efficient manner. This can be done by implementing ERP, as it makes possible the free and continuous flow of vital information of a company to the management to make effective decisions.

The author is a chartered accountant and a Microsoft certified professional.


Published in Info Technology
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