Saturday, February 27, 2010

Enterprise Resource Planning (ERP)

In the previous blog post, we discussed Customer Relationship Management (CRM). In this blog post, let us look at some of the fundamental aspects of Enterprise Resource Planning (ERP). In general, CRM system can be considered as a sub-set of the features of an Enterprise Resource Planning system.

ERP is an industry standard acronym for Enterprise Resource Planning. ERP is an Information Technology (IT) supported system, used to integrate the data and processes of an organization in a seamless fashion. In the earlier days of ERP, the term ERP was used to refer to the way large organizations planned to use their organizational wide resources. Today, ERP systems are used in all types of organizations, from small to medium sized and large organizations.

In the earlier days of computerization, core functions of an organization, like Customer Relations Management, Human Resources, Supply Chain Management, and Financials were all supported by stand-alone IT systems. This often resulted in duplication of data and the need for complicated data transfer protocols between systems. In such systems, any data mismatch during transfer can result in problems. From a database management and administration perspective also, it is often recommended to avoid duplication of data.

Current ERP systems are capable of covering a wide range of functions and integrating them into a single, unified database. A single, unified database removes the difficulties associated with transferring data between independent systems and duplication of data as discussed above. Enterprise Resource Planning systems can help in the management of many business activities, like sales, marketing, delivery, billing, production, inventory management, quality management, and human resource management, through a single system. ERP systems are sometimes referred to as ‘cross functional enterprise wide systems’ since all functional departments in an organization are managed through a single system.

The most important advantage of ERP system is often cited as the system’s ability to bring down operating costs and saving valuable time that would otherwise be wasted in manual procedures and unwanted delays. An ERP system also ensures faster processing of information, reduces the burden of documentation and associated manual workflows, avoids repeated data entry, and reduces cycle time. Another major advantage is efficient Customer Relationship Management. Customer queries and complaints can be tracked to closure very efficiently resulting in high levels of customer satisfaction – a key parameter in evaluating the performance of any organization. [In the previous post of this blog, we had a closer look at Customer Relationship Management systems]

ERP systems ensure that access to sensitive data of the organization is controlled in role-based manner. Thus, data is made available only on a ‘need-to-know’ basis, thereby plugging chances of leaking sensitive data.

ERP systems eases project management, enables better tracking of work in progress, enables quick creation of status reports and reduces process cycle time. ERP systems also act as ‘Decision Support Systems’ ensuring that decision can be made on the basis of up-to-date information. Besides, ERP systems have also resulted in better vendor and supply chain management. Automated work flows in ERP systems allow organizations to track and identify bottlenecks in process flows and make improvements.

Even though the merits of ERP systems often out weighs the demerits, the system and its adoption by organizations is not without disadvantages. The adoption of ERP by an organization is often referred to as ‘implementing ERP’ since ERP systems usually require customization based on the needs of the organization. 

First, an ERP implementation calls for a large investment in time and money. Next, the success of an ERP implementation depends on how well the employees of an organization understand the system and uses it regularly in their day-to-day business activities. This calls for heavy investments in training of employees. Besides the cost of training, employees engaged in training will often mean that regular business activities are sidelined, resulting in loss of revenue and business opportunities. These advantages imply that an organization needs to carefully plan and compare disadvantages against advantages before deciding to implement an ERP system.    

The implementation of an ERP system does not guarantee solutions to all the problems that an organization is facing. In fact, if the implementation is not carefully planned and the cutover from existing systems to ERP is not orchestrated in a fine manner, ERP implementations can result in more trouble. Still, a well-planned ERP implementation coupled with proper employee training and orientation will definitely enable an organization to compete globally in ever changing business scenarios. To sum it up, such a carefully planned ERP system is often considered as the perfect commercial embodiment of the verse: “Think Global. Act Local.”

This brings us to the end of this blog post on Enterprise Resource Planning (ERP). Thank you for your interest. 

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