Introduction to ERP
Every organization needs some level of data capturing at every stage of the business process, be it small or large. Sometimes output data of one process becomes an input to another. The entry of this data through manual intervention would be prone to human error and bring productivity losses. It drives the need for an integrated system to get the right level of normalized integrated data in a secured environment to make various enterprise processes generate a single source of information to drive accuracy in decision making.
An ERP is a software that manages day-to-day business activities covering both core and non-core operations. A complete ERP not just supports business activities like manufacturing, finance, supply chain, HRMS, procurement, etc. but also helps in planning, budgeting, reporting, predicting the organization’s financial results and create enough data to do the predictive analysis.
ERP systems help in eliminating data duplication and provide data integrity with a single source of truth. There is a myth that it can only help the mid to large organizations; however, it is equally essential for small to mid-size organizations. One needs to understand the importance and accordingly look for the solutions within their budget instead of just using the spreadsheets. ERP is indispensable for any organization irrespective of technology advancement as it only improves the productivity experience based on normalized and accurate data.
Modern ERPs cover their traditional importance and have a digital edge using the cloud, social, mobile, analytics, etc. ERP helps in improving productivity by generating data-heavy reports with a click of the button.
2) The History of ERP
The term ERP was devised in 1990 by Gartner, but its roots go back more than 100 years old.In 1913, engineer Ford Whitman Harris developed the economic order quantity (EOQ) model, a paper-based production scheduling for manufacturing. In 1964, Black and Decker became the first company to adopt a material requirement planning (MRP) solution with a mainframe computer for scheduling production processes.
In 1983, MRP grew to encompass more manufacturing processes, and it was called Manufacturing Resource Planning (MRP II). By 1990, these systems had further expanded beyond inventory control from other operational processes to other back-office functions like accounting and human resources that set a stage for the ERP.
Later, with the introduction and widespread use of the Internet, ERP was further expanded to include other areas of a business, such as a Customer Relationship Management (CRM), Supplier Relationship Management (SRM),Supply Chain Management (SCM), Human Capital Management (HCM), Business Intelligence and E-commerce.
With the introduction of cloud-based ERP, ERP usage has gone beyond mid to large-size organizations to a more affordable solution for all organizations by removing a significant obstacle of capital expenses to bring the most of the cost at the operational expense level.
3) ERP Fundamentals
The design of ERP systems is around a single, defined data structure (schema). It ensures that the enterprise’s information is normalized and determined based on its expected usage and definition. There is an interconnection between the entire system and business processes driven by various workflows, defining its internal functions and approval mechanisms by putting people and process technology together.
For example: consider a company that builds steel by procuring iron ores from multiple mining suppliers.It can use the ERP system to define the entire raw material handling process from identifying the demand, placing an order, receiving the material at plant level using the procure to pay process. Similarly, it can also define entire customer management, order booking, production, invoicing, dispatch, and finally receiving the amount.
A fundamental ERP principle is the central collection of data for wide distribution. Instead of several standalone databases with an endless inventory of disconnected spreadsheets, ERP systems bring everything in order, so all users—from the CEO to analyst—can create, store, and use the same data derived through standard processes.
4) Benefits of ERP,
ERP not only helps employees to do their job more effectively but also breaks barriers between various business units within the organizations. It provides real-time data visibility across the organization resulting in different proactive business decisions and improvements. It automates multiple internal processes and compliance, resulting in better control and reducing regulatory risks to the organizations by enhancing customer service by having a single truth source.
A single source of truth removes the information silos and helps to get fast answers, day-to-day reporting to mission-critical business decisions. It helps in lowering operational costs through streamlined business processes and best practices. It improves efficiency by removing the barriers by providing the right level of data and information to the individual basis his/her role.
It also helps organizations improve their compliance and assist in predicting and preventing risk.
To build a business case for ERP with a positive ROI, one needs to list the benefits of implementing the ERP. It should start with the current business challenges and slow-moving information across the organization and quantify it with the right justification.These challenges would be mitigated by having an integrated ERP system.After fully implementing the new system across your organization, decide on key performance indicators (KPIs) that you can measure.
5) Challenges in Implementation
Implementing an ERP is two edge sword as many times, people start implementing various processes without re-looking at the need and making the entire ERP process wholly customized to the enterprises needs. This customization helps in fast implementation as low change management effort but never allows improvising the techniques and removing the ecosystem’s clutter.It also makes the entire system very custom heavy, resulting in future support issues and upgrades, resulting in the ERP’s lousy name.
One must have a process champion from each department and give them full authority to bring all the processes, reports, forms on the drawing board and discuss the need for the same in a new ERP-driven world. It would help reduce the implementation cycle and make productivity benefits over a while.
An ERP system helps generate structured data for any organization further used for various decision making and analysis. If any organization can analyze the data correctly in a structured way, it would bring a lot of value to the organization in day-to-day and strategic business decisions.
Gone are the days when it was just limited to large organizations, now with time, these systems have become a commodity. If organizations focused on big names like SAP and Oracle, they would find it hard to even think about it due to various constraints.However, now we have many systems with a similar maturity level and budget, so one must look at the need, budget and accordingly opt for it.
Unless any SMB Organizations cannot generate the correct data into information used for decision-making, they can’t become a large organization. To convert your disintegrated, decentralized, disorder data into integrated, centralized data and then convert that data to the right kind of information, ERP is a BIG boost.