Recession Strategy with ERP

This article explained why Enterprise Resource Planning (ERP) is an important tool and strategy to prepare your business for the coming recession.

Increasing Interest in Enterprise Resource Planning Solutions

The need for Enterprise Resource Planning solutions has become more apparent in the past few years.  This can be observed from Google Trends for the keywords “Enterprise Resource Planning”, which shows that the interest in searching for information on “Enterprise Resource Planning” has nearly doubled in the last 5 years.

Companies have realized the importance of Enterprise Resource Planning (ERP) solutions in helping them in navigating business challenges.

Why the Coming Recession is Different

Many analysts had been predicting the coming of a severe recession or even depression for many years.  The signs of recession in the last 1 year have become more evident.

This predicted coming recession or even depression will be very different from those we had experienced so far for the following reasons:

Severe Correction of Shares and Property Prices

As the shares and property prices had been overly boosted by the low-interest rate and excessive liquidity over the recent years, the overdue correction will be especially severe when the interest rate increases and recession kick in.

Unstoppable Inflation, Stagflation, and Worsening Debts

The inflation/stagflation that is occurring now is not due to just excess liquidity and demands for goods and services, but also due to shortages in supplies caused by supply chain disruption, pandemics, regional conflicts, and worsening climate conditions.  These make it difficult to resolve just by increasing the interest rates, yet increasing the interest rate is necessary. Yet, the increase in interest rate will worsen the debt situation.  Businesses will find it difficult and expensive to acquire funds and those that operate on borrowing will find it more expensive in servicing their debt.

Cycles of Instability

To solve the economic challenges, governments need the resources and focus.  At the same time, they have to work on consistent longer-term policies.  However, many governments are facing the challenges of supply chain disruption, pandemics, regional conflicts, worsening climate conditions, and even strong political rivalries.  These toxic combinations are making the formulation and execution of recovery plans even more complex.

The shortage of government funds to address these challenges does not help.  And yet releasing more liquidity into the market will make inflation even more severe.

Business Strategies to Prepare for Recession

The strategies for overcoming and surviving the coming recession are not straightforward.  But from past experience, the market will likely eliminate the weak and the less healthy businesses.  Therefore, it is crucial to act now to ensure that your business is stronger amongst your peers.

Reduce Fixed Costs and Built-Up Options for Variable Costs

In a market situation when the revenue and business activities fluctuate greatly, it is important to keep the overheads and fixed costs low.  This allows companies to scale up and down their costs quickly.  Companies can do this with contract resources and outsourcing instead of employing resources in-house.  Examples such as enabling your employee to work from home will help to reduce your recurring rental costs.

Be Even More Efficient and Productive

In an economically challenging period, governments will act to protect their local workforces.  Coupled with the increasing inflations, the costs of labor will continue to increase.  It is important to automate your business processes as much as possible to reduce the reliance on manual labor.  At the same time, make sure that your service level does not deteriorate.  This will in turn help to keep your labor overheads lower, become more nimble, and retain your customers.

Be Ready to Make Informed Decision Quickly

Your speed to adjust and react is important.  Ensuring that you have timely visibility of your business information will allow your company to plan ahead and react accordingly.

Conduct scenario planning and work out alternate plans in each foreseeable situation.  Doing this will allow your company better prepare for the challenges ahead.

Never Put All Your Eggs into One Basket

Supply chain disruption will be the new normal.  It is important to build multiple sources and options.  You need to understand their impact on your business profitability and risks.  This will give you an edge over your competitors.

Optimize your Supply Chain not just on costs, but also to mitigate risks.

How to Leverage Enterprise Resource Planning

So, how does Enterprise Resource Planning (ERP) helps your company to execute these strategies?

Enabling Work-from-Home and Work-from-Anywhere

An Enterprise Resource Planning (ERP) system that is accessible through the cloud and Internet will allow your key employees to work from anywhere.  And enable you to employ labor from any country mitigating the labor restriction.

Automate Business Processes

ERP will be the core tool of your business processes with add-on solutions that integrate into your online presence, account payable automation, warehouse management system (WMS), bar-code mobility, Point-of-Sales (POS), and many more.  This will help you to:

• Reduce your Manual Work
• Improve Consistency of your Sales Order Execution, and
• Improve Management Control

Faster Decision Making through Better Visibility of Business Activities

Data collected in Enterprise Resource Planning (ERP) system is a wealth of valuable business information.  Use it wisely and you can better your sales and cashflow forecast, reduce your inventory level and even conduct scenario planning.

Recommended Actions

For those companies who already running Enterprise Resource Planning (ERP) solutions, they should review their existing solution and identify areas to make them even more effective and valuable.  Some areas that you can explore include:

• Enhancing the skill, knowledge, and strengthening of the concepts of your users on effective usage of ERP.  Some examples are learning how to use ERP to optimize your inventory level and efficient production planning and scheduling.
• Review areas for further automation such as integrated e-Commerce, AP (Account Payable) Automation, etc.

For those who have yet to have an ERP system:

Conduct Feasibility Study

Evaluate the feasibility of an Enterprise Resource Planning solution for your company.  For companies that are smaller in size, you may want to explore the possibility of teaming up with other smaller companies for economies of scale.

Act Fast

It will take between 1 to 1.5 years from feasibility study until your ERP project and users are stabilized.  Enterprise Resource Planning is a solution that you can only realize the benefits after at least 1 to 2 years.  So, it is crucial to start now.

Implement Well

Make sure that you select the right solution and vendor and implement the project well.  You cannot afford a second chance.

Conclusion

In a recession, companies should conserve cash and also invest wisely.  There is no need to be overly pessimistic.  We all went through some form of recessions over the years, although the coming one may be more challenging.

As long as your goods and services are needed by the market, your business has reasons to succeed.  You just need to be better than your competitors.

The question is: What are you doing so that you are competitive and sustainable.  Enterprise Resource Planning solutions provide a powerful tool to enhance your competitiveness if you use it well.

Learn More about the author, Raymond Yap, and how we can help you.

#erp #enterpriseresourceplanning #erpstrategy #recession #depression #erpselection #erpproject