What is Enterprise Resource Planning?
Enterprise Resource Planning (ERP) systems integrate internal and external management information across an entire organisation, embracing finance/accounting, manufacturing, sales, HR and service, customer relationship management, etc.
ERP systems automate this activity with an integrated software application. The purpose of ERP is to facilitate the flow of information between all business functions inside the boundaries of the organisation and manage the connections to outside stakeholders.
ERP systems can run on a variety of computer hardware and network configurations, typically employing a database as a repository for information. The transformation of ERP into a cloud-based model has been relatively slow, but as cloud computing makes other inroads into the enterprise environment some functionality is being moved to the cloud.
Brief history of ERP
The term ERP was coined in 1990 by Gartner, but its roots date to the 1960s. Back then, the concept applied to inventory management and control in the manufacturing sector. Software engineers created programs to monitor inventory, reconcile balances, and report on status. By the 1970s, this had evolved into Material Requirements Planning (MRP) systems for scheduling production processes.
In the 1980s, MRP grew to encompass more manufacturing processes, prompting many to call it MRP-II or Manufacturing Resource Planning. By 1990, these systems had expanded beyond inventory control and other operational processes to other back-office functions like accounting and human resources, setting the stage for ERP as we’ve come to know it.
Today, ERP has expanded to encompass business intelligence (BI) while also handling ‘front-office’ functions such as Sales Force Automation (SFA), marketing automation and ecommerce. With these product advancements and the success stories coming out of these systems, companies in a broad range of industries — from wholesale distribution to ecommerce — use ERP solutions.
Moreover, even though the “e” in ERP stands for “enterprise,” high-growth and mid-size companies are now rapidly adopting ERP systems. Software-as-a-Service (SaaS) solutions — also referred to as “cloud computing”—have helped fuel this growth. Cloud-based solutions not only make ERP software more affordable, they also make these systems easier to implement and manage.
Perhaps even more importantly, cloud ERP enables real-time reporting and BI, making them even valuable to executives and staff seeking visibility into the business. Some ERP systems such as SAP can cost US$ Millions and is at the high end. MAS Holdings is, perhaps, one of the earliest companies to adopt ‘SAP’ productively.
Now we can see companies of all sizes and a wide range of industries transitioning to cloud ERP systems. In fact, Forrester predicts that SaaS-based ERP adoption will rise 21 per cent annually through 2015. When you stop to consider the benefits of ERP, it’s easy to see why it’s become so popular and why its use will continue to grow so rapidly.
What are ERP myths?
1. ERP means more work and procedures: Properly implementing and managing an ERP system is not an easy task. The transition period from the traditional system or manual processing to ERP is difficult as new skills have to be learned; new procedures and processes have to be followed, and so on. Many employees think that ERP will add more work, make the work more difficult and will force unnecessary procedures.
Transformation from the old system to the ERP system is a difficult process. However, if the management and the implementation team do their job properly, ensuring that the employees are told what to expect and given proper training, then the transition can be smooth.
Once the employees get used to the new system, they will understand the potential benefits and the effort saved through automation of talks and jobs. Today’s ERP tools automate many of the repetitive, monotonous and tedious procedures, tasks and processes thus making the life of the employees a lot easier.
2. ERP will make many employees redundant and jobless: Another popular misconception about ERP system is that its implementation will make many jobs redundant (because of the automation) and hence, many employees will lose their jobs. A properly implemented ERP system will automate many tasks in the organisation. This does not mean that the ERP system will make people redundant.
Yes, there will be changes in job descriptions and in the activities people used to do. Many tasks will be automated and this will make the people who were doing those jobs unnecessary. But ERP system also create new job opportunities and they very same people whose jobs were automated could be used to fill the new positions after giving them proper training on the new tasks.
Hence, the amount of planning that goes into re-location and re-training of the employees by the management and the implementation team can go a long way in reducing the anxieties of the employees. ERP is a people system made possible by computer software and hardware.
3. ERP is just for the managers/decision-makers: The managers and decision-makers are the major users of the ERP system. They are the people who benefit the most from the properly implemented ERP system. They will have all the information they need at their fingertips for making informed decisions. The quality of the decisions and the speed with which the decisions are made are dramatically improved as the ERP systems provide high-quality, timely and relevant information.
But every employee in an organisation benefits from the ERP system. An ERP system gives the store clerk access to the inventory record and enables him to find out the exact quality of an item. It allows the production supervisor to plan his activities. It allows all employees to apply for leave, get loads approved, gets the travel expenses reimbursed and so on.
But for making the best use of the information processing power of an ERP system the users should be trained on how to make the best use of the various features available. If people are ignorant about these, they will find it useless and if they are not properly trained, they will find the experience frustrating and tedious.
These people will not use the ERP system or if forced will use it but not to its fullest potential. They will see ERP as a waste of time and do it just because they are forced to do it. This hostility towards ERP can be eliminated if the users are properly educated and make aware of the benefits of the ERP system.
4. ERP slows down the organisation: Before the advent and popularity of ERP tools, most business tasks were performed manually and this was a time-consuming process. Often a lot of effort was duplicated. The ERP system automated the information flow across departments thereby eliminating duplication of efforts and faster and accurate results.
In the case of an ERP system, an order can trigger a host of events that will take care of the materials procurement, production planning, invoice preparation, informing the suppliers, making and collecting payments and so on
Today, the ERP system never functions in isolation. It is completely and seamlessly integrated with the supply chain tools and techniques right from customer relationship management to supply chain management to logistics management. This level of automation has dramatically improved the response time of organisation and has helped them in serving the customers better. So an ERP system makes the organisation efficient and never slows it down.
5. ERP is very expensive: ERP packages come in all shapes and sizes. The sophisticated and high-end ERP tools are very expensive. ERP system needs people to manage it. Thus implementing and managing an ERP system is an expensive affair. But these expenses should be weighed against the benefits of the ERP system.
An efficient ERP system will increase the productivity of the human resources, shorten development and change cycles, streamline the production process, reduce errors by automating the monotonous and repetitive tasks, enable the better management of projects by providing quality information, improve customer satisfaction by resolving problems quickly and so on. When the benefits of the ERP system are considered, it becomes evident that the money spend on ERP is well spent and the ERP system will pay for itself.
Role of ERP software in an organisation
Enterprise Resource Planning (ERP) is the latest high end software solution, Information Technology has lent to the world of business application. An ERP software solution seeks to streamline and integrate operations, processes and information flows in an enterprise, to synergise the resources of an organisation namely men, material, money and machine.
In other words, ERP systems integrate all data and processes of an organisation into a unified system. A typical ERP will use multiple components of computer software and hardware to achieve the integration. A key ingredient of most ERP systems is the use of a unified database to store data for the various system modules.
Most organisations across the world have realised that in a rapidly changing business environment, it is impossible to create and maintain a custom designed software package which will cater to all their requirements and also be up-to-date. Realising these requirements of organisations, companies have designed and developed ERP software, which offer an integrated software solution to all the functional processes in an organisation.
Although, in the initial stage ERP originated in the manufacturing environment, now ERP software solutions typically cover all basic business process/functions of any organisation, regardless of the organisation’s business or charter.
A typical ERP module includes: Manufacturing, Supply Chain, Financials, Customer Relationship Management (CRM), Human Resources, Warehouse Management and Decision Support System. These solutions are often incorrectly quoted as back office solutions indicating that customers and the general public are not directly involved.
This is contrasted with front office systems like Customer Relationship Management (CRM) systems that directly deal with customers, or ebusiness systems such as eCommerce, eGovernment, eTelecom, and eFinance, or Supplier Relationship Management (SRM) systems.
In reality, ERP modules are cross-functional and enterprise wide software solutions. All functional departments that are involved in operations or production can be integrated in one system using it. In addition to manufacturing, warehousing, logistics, and Information Technology, it also includes; accounting, human resources, marketing, and strategic management.
There are many different flavours of ERP that serve businesses’ varying procedure types. An ERP solution has numerous benefits depending on the type of business that it serves; these are business solutions and industry solutions. The industry solutions are designed for people who are working in specific industries, like finance, communications, education, healthcare to name a few.
Importance of ERP software for businesses
ERP software business solutions are designed for companies that work in a wide variety of areas. IT combines a large number of different elements into a single unit. Three of the most important ERP tools available today are manufacturing, human resources, and finance.
The finance tools allow companies to successfully maintain their financial information like that of the assets, accounts, budgets and cash. ERP can also assist a company in managing internal as well as external factors affecting it. A company that uses ERP financial products can save a great deal of money over the long term, the reason being, the productivity of the organisation will be improved.
Enterprise Resource Planning is instrumental in getting rid of time consuming activities as paper management. A company is able to study their processes, earnings, and performance by merging their operational information with their financial information. Once this information is connected together, a company can become more competitive and productive. Synergy is an important part of ERP solutions. The concept of combining multiple processes into a single whole will allow the company to become successful in the long term.
In addition to finance and business processes, it is also important to look at materials maintenance. Enterprise Resource Planning will allow a company to successfully automate the process of buying materials and maintaining them. There are modules that track the supplies that are purchased and can also make calculations about how these materials should be distributed.
It also becomes possible for a company to predict the demand of the market based on history, economic statistics, and data from their employees. They can even decide when a product should be produced, and they can do this based on the raw material that is available.
I have noticed that there has been a trend in Sri Lanka for companies to go for ERP solutions and then think how we can optimise the features and uses of the package. To procure the system gives the company an ‘artificial’ upliftment in the eyes of the market as a company embracing technological sophistication. This is being foolish.
However, with more ‘accounting’ and ‘economic’ brains on the board and prudent HODs leading divisions, this trend is slowly but surely changing. Therefore it is little wonder that so many ERP options are now available.
(Nalin Jayasuriya is the Managing Director & CEO, McQuire Rens & Jones (Pvt) Ltd. He has held regional responsibilities of two multinational companies, of which one, Smithkline Beecham International, was a Fortune 500 company before merging to become GSK. He carries out consultancy assignments and management training in Dubai, India, Maldives, Singapore, Malaysia, Indonesia and Bangladesh. Nalin has been Consultant to assignments in the CEB, Airport and Aviation Services and setting up the PUCSL. He is a much sought-after Business Consultant and Corporate Management Trainer in Sri Lanka. He has won special commendation from the UN Headquarters in New York for his record speed in re-profiling and re-structuring the UNDP. He has lead consultancy assignments for the World Bank and the ADB. Nalin is an executive coach to top teams of several multinational and blue chip companies. He is non-Executive Director on the Boards of Entrust Securities Plc and Eswaran Brothers Exports Ltd.)