Information Integration Pays Back

Competition is fierce in the packaging industry and is all the more challenging if employees cannot access reliable information or update data fast. Enterprise Resource Planning (ERP) systems are one way to alleviate these issues because the software integrates companies’ entire business operations and centralizes data throughout the entire production-to-billing cycles.

Sounds nice in theory, but what are ERP’s real benefits? Do these benefits justify the costs? Also, do the companies that use the systems’ full potential gain greater business success?

These questions are explored in a white paper titled, “ERP in the Packaging Industry—What is ERP’s business impact and are all ERP users equal?” by marketing research company, Vanson Bourne. The Bourne organization sampled nearly 200 packaging organizations throughout Europe and North America, of which nearly three-quarters had an ERP system for their day-to-day management. They examined:

• Affects from having or not having an ERP system;
• Benefits of companies with ERP systems versus companies that don’t have ERP systems;
• How the user’s skill level and acceptance affected a company’s return on investment and benefits.

ERP: Impact on profitability and efficiency

The white paper reports that companies with ERP systems in the packaging industry gained greater business efficiency because they had more management agility and their business processes were slicker and more advanced.

• More than five times as many companies using ERP achieved a profit margin of 9 percent or greater. Only 3 percent of companies without an ERP system achieved the same profitability.

• Three quarters of respondents with an ERP system entered data once into their systems, then leveraged it throughout the entire production process. Less than a third of respondents without an ERP system enjoyed the same benefit.

• Almost half of the users without an ERP system could only produce basic reports. Less than a third of respondents with an ERP system had the same limitation.

• Users with ERP systems were twice as likely to have the ability to split jobs between plants easily and to keep track of costs.

Figure 1 further demonstrates that companies with ERP systems also were better equipped to manage the day-to-day operations of business.

Factors for high ROI

Since ERP systems are one of the most costly technology initiatives to implement, the study focused on three overarching factors to determine how businesses could get the greatest return on investment:

• Does the software meet the business’ short-term and long-term needs, so the company can handle market and competitive changes?

• Is the system being maximized to its fullest potential?

• How well do the employees know how to use the system, and do they use the system often?

Bourne’s white paper found that ERP systems vary significantly, which contributed to software’s return on investment and benefits. Figure 2 indicates the capabilities that users of ERP systems said their software can deliver.

The white paper used a four-stage maturity model of ERP sophistication to map the sampled companies’ use of ERP systems, capabilities, and user levels.

Stage 1: Immature—These companies were unlikely to have an ERP system and endured frequent and repetitive data entry. They also have very low ability to share information.

Stage 2: Reactive—These companies had a system—perhaps a home-grown one that had limited capabilities or unused functionality. Their systems offered no real-time data collection capabilities and often were augmented with other tools or applications.

Stage 3: Established—These organizations were sophisticated in their use of ERP. They likely had a fully integrated system with some relatively advance capabilities, such as base reporting and some custom reporting. With these systems, data could be entered only once then used for real-time decision making. The established systems also had robust features, allowing daily analysis.

Stage 4: Proactive—These companies enjoyed many benefits because their savvy users and systems could do more advanced processes, such as using data for proactive business management and decision making. They also used essential tools, such as supply chain management, vendor managed inventory, and/or manufacturing resource planning to maintain excellent customer relations.

Figure 3 shows distribution of ERP users/companies across the maturity model.

The white paper found that:

• Only one in 10 companies surveyed were considered proactive or used the system to its full extent.
• One-third of the ERP users were considered established and proactive.
• Twice as many companies were immature ERP users compared with the proactive users, possibly reflecting the cautious nature of the packaging industry on newer technologies.

Competitive advantage for sophisticated users

It’s not shocking that Vanson Bourne found that the proactive and established users/companies received more benefits from their ERP systems. One possibility why is that they were more likely to streamline their processes and make them less resource and time intensive.

As an example, more advanced users incorporated real-time decision making at much greater rates than the less sophisticated users. Virtually all proactive companies applied real-time decision making, versus about 70 percent for established users and about 42 percent for reactive users.

Proactive companies also enjoyed significantly better performance in other key areas of their business compared to reactive companies.

• Proactive users created strong bonds with their customers, which is extremely critical in challenging times when clients tend to shop around more.

• They were able to enter data more efficiently, share information at greater rates, take advantage of more advanced reporting, and split jobs between plants while managing associated costs.

• Proactive users/companies were more likely to make higher profit margins than less mature companies in the ERP adoption stages.

Summary

The white paper demonstrates that ERP systems offer a huge opportunity for the packaging industry to become more efficient, profitable, and productive. In order to receive these benefits, packaging companies must choose the right system with the right capabilities to meet their short-term and long-term business goals. The study also demonstrates that the more employees commit to using, understanding, and accepting their ERP systems the greater chance that the company will make above-average profit margins, which can be a key determiner for a business thriving or just surviving. pP

(Note: This article was provided courtesy of EFI. For a full copy of the Vanson Bourne report, contact Nancy Schick at nancy.schick@efi.com.)