Scope of ERP
1. Finance − Financial accounting, Managerial
accounting, treasury management, asset management, budget control, costing, and
enterprise control.
2. Logistics − Production planning, material management,
plant maintenance, project management, events management, etc.
3. Human resource − Personnel management, training
and development, etc.
4. Supply Chain − Inventory control, purchase and
order control, supplier scheduling, planning, etc.
5. Work flow − Integrate the entire
organization with the flexible assignment of tasks and responsibility to
locations, position, jobs, etc.
Advantages of ERP
1.
Reduction of lead time
2.
Reduction of cycle time
3.
Better customer satisfaction
4.
Increased flexibility, quality, and efficiency
5.
Improved information accuracy and decision-making capability
6.
Improved resource utilization
7.
Improve supplier performance
8.
Reduced quality costs
9.
Quick decision-making
10.
Forecasting and optimization
11.
Better transparency
Disadvantage of ERP
1.
Expense and time in implementation
2.
Difficulty in integration with other system
3.
Risk of implementation failure
4.
Difficulty in implementation change
5.
Risk in using one vendor
Need for Enterprise Resource Planning -
Why ERP?
Separate
systems were being maintained during 1960 - 70 for traditional business
functions like Sales & Marketing, Finance, Human Resources, Manufacturing,
and Supply Chain Management. These systems were often incongruent, hosted in
different databases and required batch updates. It was difficult to manage business
processes across business functions e.g., procurement to pay and sales to cash
functions. ERP system grew to replace the islands of information by integrating
these traditional business functions.
The
successful implementation of an ERP system will have many advantages, as
indicated below:
1. Business
Integration and Improved Data Accuracy: ERP
system is composed of various modules / submodules where a module represents a
particular business component. If data is entered in one module such as receiving,
it automatically updates other related modules such as accounts payable and
inventory. This updating occurs at real time i.e., at the time a transaction
occurs. Since, data needs to be entered only once at the origin of the
transaction, the need for multiple entries of the same data is eliminated. Duplicate
of data is minimized. The centralized structure of the database also enables
better administration and security provisions, which minimizes loss of
sensitive data.
2. Planning
and MIS: The various
decision support tools like planning engines and simulations functions, form an
integral part of an ERP system that helps in proper utilization of resources
like materials, human resources, and tools. Constrained based planning help in drawing
appropriate production schedules, thereby improving the operation of plant and
equipment. As a part of MIS, an ERP system, contains many inbuilt standard
reports and also a report writer that produce ad hoc reports, as and when
needed.
3. Improved
Efficiency and Productivity: In
addition to provision of improved planning, ERP system provides a tremendous
boost to the efficiency of day to day and routine transactions such as order fulfilment,
on time shipment, vendor performance, quality management, invoice
reconciliation, sales realization, and cash management. Cycle time is reduced
for sales to cash and procurement to pay sequences.
4. Establishment
of Standardized Procedures: ERP
system is based on processes of international best practices, which are adopted
by the organizations during implementation. Because of top-down view available
to management, chances of theft, fraud and obsolescence (become old) are
minimized.
5. Flexibility
and technology: Due
to the globalized environment, where production units, distribution centres,
and corporate offices reside in different countries, organizations need
multi-currency, multi-language and multi-accounting modes, in an integrated
manner. These provisions are available in most of the ERP systems, particularly
in products offered by tier 1 and tier 2 vendors. ERP vendors are also quick to
adopt latest technologies, from mainframe to client server to the internet.
Conclusion
Although
ERP provides many advantages; its implementation is a strategic decision,
involving significant resources (both financial and human), proper evaluation
and business process re-engineering. There must be a commitment from all
levels. A failed implementation may lead to bankruptcy of an organization.
The Business Value of ERP
It’s
impossible to ignore the impact of ERP in today’s business world. As enterprise
data and processes are corralled into ERP systems, businesses can align
separate departments and improve workflows, resulting in significant
bottom-line savings.
Examples
of specific business benefits include:
1. Improved
business insight from real-time information generated by reports
2. Lower
operational costs through
streamlined business processes and best practices
3. Enhanced
collaboration from
users sharing data in contracts, requisitions, and purchase orders
4. Improved
efficiency through
a common user experience across many business functions and well-defined
business processes
5. Consistent
infrastructure from
the back office to the front office, with all business activities having the
same look and feel
6. Higher
user-adoption rates from
a common user experience and design
7. Reduced
risk through improved
data integrity and financial controls
8. Lower
management and operational costs through
uniform and integrated systems
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