Hosted ERP Suites Improve Front- and Back-Office Operations, Yield Dramatic Cost Savings for Smaller Manufacturers | Article

software - ERPSince installed ERP systems are expensive, complex to deploy, and require dedicated IT resources to maintain, cost-effectively automating mission-critical systems for small manufacturers is a challenge. Many small-to-medium (SMB) manufacturers instead make do with multiple applications run by different staff. Such was the case with ProSoap, a small manufacturer of industrial hand cleaner.

According to President Billy Self, his company relied on about 10 different applications, among them accounting, payroll, sales database, shipping and custom applications for activities like inventory management. The solution, of course, was costly but, as importantly, it was inefficient. Self says he was paying about $100,000 for an IT guy and $150,000 a year in software license fees and upgrades. Because upgrades interrupted his business for several days at a time, he says also that “we found ourselves concentrating so much on our servers that we couldn’t get on the phone enough to make sales calls.”

Furthermore, he says, “we didn’t have our manufacturing side talking to our sales side;” so sales, for instance, had to log into the inventory application to verify that it had enough product to fulfill an order on time. Orders, therefore, did not drive inventory, so ProSoap could not manufacture to demand to cut storage costs.

That all changed in 2002 when ProSoap leased nine seats of NetSuite’s hosted ERP suite comprised of fully integrated ERP, CRM, and e-Commerce services. The move replaced all other applications and eliminated IT staff and license fees.

The Benefits of an Integrated Application

Activities in one area of the suite automatically kick off those in another. For instance, using the CRM functionality, Self says, “the sales force knows exactly how much inventory in the ERP application is available now. Our production guy can be constantly updating what’s in our inventory, so when sales reps pull up a sales order they know immediately if we have that many items in stock in the ERP application.” Also, he adds, “We can ship any size order within 24 hours because our production guy knows instantly when an order comes in and, using the ERP application, our production line can make adjustments to get that order done.” Via the ERP integration, the order essentially indicates to the production floor the quantity of product required, types of containers, case sizes, and different labels for each shipment.

NetSuite also supports ProSoap’s Web site, which is integrated with CRM. So when customers provide information about themselves on the site, the sales department can access that data without re-entering it from one application into another and promptly can follow up on the lead. Self says, “We recently did an online campaign, which resulted in 100-50 leads from the site a day; and sales did not have to re-enter any information, which saved an enormous amount of time.”

ERP

While the three applications–ERP, CRM and e-Commerce–are integrated into one suite, there is functionality that is unique to each. ERP manages the company’s plant production process, which has three stages–raw materials, goods in process, and finished goods.

ProSoap uses 17 chemicals as ingredients for its soap as well as over 75 packaging components used to ship product in different quantities. Dashboards on PCs in the plant automatically prompt personnel when inventory for these items is low and they need to reorder. Upon ordering, the deduction for payment automatically occurs in accounting. By contrast, “it used to take us a full day to do a proper inventory and make adjustments in the books,” Self says.

ERP also tracks the order history with each supplier of ingredients so production knows which supplier has the necessary quantity at the lowest price. As a result, Self says the company is able to get 90 percent of its chemicals delivered within 24 hours of submitting a purchase order, which also drives customer order fulfillment.

The formula for the product is also stored in ERP, so the specific quantity and packaging information on each sales order determines both when a batch of goods in process is produced and the set-up of the line for packaging it as finished goods. ERP also tracks the quantity of raw materials in house, goods in process, and finished goods as well as the progress of the manufacturing process for a batch through those stages. Since customers’ orders drive production now, ProSoap manufactures to demand and carries much less inventory, resulting in lower storage costs.

ERP also handles all financials. It automatically corrects the books and, via a dashboard, gives Self an up-to-the-minute read-out of income, balance, cash-flow statements, and key performance indicators like profit for the accounting period and number of Web site orders for the month.

CRM

CRM, of course, also lets sales track prospects throughout the entire sales and service cycle. ProSoap markets through its telemarketing call center, via advertisements on relevant Web sites, and through mass e-mail campaigns. It uses NetSuite to create and send mass emails to its more than 60,000 customers when it runs specials. When customers call ProSoap’s telemarketing team to submit orders or for customer service, their caller IDs appear on the phone and reps can pull up their customer history before answering. This, of course, saves time but it also reinforces relationship selling.

Tracking leads from Web site information through pitching the prospect and making the sale then servicing the customer creates intimacy and promotes a higher sales conversion rate. On any call, for instance, the rep knows what the customer usually buys, sees any past customer-service problems, and can alert customers to sales specials to upsell them. In the past, Self says, “We had to use several systems to do this; it took a lot more time, which did not help customer service and sales.”

E-Commerce

NetSuite also supports the Prosoap.com Web site through which customers can buy product. Self says the site dramatically differentiates ProSoap from the competition–“no one else has the catalogue that we do or offers the simplicity of buying with our shopping cart.” Self actually maintains the site himself–he just adds digital content like product photos in minutes by simply filling out content templates. This is especially beneficial because, he’s the first to admit, “I’m not a Web site professional.”

NetSuite also does clickstream analysis, so Self knows key information about visitors’ site behavior–the pages they visited, the percentage of visitors who cancelled a potential order after filling their shopping cart, and the most popular products. This helps him optimize the site to better promote popular products.

The Bottom Line

ProSoap leases nine seats of NetSuite for about $1,000 a month, which totals about $48,000 in fees since 2002. But the company has saved $1 million during the same period on IT staff and software licenses alone for a phenomenal ROI. Of course, one application also radically simplifies IT management, and NetSuite improves sales, marketing, customer service, finance, and production processes.

Lessons from the Outsourcing Journal:

  • Hosted ERP/CRM/e-Commerce suites let SMB manufacturers downsize IT staff, consolidate or eliminate installed applications, and save on license fees.
  • The synergies of hosted ERP/CRM/e-Commerce components derive from front-office processes driving back-office ones so, for instance, Sales activities in CRM automatically kick off production line processes in ERP.
  • The greatest benefit of hosted ERP/CRM/e-Commerce application suites, is better customer service–orders are processed faster and reps address customer needs better.


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