Enterprise Resource Planning (ERP) is a concept that integrates two or more functions of a firm for smoother operations.
Almost every organization has several departments with individual responsibilities. The commonly encountered classifications are :
- Human Resources
- Inventory management
- Customer Relationship management
and others. Each of these has separate databases, the complexity of which increases with the scale of the organization.
ERP’s power lies in in its ability to integrate these multiple databases and processes into one coherent entity accessible by all departments, thereby improving cross-functionality, cutting time and escalating productivity.
A shipping firm bags an order to deliver 100 crates of wine in 5 days. The departments engaged to accomplish the objective would be:
- Sales : the one that bagged the deal
- Inventory management : keeps an eye on the supply of necessary equipment(carts) for delivery.
- Finance : handles all the associated finances required, including payments from the customer.
- Logistics: takes care of the proper shipment and tracking of the crates.
- Customer relations : keeps in touch with the customer during and after the project.
It clearly calls for extensive coordination among all the departments for the project to be completed successfully. Any inter-departmental can have a crippling effect on the final delivery.
However, ERP systems are configured to smoothen such situations. Employing an ERP system for the above situation would bring about the following change :
The moment the sales team bags the order, it updates the order in the central database. From there it is instantly accessible to all other related departments. Inventory studies the order and checks its related stocks. In case it runs short, it notifies the in-house stock procurement dept. to make additional purchases.
Next, Finance steps in and estimates the costs to be borne by the firm for delivering the project. It also works on the billing details that will be sent to the customer(Billing dept.).
Logistics simultaneously checks transport availability to ports and also works on tracking the consignment till it is safely delivered.
Additionally, the Customer Management System keeps in touch with the customer and keeps him informed about the progress of his order, till it is delivered and beyond, for future projects that he might decide to entrust to the firm.
Thus, employing an ERP system greatly improves inter-department co-operation, and results in much better operational efficiency.
All the departments that ERP integrates and can be applied to are known as ERP Modules.
Advantages of ERP
1) Reduced Data entry and redundancy : this is the prime objective of ERP. It integrates all data under one centralized database that makes repeated data entry unnecessary, and facilitates easy access by all departments.
2) Easier Inter-department communication : which follows from a centralized database.
3) Reduction in time and cost
4) Security : ERP systems come with in-built computer security systems that are useful in preventing crimes like industrial espionage and intellectual property embezzlement.
Criticism against ERP and new developments
ERP has generated criticism due to its extensive integration costs. ERP costs can be roughly broken down into :
- Configuring(Revamping) existing system according to ERP requirements.
- Reconfiguration of hardware, work-flow, data transfers etc
- Training of personnel on ERP’s functional dynamics
- Expert ERP consultation for installation, training and post-installation maintenance and trouble shooting.
To avert this, two news trends that have witnessed encouraging responses are Online ERP and Custom ERP.
For Online ERP, any firm that wishes to avail the ERP services contacts an online vendor, who in turn provides the services for a pre-decided charge.
Custom ERP entails the integration of particular ERP modules that are relevant to the existing business’s needs, rather than revamping the business itself.
These two alternate approaches to ERP have found reasonable acceptance as they eliminate the much criticized stage of existing business revamp and the huge costs involved in on-site ERP installation.
ERP’s success can be gaged by the widespread popularity of firms like SAP AG, Ramco ERP, Oracle Applications and Microsoft Dynamics, that are the biggest players in this field. Having been introduced only a few years back, ERP systems have helped organizations both big and small integrate their functions for better productivity and profits.
With constant improvements being introduced and the scope of application widening to cover almost all industry sectors, ERP systems are here to stay and rule.