Small businesses may need enterprise resource planning (ERP) solutions more than they realize. But convincing them may be easier said than done.

According to an Aberdeen Group study, ERP is indeed working quite well for small manufacturers — defined as companies with less than $50 million in annual revenue. Still, a fairly large number of such organizations have not yet implemented ERP, and many small businesses with systems in place should be considering upgrades.

Therein lies the opportunity for CPAs. ERP consulting requires an advanced level of business client knowledge which has long been a hallmark of accountants and finance professionals.

Time out for a primer. ERP is not about simply implementing software. We’re talking about the organizational management processes that streamline the flow of processes and information to maximize productivity and reduce cost. ERP is built on the integration of business application software modules that cover an organization’s key workflow processes and, most significantly for manufacturers, provide review and control of the manufacturing processes.

Implementing or upgrading the systems sometimes means customizing modules to meet the company’s way of doing business, or sometimes it means adjusting business operations to match the software’s capabilities. Designing modules requires a thorough knowledge of the company’s operations, trading partners, customers and much more.

Originally designed for large businesses with multiple networks and processes and intense competitive pressures, ERP has migrated downstream as smaller organization’s systems, demands and competitive pressures have expanded.

As for the size of the small business ERP consulting opportunity, 14 percent of the small manufacturers surveyed have not yet implemented ERP systems, and the study further notes that the time is ripe for a big chunk of those with installed systems to replace or upgrade them. Seventy-two percent of all small manufacturing businesses run ERP systems that are one or more versions behind their products’ newest versions, and 31 percent implemented their systems five to 10 years ago. This means they have missed out on a swath of ERP-related technological advancements since then.

What’s more, nine percent of the small businesses surveyed have ERP replacement strategies in place, which is a relatively high portion considering that vendors just started marketing ERP en masse to small businesses about 10 years ago. Aberdeen says the small manufacturers with replacement strategies mainly want greater ERP functionality and integration.

Meanwhile, ERP is doing the job for small business in key areas of process improvement. About a third of the ERP systems achieved best-in-class ranking from Aberdeen for improving manufacturing scheduling compliance and on-time shipment rates. And more than 25 percent were best-in-class for reducing inventory and administration costs. Also, 23 percent were best-in-class for cutting manufacturing costs.

Asked what issues compel them to implement ERP, the small manufacturers responded as follows:

• Standardize and accelerate manufacturing processes — 66%

• Reduce operating costs — 53%

• Streamline order fulfillment process — 53%

• Improve customer service — 43%

• Link global operations — 26%

• Connect with external partners — 13%

• Obtain organic revenue growth — 12%

While ERP’s potential to assist small businesses is promising, the systems’ complexity remains a big barrier. Aberdeen compares business attitudes about ERP implementations to brain surgery — you don’t try it unless the patient is dying.

The report notes that small businesses are dragging their feet in implementing and, more significantly, upgrading their ERP systems.

They have their reasons:

• Customization-related issues — 40%

• Redesigning business processes — 39%

• Training employees on the systems — 39%

• Costs of upgrades/updates — 33%

• Little flexibility in adapting to business processes — 28%

• High maintenance costs — 28%

• High integration costs — 23%

• Lengthy or incomplete integrations — 18%

But Aberdeen says it “would caution these companies to not get too comfortable in their current state lest they miss opportunities for growth and improvement.”

Most significantly, the report notes, “While small businesses desire less complexity, they also require most of the same functions needed by larger companies.” The report indicates that small business sorely needs help in this area. Small businesses on average extract about 26 percent of their ERP system’s full functionality, compared to a 29 percent extraction average for larger businesses. Yet they pay far more per individual user for the systems than bigger companies pay.

Regarding the one-in-six small businesses that have not implemented ERP, the report notes that the small startup today has an advantage over the startup of 10 years ago because ERP systems are far more feature-rich and technology-enabled and because price-for-performance has risen dramatically for hardware and software.

So if you haven’t considered an ERP solution for your small manufacturer, someone else probably has.

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