An organization big or small is divided into several departments based on functions. Administration, finance, marketing, sales, customer service, public relations, inventory, logistics, production, HR, exports are some of the departments. In the conventional business process, each Department functioned as water tight compartments with little interaction between them on real time basis. Each information or data has to be fetched from the relevant department either through phone, email or messaging. Apart from being time consuming and cumbersome, it will also lead to duplication of data.
With the introduction of Enterprise Resource Planning (ERP), business processes became easier enabling integration of various functions within the organization and availability of data on real-time basis helping in quick decision making.
Enterprise Resource Planning is not a simple software but a massive software architecture that integrates all the departments of the organization and helps them communicative with each other.
Here are the features of ERP that helps companies improve its productivity:
They are centralized not decentralized systems
In government administration and planning, decentralization may be good in certain situations where there should be intelligence about the needs and requirements at the local panchayat level. In business, if information flow is decentralized, the decision makers will have no idea of the whole picture at any point of time. There will be a time lag –fetching information by email, letters or phone. In a competitive industry, it can impact the firms growth prospects as they can’t respond fast to changing market conditions and consumer demand.
Let’s see what happens in a decentralized system: When the sales department gets a large customer order, it checks with inventory department for availability of the product. If it is not available, they have to approach the production department to produce more. The production team has to get in touch with inventory to know the stock of semi-finished goods and store for raw materials. They may have to order fresh batch of raw materials. And if they haven’t consulted the Finance Department before placing the order, payments to vendors may be delayed. By this time, the consumer may have left and gone to the competitor. This leads to huge loss of business, market share and brand value.
They share a central database
In an organization there are several types of data, consumer data, employee data, production data, inventory data, financial data. All companies use databases to create, store and manage data. Advanced Erp Systems such as SAP can work any database, any platform and with any operating system. Some databases are inter-related- for eg. employee data is shared by HR, Finance and administration but in ERP systems each division doesn’t maintain a list of employees but fetches it from the HR Department. Therefore, duplication of data is avoided. Likewise, the consumer database is shared by finance, sales and distribution, marketing and public relations. But there is no duplicaton of data as all departments fetch the data from the central server or database. Central database enables economizing on database maintenance costs.
It is user-friendly and involves the entire stakeholders
Enterprise Resource Planning is not a sophisticated system that is only for programmers, managers, decision makers or techies in an organization. The system recognizes the importance of the most junior employee and they have a role as end users. They are the people who input data- for eg. in the sales department, the sales clerk inputs customer data such as name, email id, age, address, mobile number and purchase details to create sales order and subsequently the invoice. The company also needs the help of functional consultants who understands the various business processes with an organization – such as Finance, HR, Accounting, Inventory …..and help in the development of modules. They define the requirements, parameters and what all types of data, type of permissions required. The coding and backend configuration is done by technical consultants who are experts in BASIS, ABAP, and HANA.
Enterprise Resource Planning is customizable and adaptable
ERP system is not a software solution that makes the organization adapt its business processes to confirm to its system but ERP system can be customized to the requirements of the company irrespective of the operating systems, database systems being used. ERP solutions are not for large organizations alone. It is now available for small and medium businesses too. Morever, ERP systems can be implemented in a modular fashion which means huge upfront costs need not be incurred by an organization if it has financial constraints.
Implementation is at the core of ERP solutions and the success lies in understanding of the business processes that is usually done by functional consultants either available in-house or outsourced. When the requirements of the firm, software, servers integration doesn’t match, it is said that there are gaps in implementation which are addressed by the technical consultants specialized in BASIS or ABAP.
ERP takes advantage of the cloud and mobility
Many companies find implementation of ERP on site to be expensive, taking more space and integration with in the organization. Luckily, there are cloud service providers who enable full or partial storage of data, software and the platform to run it. This enables companies who have critical data that needs to be secure to be held in their own servers while getting more generic work done in the cloud platform. ERP systems are also deployable on the mobile, so that salesmen, marketing executives can update information in real time enabling quicker response from the decision makers in the corporate headquarters.
With cloud has emerged Software-as-a –Service (SaaS), Platform-as –a – service (PaaS) and several pay-per-use packages which has drastically reduced implementation time required in the traditional on-site models and drastically cut costs of ERP implementation.
All stake holders feel the difference with ERP
The use of ERP systems not only benefit the employees and the organization but also the consumers. These days, organisations value customer loyalty and most often they just need to tell their mobile number to get loyalty bonus, get billed quicker at the retail store and stay informed about discounts and offers of the company.
It is a win-win situation for both the customer and the company. Those not requiring a printed bill are delivered an e-bill in real time thanks to ERP systems. A bank customer gets money any time of the day or is able to deposit money at cash deposit machines (CDMs) 24/7 thanks to ERP. In an ERP led hospital, you need not carry your previous records with you every time as they are all saved in the patient database.
When they go a follow up visit, all that is required is the ID card or the hospital number. The case sheet opens up in doctor’s terminal just before you enter the consulting room and subsequent x-rays or blood reports are also updated soon on the patient database. Once the diagnosis is over, the patient just needs to move to pharmacy and tell the hospital number again to get the medicines prescribed.
Integration with Customer Relationship Management
The distinct organizational advantage of ERP lies in complete understanding of the customer right from the time he/she is a prospect to the customer, after sales, feedback, buying habits, repeat buying. If CRM and ERP are integrated, a customer who calls the call center to track an order will get the desired information at their fingertips. They will have access to the inventory, shipping details and likely delivery date.
ERP Improves efficiency across departments
As ERP integrates each department into a central database, finance, marketing, manufacturing and inventory control improves. Data comes from sales, finance, and various business units with different sets of numbers, ERP integrates them giving a snapshot for CEO to assess. Reporting formats and procedures can be custom made for each organization enabling collaboration and discussion between departments. Manufacturing processes can be streamlined using automation features of ERP, inventory control is better through the centralized system and the customer is taken care of in the entire life-cycle of the product – whether it is five years or seven years.
It benefits both start-ups and traditional businesses
Many large companies that were running legacy systems and databases unable to communicate with each other slowly started moving to ERP platform in the 1990’s and 2000, the process still continues. Since the advanced ERP systems are all platform, OS and database neutral even the database of legacy systems can be integrated in to the ERP.
For start-ups, they have the advantage of starting with smaller ERP implementations that can be scaled up as the organization grows.
ERP is known to give positive ROI in a year
The implementation of ERP may take one to three years in a conventional scenario but with Cloud based computing the time frame has come down. According to surveys, companies which were focussed on return on investment (ROI) at the beginning of the ERP implementation could see significant results happening after a year. It could be in the form of cost reductions, quality improvements, customer satisfaction, reduced employee count, redeployment and improved market share.
Apart from proprietary ERP systems such as SAP, Oracle and Microsoft, a few open source platforms have emerged making it cheaper and easier for solution providers to work on. Odoo, ERP Next, Dolibarr, and Opentaps are the popular open source pacakges. These are web applications that can be downloaded, installed and used by corporates. They do most of the activities of a conventional ERP including billing, inventory, accounting, manufacturing, purchase and project management functions.
Some companies such as Nestle had a bad experience in implementation of SAP ERP software but that does not diminish the value of ERP in industry, according to analysts. The problem with Nestle implementation centred around a change over from a highly decentralized system to a centralized ERP with the stake holders not properly briefed and involved in the procedures.
Moreover, there was a rush to complete the process before the Y2K deadline and this caused problems with integration of modules. Just as there are advantages in ERP implementation, a flawed ERP system can lead to sunk costs, disruption of existing business functions and loss of employee confidence.
However, ERP systems are secure ensuring confidentiality of data, preventing unauthorized use or sharing of data within the company and outside. It is capable of being integrated with the e-commerce division of the company. Even pure play e-commerce companies need to have robust ERP systems in the back end to provide good customer service and optimize production, marketing and delivery of goods.
Unless employees are properly briefed and trained on working with ERP systems, implementation processes may not be smooth.
Many ERP implemented companies are looking for people skilled in ERP software at the entry level itself but not many of them are available. The knowledge gap is being bridged with the introduction of e-learning programs by companies such as SAP which helps both students and industry people to learn and acquire ERP skills.
Running costs may be reduced by high initial costs could be a dampener in ERP implementation, according to analysts. The system is robust to face any internal threats but most systems are vulnerable to external attack compromising the data of customers.
Yet advantages overweigh disadvantages especially in a competitive, multi-location operation most companies are into. It is also suitable to take care of tax and reporting compliance of various regulators. It can handle multiple currencies, symbols and offline, online payment systems.
The global ERP software market is expected to grow at a compounded annual growth rate of 7.2% from 2014-2020 with market size to expand to $41.69 bn. ERP has entered almost every industry vertical with more activity happening in aerospace and defence. On premises ERP implementations would continue to have more market share compared to cloud based applications. The industry has become flexible with vendors providing SaaS and on-premise implementations as per industry requireents or demands. Moreover, ERP vendors are attuning themselves to the demand for larger integration with social media platforms and making suitable changes in the interfaces.
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