Q1 bottom line profits up $350K at the same time sales are off 17%!

Recently we had a huge ‘win’ at a ERP implementation customer. 

And excuse the vagueness of detail, but many private companies like to stay ‘private’ that way.  But here’s the story. 

Spring of 2006, we were contacted by a Dallas area firm that serves major restaurant chains, manufacturers and others with blended raw materials, spices, flavors, ingredients.  They had been using an antiquated discreet package, Fourth Shift for 10 or so years.  The company was growing rapidly and they’d recently hired their outside IT consultant to help streamline and modernize systems. 

After an exhaustive search, they settled on us, due to technology, features etc – and set about to implement.  By 2007, they were up and running on all the core ERP modules, as well as some of the advanced supply chain tools. 

The implementation went well, they were one of the first clients to come up on the latest version and they served as a flagship account, hosting several site visits of potential customers who wanted to see examples of an implementation done right. 

Then, in Q4 of 2007 the CEO challenged the staff to come up with a better way to forecast demand.  They had purchased Sales Forecasting, but had never implemented the module. By this time, well acquainted with the ERP technology, they implemented the module rather quickly and without too much help or outside consulting. 

Q1 of 2008, Sales Forecasting goes live.  It only took one quarter to see dramatic results. 

In this particular industry, servicing chain restaurants, last minute orders are common. Clients call on Monday, completely out of product and ask for rush orders to deliver Wednesday. Ingredients are expedited to the mixing plant. Overtime shifts are booked. Production schedules tossed and re-worked. Express Delivery barely gets the finished order to the customer on deadline.

Enter Sales Forecasting. By examining historic order patterns and current trends, they were able to accurately predict which orders were most likely to come in and by when.  They started shifting scheduling, filling in soft spots in the production schedule with expected future orders. Then when clients did call in with last minute orders, the shipments were already manufactured, packed, labelled – ready to move out the door. In essence, they changed the business paradigm from ‘make to order’ to ‘make to stock’ for the biggest, and best customers. 

So what was the bottom line result?

Decreases in:

                        Expediting charges for Raw Materials
                        Overtime Labor
                        Production Schedule Changes
                        Changeovers and Washdowns
                        Express Shipping Charges

Net Result, Bottom Line Profits Rose 10% on a Quarter where sales dipped 17% – all while increasing the level of customer service!

Pretty dramatic. 

They don’t publish numbers, but working back from annual revenues adding cost savings to actual profit increases, I estimate the bottom line impact is about $350,000 – and that’s from a single quarter.  Oh how I remember the intensity of the negotiations to bring this total software cost from $235K to $228K.

So how does this help you in your battle to deal with rising fuel prices, rising food commodity pricing, soft markets and all the other challenges your firm faces?

Well for one, your issue may not be Sales Forecasting and that model may not be where you find the return on your software investment. In the example above, Sales Forecasting wasn’t even a key requirement going into the software evaluation.   – But – if you end up with a technology with a deep, deep feature set and long-term experience with Food Manufacturing, you’re likely to discover tools and modules that help you run your business more efficiently. 

And what about timing?  “This Bad Economy is no time to be spending on technology.”

Or is it?

One, let’s recognize that we’re in a soft cycle.  But it’s not a recession, or a depression – but it is soft – and it is a cycle – meaning it’s going to turn sooner or later. 

Two, there are short term gains you can make with the right ERP implementation.  Moving today, you could start seeing system improvements in 6 months – which may just be the end of this soft cycle, when your competition is the most vulnerable, when margins are getting squeezed by desperate competition – and you’ll hold the technology edge – which may be just enough to insure your company comes out stronger, faster than the competition. 

Three, cash flow positive financing is available. By leasing software, you’re pushing the bulk of the payments into the future, conserving cash reserves, improving your technology in today’s lean times and paying it back with increased profits from tomorrow’s upswing economy.  You conserve cash reserves and normal credit lines and still own the system at the end of the term.  Ride out the lean times with greater efficiencies and you’ll be poised to really grow during the boom times to come. 

Four, in a soft cycle, your staff has workload capacity.  Implementing software is a job for every manager in the building. Would you rather task them with this important project NOW, while sales are ‘off’ say, 17% as in our test case – you know your actual number. Because when the market gets hot again, with your new technological advantage, there are going to be so many orders going out the door, no one’s going to have time for any additional projects. 

So – implementing software in boom times gives you the ability to cut losses in a soft cycle. But implementing software in the down cycle gives you the ability to maximize profits in the boom times. 

And may be just the edge to make sure YOU are the one booming during those boom times. 

Tactically, implementing ERP today makes sense on several levels. Yes, there is market uncertainty, and so strategically, that uncertainty is what’s keeping your competition from making the bold move that will ultimately be your competitive advantage in both the short and long term. 

Caveat – It’s known (and I’ll source it as soon as I can find the source) that under stress, one of the first managerial hinderances is the ability to make decisions. If your company is under a great deal of stress today due to changing market pressures, recognize that decision making is hard under the most optimum circumstances, with the most complete information.  So as you examine the decision as to whether to implement ERP – make sure you’re getting ALL the information. What will a GO decision cost us? But more importantly, What does a NO GO decision cost us? 

Gene Hammons, MBA can be reached a GH@GeneHammons.com.