Fixed expenses are often the most difficult part of business operation, as they can greatly impact profit margins. From leasing, and compensation packages, to marketing expenses and utility bills, many fixed expenses may be controlled, albeit, not eliminated. Managed ERP systems provide businesses with the means to efficiently tackle and attempt to mitigate these expenses which will improve the financial position of the business and enhance profitability.

Some Types of Fixed Expenses Include the Following

Now, let’s look at how ERP can be effective, but before that, let’s examine the common fixed expenses that many businesses incur.

Rent:

Cost incurred in leasing an office or a warehouse.

Interest:

Payment with the loan or upon the use of credit.

Salaries:

Payment made to the employee for his services.

Marketing:

Cost incurred in advertising and sales promotional activities.

Sales:

Expenditure incurred as part of running the sales operations.

Customer Support:

Cost incurred in maintaining customer relations.

Energy:

Utility expenses such as electric and gas bills.

How ERP Lowers Fixed Expenses

Improving Real Estate Expenses

Many companies grapple with underutilization of space, which contributes to exorbitant rental tariffs. ERP can assist with that by providing information that enables better management of physical resources. For example, a cluttered warehouse is not only wasteful, but also very unproductive. By implementing an ERP system, companies can organize and structure their processes, resulting in lowered stored goods expenses, optimized asset usage, and in some cases selling off space that is not necessary, such as offices or warehouses.

Decreasing Payments With Interest

Overstocking products consumes working capital and proves to be more detrimental than beneficial. ERP systems facilitate timely data regarding the level of stock available to help businesses evade overstock purchasing. Businesses are able to access capital by selling their stock rather than resorting to high-interest loans because they are automatically decreasing cash flow over time with each inventory sold.

Reducing Payroll Expenses

ERP systems also tend to cut back on expenditures on employees as there is reduced reliance on human capital in areas like human resource and payroll which can cost a lot more when done manually. The ERPs thorough automation streamlines many HR processes as well as payroll which, in return, helps realign costs associated with salaries. By eliminating manual processes, businesses not only save labor expenses, but also boost transparency and thus the overall activity of the organization.

Streamlining Marketing Waste

Minimizing wasteful spending on ineffective marketing campaigns is made easy with ERP systems that catalog detailed marketing marketing budgets. This provides insights into various ad campaigns making it easy to optimize marketing strategies with the best ROI. Use this newfound cost saving to allocate other resources towards more intensive marketing strategies.

Minimizing Sales Expenses

With the help of ERP systems a business can automate several key elements of the sales cycle such as generating leads, processing orders, and post sales followups. As manual effort is replaced with automation, businesses will be able to streamline their operations and reduce the total cost towards selling expenses. Saving this money allows the business to invest in other important areas.

Streamlining Customer Support

Though necessary, customer support can eat a large chunk of a company’s operational budget. In order to reduce these costs, ERP systems enable businesses to automate customer service workflows by classifying and segregating customers based on their earned revenue to allocate resources more efficiently. This method allows for more affordable customer support while increasing the quality of the services provided.

Monitoring Energy Expense

Power consumption contributes to one of the highest fixed expenses for larger offices and factories. Tracking energy usage can help do away with wasteful consumption, lowering utility bills significantly. ERP software can detect energy usage patterns, mark anomalies, and make data driven suggestions on how best to consume electricity. All of which helps businesses save on energies expenses and improve their impact on the environment.

An Appealing And Impactful Case Study With ERP

With the aim of lowering fixed expenses through ERP, Prof Nagar explains the case of a production company that adopted an ERP systems to manage its inventory and production. The company was able to increase stock levels of different items on sale, ascertain the costs, and control the entire supply as well as demand cycle in a manner that ensured profitability was achieved. In the end, the employee efficiency target was attained, employee efficiency was raised, and as a result, profitability increased.

Most Valuable Points While Implementing ERP

An ERP system can significantly improve the state of finances of a business. The most important gains include the following:

Increased Profits:

Businesses can increase profits by eliminating unnecessary spending and improving inefficient practices.

Increased Employee Efficiency:

As a result of employing better processes, employees engage in more productive work since they do not have to do menial tasks.

Improved Decision Making:

ERP systems provide real-time data and insights, enabling decision makers to utilize information for more strategic and optimal resource planning.

Take Away

Every business incurs some fixed expenses, but they should not come at the costs of profits. With the application of ERP technology, businesses can manage all operations and expenses ranging from rent to salary, energy expenditure to marketing expenses in a more efficient and streamlined manner. Doing this will not only help reduce costs, but will also improve the business’s profitability and help them grow sustainably over the long term.

Categories: Enterprise Resource Planning (ERP)