It's no surprise that more small and medium businesses are implementing enterprise resource planning (ERP) systems. Larger firms are expecting their suppliers and partners to be able to interconnect with their systems.

Fortunately, upgrading from a standalone accounting package to an ERP system is getting more affordable for the SMB. Major players in the ERP space, such as Oracle and SAP, are offering software tailored to the small business.

Alan Tong, a research manager who covers supply chains, ERP and CRM at IDC, says implementing a basic ERP system can be done for around US$50,000. Although this may seem relatively low compared to the amount that some large enterprises have to fork out, cost is always an issue for many SMBs. "If you look at a vendor's briefing, there is always interest [from SMBs]," says Tong. "But they are always hesitant to pay."

One company that wasn't hesitant to pay is Seng Hua Hng Foodstuff, the Singapore-based maker of Camel-branded nuts. The company decided to upgrade, in part because of Y2K concerns about its accounting software as well as the desire to have a deeper understanding of its business.

"We were looking for a more integrated reporting of our finances and other areas," says finance manager Poh Shih Yin.

Previously, says Poh, stock-taking was done on a yearly basis. Now, the state of inventory in the warehouse is tracked in real-time. This new system helps eliminate errors and provides better information to company decision-makers. This has helped the company cut costs.

Poh is not alone. According to K.S. Suresh, senior director for SME Business at Oracle Asia Pacific, there is a great deal of interest coming from the mid-market. These companies are not, however, interested in technology for technology's sake. "I think the smaller companies are more interested in solving their business process problems as opposed to trying to buy a package," says Suresh. Whether the problem is cash flow, order procurement, a problem on the manufacturing shop floor or something else, these companies are investing in solutions.

IDC's Tong agrees, saying that many companies are looking to solve immediate problems when they install such systems. The challenge, he says, is for smaller businesses to look beyond immediate needs and formulate a strategy that allows them to fully integrate the ERP systems into their business processes.

Financials and purchasing automation is the core of what most customers ask for, according to Suresh. After those modules are up and running, other capabilities can be added as needed.

Probably the biggest challenge for small businesses is maintaining the system. While that maintenance can be outsourced, the costs can be substantial. Seng Hua Hng was not fully aware of how much it would cost to run the system, says Poh. The company's in-house IT staff could not handle the complexity of the new system. Hiring a database administrator is a significant cost and the company has chosen to outsource maintenance of their system to Oracle. Whereas the old stand-alone package cost, at most, a few thousand dollars a year to maintain, the cost is now "hundreds of thousands."

Still, Seng Hua Hng is planning to take further advantage of the capabilities of its system as it grows.

Very small businesses, says Tong, are probably not ready to upgrade to ERP systems, not even packages designed for smaller business. While every business is different, he suggests that it is probably around the 400 to 500 employee mark where most SMBs stand to gain most from such systems. More important, however, is whether management has thought through what it wants to get out of such a system, says Tong. "A poor business strategy and lack of vision will hold you back."

Back to Special Report Home