An ERP system integrates several existing management functions into a logical integrated system and facilitates the flow of information between these functions. It is designed to model and automate key processes in an organization through a centralized database, eliminating the need for various systems managed by different departments of an organization.
In 1960/70, separate systems were maintained for traditional business functions such as sales and marketing, finance, human resources, manufacturing, and supply chain management. These systems were often mismatched, hosted in different databases, and required batch updates. Managing business processes across business functions was difficult. ERP systems have replaced isolated information with the integration of these traditional business functions.
A successful implementation of an ERP system will have many benefits, as indicated below:
- Business Integration and Improved Data Accuracy: When data is entered in one module, such as goods receipt, it automatically updates other related modules, such as accounts payable and inventory. This update happens in real time that is when the transaction takes place. Since data only needs to be entered once at the beginning of the transaction, there is no need to enter the same data multiple times. This reduces the chance of duplicate/incorrect data.
- Planning and MIS: Various decision support tools such as planning engines and simulation functions are an integral part of an ERP system and help in the proper utilization of resources such as materials, human resources and tools. Constraint-based scheduling helps develop proper production schedules to improve plant and equipment performance. As part of MIS, ERP systems include many built-in standard reports as well as a report writer that generates ad hoc reports as needed.
- Improved Efficiency and Productivity: ERP systems greatly increase the efficiency of day-to-day operations and routine transactions such as order fulfilment, on-time delivery, supplier performance, quality management, invoice reconciliation, sales execution and cash management. Reduced cycle time for cash sales and purchase and payment sequences.
- Establishment of Standardized Procedures: ERP systems are based on international best practice processes adopted by organizations during their implementation. Departmental silos were eliminated, and inconsistent practices were eliminated. Thus, managers have a top-down view, the potential for theft, fraud, and obsolescence is minimized.
- Flexibility and technology: In a globalized environment with production facilities, distribution centres and headquarters in different countries, organizations require multiple currencies, multiple languages and multiple modes of accounting in an integrated way. These rules are available in most ERP systems, especially those provided by Tier 1 and Tier 2 vendors. ERP vendors are also rapidly adopting the latest technologies, from mainframes to client servers to the Internet. Unlike custom systems, upgrading to the latest technology in an existing ERP system is usually straightforward with service packs and patches.
Vendors are now looking for ways to expand their presence in small or even medium businesses. In the early 2000s, fierce competition and the financial crisis led to some mergers and acquisitions among ERP solution providers, including Oracle People Soft, Infor’s acquisition of BaaN, and Microsoft’s acquisition of Axapta.
ERP solutions that functioned primarily as back-end systems are now expanding their horizons. ERP vendors are expanding their offerings to Internet-enabled product. ERP extensions (usually add-ons to existing products) now offer solutions for advanced planning and scheduling, manufacturing execution systems, advanced business intelligence and dashboards, salesforce automation, product lifecycle management, and warehouse management.
Each business has a set of procedures that must function cohesively in order to guarantee success and expansion. Every aspect of a business should be able to communicate with one another through the appropriate data flow channels, whether it be handling customers or producing products.
ERP software can be beneficial to all businesses with complex functionalities, though some more so than others. These are the sectors that should use ERP software to increase productivity and streamline their operations:
- Manufacturing – Manufacturing companies must deal with many aspects to ensure timely delivery of their products, be it regular or irregular. Every aspect of production is interconnected, from tracking employee time to sourcing raw materials, managing inventory, and managing finances. ERP software is an all-in-one solution for all manufacturing processes. Track employee hours to evaluate performance. Optimize raw material management to help reduce production costs. You know exactly which raw materials to use and how much you need to produce your product. ERP software also automates various processes such as requesting invoices and tracking products. This saves a lot of time for manufacturers, and they can use it to produce more products.
- Retail – The efficient flow of data makes it easy to analyse the performance of each product. You can view customer information such as how often products are purchased and set preferences accordingly. You can also see how many products were purchased during the month and understand customer spending patterns. ERP software makes it easy to integrate sales and accounting functions. ERP automates retail processes and helps with time management. As products sell, inventory lists are automatically updated to replenish inventory.
- Services – By implementing an integrated system as opposed to relying on a few different software programs and the associated costs, a service industry can reduce unwanted resource flow. Real-time information on suppliers, raw materials, and inventory levels must be available to all parties in your supply chain. This information is useful for accounting, customer service, production scheduling, and reordering. The communication and results will improve if inventory data is integrated with customer relationship, sales, and production data. As a result, it is possible to create subscription plans for your services, establish a loyalty program to cultivate relationships with repeat customers, and manage and bill numerous projects.
- Distribution – It is essential to manage your supply chain and ensure that product distribution remains uninterrupted. ERP software can help you do that and more. ERP solutions allow you to track inventory across multiple warehouses and replenish as needed. View all product details such as batch number, expiry date and manufacturer information in one portal. You can also access shipping information such as cost and address. ERP software also makes it easy to manage sales and purchase orders to keep track of your finances. Automate invoice payments and send invoice requests.
Education – By streamlining information exchange between all institutional operations, departments, and functions, ERP systems assist academic institution in managing business workflows. This type of software has a big impact on how all academic resources are planned, created, and used. Along with helping lecturers manage their class and exam schedules, room reservations, and administrative tasks, it also helps automate several student life cycle-related processes. The new generation of students is technology-focused, so ERP systems must be adaptable enough to change with the times and meet students’ most recent technological needs, such as the availability of self-service portals and remote library access.