Regardless of the reason why an organization decides it’s time to implement a new ERP system, most everyone expects the investment to realize measurable business value. The frustrating reality is that many organizations seek measurable results without spending time to establish their baseline measures.
One of the activities we strongly recommend organizations perform in preparation for a project is to identify and measure their baseline performance metrics. By knowing how you perform against these varied metrics, you can identify areas of improvement with the new system and then monitor your achievement. Secondly, you can associate the investment with some level of return. If you intend to manage the outcomes of your project around business value, then you must have measurements.
Key Takeaways
- Remember, you cannot manage what you cannot measure.
- Identify the metrics you will use to determine project success.
- Take your “before” measures now, so you know your starting point.
- Where do you expect to see improvements?
- Create your desired “after” measures and embed them in your project charter.
Common Metrics in Distribution and Manufacturing
How organizations measure their performance varies company by company, industry by industry. We have several recommendations and ideas for your pre-implementation performance baseline.
Finance and Accounting
- Gross Margin %
- Net Profit %
- Days to close
- AP and AR Turnover Ratio
- AP turnover ratio
Total credit purchases / Average accounts payable
Measure of short-term liquidity
Higher payable turnover ratio is favorable - AR Turnover Ratio
Net credit sales / average AR
Quantify effectiveness in extension of client credit and collection efforts
High turnover ratio is favorable
- AP turnover ratio
- Days Sales Outstanding
- Finance Error Reporting Rate
- Measure to track the accuracy of your company’s reporting
- Key indicator for improvement needed in software or employee training
- Percentage of financial reports that contain errors necessitating a review or more detailed audit
- Budget Variance Rate
- Compares budget projections to actuals
- Reveals areas for improvement in the forecasting process such as assumptions of growth, headcount or expense accruals
- Payment Error Rate
- Percentage of payments not completed due to
processing errors
- Percentage of payments not completed due to
It could mean quality control issues such as no PO reference, missing approvals or documentation, etc.
Order Processing
- Quote preparation times / quote conversion rates
- Times to process quote / quote to order / order to invoice
- Order entry error rates
- Credits quantity by reason code, credits value by reason code
- Pricing & discounting accuracy
SHIPPING ORDER PREPARATION TIME
- Orders per month / minutes per shipment
- # of FTEs * Minutes per day * Workdays / 60 minutes = Hours per month
- On-time delivery
- On-time shipment
- DIFOTS (Delivery in full, on time, to spec)
- Picking error rates
- Packing error rates
- Shipping error rates
WAREHOUSE AND INVENTORY PERFORMANCE
- Inventory variances by reason code
- Inventory Manual Reconciliation: # of FTEs * Minutes per day * Work Days / 6 minutes = Hours per month
- Locations counted and accurate
- Sales order shipping lines per hour
- DSIs (Days sales in inventory)
CUSTOMER SERVICE
- Customer complaints by reason
- Average age of Customer Service Case
- Average number of customer adds
- Average % of customers retained
ADDITIONAL EXAMPLES
- Kit assembly time (Kits per Hour)
- Time spent per return (minutes)
- Number of returns dealt with per month
- Current annual procurement value * Targeted price improvement
- Manual time spent on manual quotes
If you are serious about moving forward with selecting a new ERP system, please check out our post regarding 6 To-Dos Before You Select a New ERP. In addition to the pre-implementation metrics we’ve outlined here, there are other critical to-dos for your company checklist before you even get to the pre-implementation phase.
If you have any questions about implementing a new ERP or about these pre-implementation metrics, please reach out to us at any time!
