What is the Enterprise Resource Planning System & how it is beneficial for Organizations?
Enterprise resource planning (ERP) is a fully integrated and extensive business management system used to manage integrated business processes of important business functions such as manufacturing, supply chain, sales, finance (accounts payable, accounts receivables, liquidity etc), human resources, budgeting, customer management, vendor management etc.
“Full integrated business system” means a single IT system is used to access information of different departments’ activities. Using ERP, available information is used to make timely business decisions with the objective to optimize use of inventory management, manufacturing processes, raw material, human resources, financial resources and fixed assets etc.
Now, a question comes in our mind: why does business leadership adopt ERP? Before Enterprise resource planning, businesses’ core functions used to work in a decentralized manner i.e. stand-alone systems and had to face many challenges. For example: In a stand-alone system, when sales orders were received, information related to stock availability were not being disclosed to the sales team. Similarly, availability of raw material, financial resources, human resources etc, was not being shown to decision makers in a centralized manner. Considering those challenges, organizations started moving towards adoption of ERP so that they can reap the various benefits for the success of their business.
Scholarly researches explain many benefits and competitive advantages, organization can achieve by implementing ERP. We have explained benefits with the perspective of how each function of the organization can reap the reward through this centralized system.
Benefits for Sales and Marketing
- Recording and maintaining sales operations’ transactions, statues from order to delivery can be tracked easily.
- Faster response and customer services, follow ups and timely fulfillment of orders leading to higher customer satisfaction.
- A unified customer database usable by all applications, integration of other functions’ modules with CRM helps in automatic reminder to customers and helps avoid customer complaints.
- Showing key data and transactions with customers helps the sales team to make insightful business decisions.
- Huge data availability can help marketing teams to set right pricing strategies to achieve future business goals.
- Marketing team can also take great help to build effective promotion and placement plans by reviewing customers’ data.
Benefits for Supply Chain Management
- Automatic creation of demand and streamlining of supply chain management by proper job scheduling.
- Automation also helps in effective management of other supply chain functions such as procurement, production, and shipment.
- Bill of material, record of machine and labor resources, shipment details are updated on real time.
- Shipment statuses can be monitored and once order is delivered to end customers, invoices are automatically created and sent to customers.
- With respect to inventory management, it helps in knowing what stock is available, when to make manufacturing decision, as well as when re-ordering need to be made for raw material.
- Purchasing managers are informed timely, as they can be sent automatic reminders about re-ordering needs.
- Proper management of supply and demand issues with remote locations and branches can be handled in an organized manner.
Benefits for Accounting and Financial Management
- Brings efficiency in cost accounting related work such as budgeting, allocating cost for raw material, labor, transportation and overhead expense.
- Vendor related affairs are also efficiently managed including accounts payable, payment schedule and payment processes.
- Helps in avoiding the mistake of paying duplicate invoices.
- Invoices are generated automatically and sent to customers after shipment, account receivable and credit management processes are smooth.
- Financial managers can manage overall accounting activities of the business according to account standards.
- Financial data can be gathered to generate reports such as general ledger and reports
- Various kinds of financial software generated reports can be used at any point in time or any period of time for review of business performance.
- Using easily accessible analytical reports, business decision makers can take corrective measures in a timely manner to achieve desired goals of profitability, cost minimization and increasing the wealth of the business.
- System is compliant with multiple accounting standards such as GAAP (generally accepted accounting standards, a collection of commonly followed accounting rules and standards for financial reporting).
- Fixed assets records can be maintained easily that include manufacturing equipment, machineries, office spaces, vehicles, and computers. Automatic calculation of depreciation expenses, and fixed assets latest worth can be seen instantly.
- Proper tax management system allows timely and convenient deduction of taxes on business transactions.
- Salaries, wages and allowance details are revised from time to time by the HR team, so that updates can be used for decision making by respective departments.
Benefits for Human Resource Management
- Automated HR processes related to recruitment, attendance and leave management, payroll, it saves management time and resources
- All human resources data including employee basic information, compensation and benefits details, payroll details etc. are available to authorized personnel centrally; as such data is eventually shared with other departments.
- All employees related data is available centrally; it becomes easier to generate HR reports for analysis purpose and critical decision making.
- Production staff is involved in the manufacturing process, it is useful to track their hourly wages and overtime hours for costing as well as salary payment purposes.
- Saving licensing expenses of investing in other HR related software
Strategic Benefits for the Business
- Strategically, we can say that demand forecasting, lean production management and reduction in production bottleneck, can be achieved by the organization.
- Timely availability of data ensures smooth running of operations and optimum utilization of resources which ultimately helps businesses improve their strategic goals of top-line and bottom-line growth and expansion of business.
- Department works towards achievement of business goals in a coordinated manner as cross-functional information becomes available.
- Efficiency in delivery of goods and services to end customers increases customer satisfaction.
- Competitive advantage through improved cross-functional coordination, customer relationship management, improved supply chain, distribution and logistics, vendor management.
- Insightful reports are available about region wise business performance that can be used in making business and marketing strategies.