Much has been said about the specific functioning of family businesses. But what is true for both large companies and family businesses is the increasing pressure to digitise and automate processes. This is driven not only by changing customer behaviour (even before the COVID-19 pandemic), but also by the opportunity to improve operations and increase profitability.
An inherent part of digitalization and automation is enterprise software, which no company can do without today. This includes everything from email or applications like Word and Excel to complex ERP and CRM systems.
Behind the over-inflation of phrases around software in the last few years are the huge opportunities that lie here. But the problem remains to clearly identify these opportunities. Moreover, it is not always possible to clearly demonstrate that investments in software have a meaningful financial return.
However, a growing number of SMEs – and often family-owned businesses – are already using software to take their business to the next level. The main benefits include reduced costs, improved products (and consequently increased competitiveness) and/or increased sales.
In this article, we will focus on the first of these, i.e. reducing costs with software and subsequently increasing the company’s profitability.
The cost of the software itself
First and foremost, it is of course important to look at the cost of the software itself, which we then want to use to reduce the overall costs of the company.
A survey by prestigious publications such as CIO.com shows that the cost of company software usually consists of the following parts:
- 30% purchase price / usage fees per year
- 15% implementation and customization
- 15% support and maintenance
- 10% other costs (downtime, required hardware, etc.)
- 30% unused value
Up to 70% of the costs are therefore attributable to items completely outside the purchase price. What’s more, it is estimated that up to 30% of the software is unused in most companies. In practice, this means that you are not using a third of the features you are paying for, or that you do not have the technical capabilities to use the full potential of a particular system. The result is the same – wasted time and money.
That’s why your first priority should always be to minimize your costs for the software you purchase or already use.
Where software can help reduce costs
Business software can be used in many different ways. But the most important thing is that its deployment doesn’t have to be extremely complicated. Below, we’ll look at a few specific situations where software has helped small and medium-sized family businesses save costs. And they did it without a large investment or an in-house team of IT specialists.
Automation of administrative processes
In one family business, orders were previously handled between the company stores and the head office in the classic way – over the phone. The obvious problem here was not only the time-consuming and cumbersome nature of the whole process, but also the considerable error rate. Each error had to be corrected, which cost additional valuable time and hampered other processes.
The solution was not difficult. There were already tablets in the company’s stores that were used for various tasks. Therefore, the company management had a simple form created in MS Forms, which was saved as a simple link on the desktop of each tablet in all stores. Instead of making a phone call, employees at each store would then open this form when an order needed to be placed and fill in the relevant information – type of item, quantity and any relevant notes.
The form is linked to a standard Excel spreadsheet where all orders are automatically entered and an email notification is sent to the designated person with each entry. This is made possible by a simple flow that is created in MS Power Automate. This is usually part of the standard Microsoft suite of applications, just like MS Word and MS Excel.
As a result, no new software had to be purchased, but better use was made of the existing one. It was not even necessary to look for an external partner – the whole functionality can be set up with the help of manuals available on the Internet. Such a change saves several hours a month of tedious administrative work and thus saves a considerable amount of money. In addition, the error rate has been eliminated by about 90% and the management now has order data to work with.
Streamlining key processes
Another family-owned food manufacturing company was looking at how to streamline the stocking of manufactured products and the associated process of updating inventory in a warehouse management system. This process had always been handled manually with the notorious pencil-and-paper system.
Here the solution was more challenging than in the first case, but even so it was not extremely complicated. Since the warehouse management system already in place included the possibility of retrieving goods using QR codes, the software side of things was solved by purchasing this module. This required the purchase of three QR code readers as a hardware add-on.
In the end, the whole process was only enriched by a single added activity – when the product is manufactured and then folded into the crates in which it is stored, a corresponding QR code is attached to each crate. This will be pre-prepared to upload the correct goods to the warehouse management system when retrieved. This will eliminate manual recounts and paper records of goods by people in the warehouse and the associated error rate.
As a result, no new software had to be purchased here either, just a module added to the existing one. An external partner then helped to put the whole system into operation by connecting the hardware to the software. This change saved several hours of work per month and reduced the error rate to a minimum. As in the previous case, management now has data that previously had to be laboriously mined and edited. Today, on the other hand, they have an instant overview of what products are or have been in stock during what time period.
Data acquisition and integration of existing systems
A final example is data mining, which can be combined with existing data to reveal areas where significant improvements can be made. Thus, the same family business as in the second example above started to collect outputs from production machines that it had not previously processed in any way.
These outputs are regularly uploaded into a pre-built model in MS Power BI (a tool for graphing and tabulating data into understandable reports), where they are combined with other data, such as current stock levels.
The whole model is not complicated and has been designed so that one can immediately see what the total cost of the product produced is, how efficient the production itself has been and what margin the company is making on it at current selling prices. As the company has several similar products, it is easy to compare the different products.
Combined with the costs of the individual components of the final product, which are uploaded here on a regular basis, this firm has a real-time view of the gross margin development for each product. This allows the management to focus on cost reduction for less profitable items, where previously it was difficult to calculate the margin accurately at all.
As a result, the MS Power BI software was purchased as an additional application to the MS Office 365 suite, which is standard in most companies. With a bit of skill, the report was created by existing company staff using available materials and guidance. The data that this report collects and processes is critical to the long-term prosperity of the company.
Conclusion
Enterprise software offers countless opportunities to reduce costs not only in large corporations but also in family businesses. Above, we have given three specific examples where no high costs have been incurred and interesting cost reductions have been achieved using software.
The result is two things. The first is the time saved and the reduced error rate, which of course means money saved in practice. The second is the data collected, which provides the basis for further streamlining of processes, the profitability of individual products and customer segments or the failure rate of technologies.