Implementing an enterprise resource planning (ERP) system is a complex, time-intensive endeavor, but it also represents a golden opportunity for companies to rethink their strategies, goals and processes. A successful ERP implementation can spark innovation and improve all areas of a business. By centralizing ever-growing volumes of financial and business data from a company’s various departments, for example, all decision-makers are working off the same proverbial page.
A select group of key performance indicators (KPIs) can help demonstrate the new system’s effectiveness.
9 ERP Implementation KPIs to Know
Companies with successful ERP implementations attribute that achievement to internal factors including management support, good change management programs and proper due diligence. An ERP implementation involves multiple phases, from discovery to business requirements development to planning, deployment and support. The better the KPIs at the outset of an implementation, the more aligned the implementation will be with a business’s ultimate goals, and the more value the organization will draw from its new system.
Companies draw value from their ERP systems for many years, so it’s important to track both short- and long-term KPIs that will collectively measure how the company is getting closer to its strategic ambitions. Once an ERP implementation is complete, tracking improvements in the following KPIs can help a company measure its success and/or identify where it might want to further refine its ERP strategy.
Inventory turnover: Inventory turnover indicates how many products are sold during a specific timeframe. For example, a manufacturer of white-label computer monitors might set a target of selling 5,000 units per week. Successfully implemented, an ERP system will monitor its progress, providing visibility into inventory processes and how it can move products more quickly.
It also helps a business avoid losses due to overstocking and better predict demand based on market behavior. Inventory turnover is of particular importance to manufacturers, which need to set accurate inventory performance ratios to maximize production without sacrificing efficiency in their warehouses.
Project margins: In project-based industries such as construction, project margins measure how much a company makes after subtracting out its expenses for materials, labor and overhead. To accurately measure project margins, a business must track a number of values, including cost estimates and budgets, project expenses and revenue the project generates. Leading ERP systems combine data on all of these metrics to give companies a complete picture of revenue and costs for each project.
Demand forecasting: Demand forecasting KPIs show how reliably a business predicts future demand for its products and services. For instance, a grocery store chain needs to forecast the items its customers will purchase at various times of the year to avoid stockouts or over-ordering. A well-configured ERP solution delivers a high level of forecast accuracy, helping companies predict demand based on a mix of historical data and current indicators, such as an upcoming holiday like Thanksgiving or a predicted major storm, or economic trends like a supply chain shortage.
Scheduling: As the name implies, scheduling KPIs help companies track production speeds against their production schedules to ensure they don’t fall behind or miss crucial milestones. For a toy manufacturer, that milestone might be to produce and deliver double the amount of its hottest games in time for the Black Friday shopping rush. Likewise, a software vendor might have a strict production schedule to launch its latest product update. An ERP system simplifies scheduling by providing a clear picture of how manufacturing and production processes are tracking against deadlines and insights into possible disruptions so teams can adjust proactively.
Employee satisfaction: While not a precisely quantifiable metric like ROI or sales, employee engagement and satisfaction can be gauged by a successful ERP implementation. Satisfaction and engagement can be inferred by higher levels of productivity or employee retention and even an increase in sales — all of which bode well for a business’s financial health. Conversely, an ERP can show when KPIs are trending in the opposite direction, providing the insight a business needs to address and remediate any potential issues quickly. Doing so can also help it preserve the investments being made in employee training and morale.
Business productivity: Productivity is a universal measure of business performance, and with good reason. If a company and its individual departments and teams aren’t making the most of their working hours, they risk missing their goals. Common roadblocks to business productivity include process inefficiencies, equipment failures, supply chain issues and reduced employee output — all of which can be tracked by an ERP system and assessed holistically. That way, a company can analyze all the factors affecting its productivity and make better-informed decisions about how to improve them. For example, a warehouse manager might see that picking processes for high-demand products have slowed down due to a staff shortage and hire additional workers to overcome the problem.
Customer experience (CX): Customer experience KPIs are arguably a company’s most important metrics. Virtually every improvement a business makes to a process or function will touch and benefit customers, which in turn drives sales, growth and longevity. ERP systems are ideally suited to inform such improvements, which include faster manufacturing times, more accurate fulfillment and more flexible delivery options for a company’s products and services. For example, a hotel chain operator can use its ERP to track customer ratings and reviews to inform improvements to the guest experience.
IT spending: IT spending metrics help businesses extract the most benefit from their technology investments at minimal cost. More mature companies, especially, struggle with a tangle of legacy systems and processes, which invariably lead to inefficiencies and unnecessary costs. An ERP can track metrics related to costs of hardware, software and cloud subscriptions at a company or per-user level. With this information at their fingertips, businesses can look for ways to consolidate and optimize their systems to cut costs without sacrificing performance.
Revenue growth and sales: If CX is a company’s top priority at the operational level, revenue growth and sales are its top performance imperatives. Revenue and sales metrics indicate how much money a business has made from the sale of its products and services for a specific time period and how that trends over longer periods of time, such as quarter-over-quarter and year-over-year. Common metrics in this category include average profit per item sold, operating margin and average order value. With a successfully implemented ERP and the right KPIs, companies can identify their biggest revenue growth opportunities while simultaneously gaining insight into areas where they can boost efficiency to cut operating costs. Combined, these types of insights can lead to improved sales and healthier profit margins.
Importance of Real-time Data
Real-time data is key to gaining a consistent view of people, performance and technology across an organization. A successful ERP implementation should produce better, more detailed information around business operations and processes and centralize that information so that decision-makers base their strategies and plans on the same information, no matter where they sit in the business.
Companies commonly integrate their ERP systems with business intelligence (BI) dashboards to make this data accessible to, and easy to digest by, stakeholders, even those who don’t have deep knowledge of analytics or ERP software. Resulting improvements in business communications are hard to measure with a single KPI but can be inferred by the general business improvements defined by the previous nine KPIs. For example, for manufacturing companies, factory-floor downtime can be a more direct measure of the value of an ERP system’s real-time data flow, since improvements in the availability of real-time information about factory operations should translate into reduced downtime.
How to Measure ERP Implementation Success
The success of an ERP implementation shouldn’t only be measured by how quickly the new solution is deployed. A smooth implementation is a strong start, but an ERP system begins to add value only when it’s used to improve business processes. Such improvements in how the organization works become evident over time by measuring improvements in the nine KPIs listed above.
In addition to those KPIs, answers to the following questions can also help business managers assess the value of a recent ERP implementation:
- Which business processes experienced immediate improvements? Which suffered impairment, and how was that overcome?
- Has the ERP system met all the expectations set out for it before implementation began?
- Do business managers notice a general reduction in errors? Improvements in decision-making?
- Have customer relations/satisfaction improved?
- Have employees incorporated the ERP system into their daily routines?
- Has business growth begun to accelerate?
- Overall, do business operations feel less fragmented/more coherent?
- Are business managers happier than they were before the ERP implementation?
Some of the answers to these questions will be subjective, and some may take a little time to become clear. But by taking them together, and combining them with the more directly measurable KPIs, business managers should emerge with a strong sense of the value their new ERP system is contributing to the business.
ERP implementations take time, energy and buy-in from teams across the organization. The list of KPIs in this article is not exhaustive, but businesses can cover all the bases of a successful implementation by focusing on these nine performance indicators.
It may be tempting to chase ROI and revenue alone, but by refining the customer experience, internal processes and working culture, companies can see clear ERP implementation benefits — and set themselves up for long-term success.
ERP Implementation KPI FAQs
What are indicators of ERP implementation success?
There are multiple indicators of an ERP implementation’s success, including business performance and profitability, employee satisfaction and customer experience improvements. Successful implementations also drive improvements in people, processes and technology.
What is a KPI in ERP?
A KPI is a key performance indicator. When implementing a new ERP system, identifying and tracking the right KPIs helps companies prove that their objectives across different disciplines, including finance and accounting, sales, human resources and marketing, are being met or exceeded.
What are the 5 key performance indicators?
Five of the most important KPIs for a successful ERP implementation are revenue and sales growth, customer experience (CX), project margin, business productivity and employee satisfaction.
How do you measure ERP performance?
ERP performance can be measured using a range of key performance indicators (KPIs). These measure cost and efficiency gains, customer satisfaction and improved working practices. But intangible factors should also be considered, such as how widely employees embrace using the ERP system and whether managers believe the system has improved their lots in life.