The right tools and technology can help you to improve the efficiency and effectiveness of your business operations. This may include software for Customer Relationship Management (CRM), Enterprise Resource Planning (ERP) and Business Process Management (BPM).
History of Enterprise Resource Planning (ERP)
The history of Enterprise Resource Planning (ERP) systems can be traced back to the 1960s, with the development of Material Requirements Planning (MRP) systems. MRP systems were designed to help manufacturers track inventory and production levels. In the 1970s, MRP systems evolved into Manufacturing Resource Planning (MRP II) systems, which added additional capabilities such as production scheduling and capacity planning.
The term Enterprise Resource Planning (ERP) was first coined in the early 1990s by the research firm Gartner. Enterprise Resource Planning (ERP) systems were designed to provide a single, integrated software solution for all of a business’s core functions, including manufacturing, finance, accounting, sales, and human resources.
Enterprise Resource Planning (ERP) has only become possible with increased computerization in the last 30 years. There has been an irreversible trend towards conducting Business to Business (B2B) and Business to Customer B2C operations online with the use of a single database program integrating resources in all departments of a business.
Early Enterprise Resource Planning (ERP) systems were complex and expensive to implement, and they were primarily used by large enterprises. However, the cost of Enterprise Resource Planning (ERP) systems has decreased over time, and they are now used by businesses of all sizes.
Nowadays, most of the world’s largest companies as well as small businesses use Enterprise Resource Planning (ERP) software routinely to manage their resources efficiently and effectively.
It is proven to be an effective tool of saving costs, make better decisions and increase competitiveness of the firm.
What is Enterprise Resource Planning (ERP)?
Enterprise Resource Planning (ERP) uses a company-wide computer software system to manage resources. The use of a single computer application can help to plan the purchase and use of resources in an organization to improve efficiency of its operations.
By using this database program, it is possible to coordinate and link together all of the systems of a business. This includes production planning, inventory control, ordering, returns, sales and distribution, invoicing to customers, customer service applications, human resource planning, etc. Everything from point of origin (obtaining raw materials) to point of consumption (selling to the consumer).
Overall, Enterprise Resource Planning (ERP) systems can help businesses to improve their performance and achieve their goals.
Application of Enterprise Resource Planning (ERP)
Processing customer’s large orders can all be made more effective by using Enterprise Resource Planning (ERP) software in the following way:
- Planning production resources. It helps to decide which and how many resources are needed for each order. Every order is recorded in the ERP program.
- Ordering supplies. It helps to choose the best and most cost-effective suppliers of the raw materials and components, and order them to arrive in time. Spare-parts stock is updated.
- Recording costs. It helps to record costs at each stage of the production process and calculate the appropriate price for the customer.
- Ensuring manufacturing. It helps to check the product quality and monitor the rate of progress of the customer’s order. The customer is sent an invoice and the stock of products is updated.
- Controlling delivery. It helps to pick the most efficient transportation system, so the goods can be delivered on time. When payment is made, the accounting records are updated.
- Accepting returns. It helps to take a product back from the customer in case there is a problem with the product.
Enterprise Resource Planning (ERP) software is able to monitor all of these stages in real time using the Internet. It allows the business to be linked with all members of the supply chain together with suppliers and customers into a single network.
The system can also provide forecasts of future sales to plan resources and staffing needs over the next few months.
Enterprise Resource Planning (ERP) software – Evaluation
Advantages of Enterprise Resource Planning (ERP) software include:
- Improved efficiency. ERP systems can help businesses to automate tasks and streamline workflows, which can lead to significant efficiency gains. For example, using Just-in-Time (JIT) ordering of inventories.
- Helps to supply according to demand. ERP systems adopt and apply lean production that avoids waste and helps move the business towards achieving sustainability in its operations. It prevents waste by using the minimum of non-renewable resources so that levels of production can be sustained in the future.
- Reduced costs. ERP systems can help businesses to reduce costs at all stages of the supply chain in a number of ways such as by optimizing inventory levels and reducing waste. Materials and products are electronically tracked at all stages of the production process.
- Improved decision-making. ERP systems provide businesses with a single source of truth for all of their data, which can help them to make better decisions about their operations such as change a supplier, if lower-priced supplies of similar quality are offered. Departments will be linked more closely by the single database which will result in better coordination between them.
- Increased visibility. ERP systems can give businesses a better understanding of their operations, which can help them to identify areas for improvement.
- Improved customer service. ERP systems can help businesses to improve customer service by providing them with a better understanding of their customers’ needs and by streamlining the order fulfillment process. There will be Improved delivery times and better customer service overall.
- Better management information. Real-time data from all stages of the production process along with supporting departments will be available to senior management via on computer system.
Disadvantages of Enterprise Resource Planning (ERP) software include:
- High costs of software and integration. ERP systems are very costly to purchase, implement and maintain. Both the database and computer systems have to be considered which require large computing power. ERP systems are not one-size-fits-all solutions, and they may require customization to meet the specific needs of a business. Customization can add to the cost and complexity of an ERP implementation.
- Long implementation time. ERP implementations can be time-consuming and disruptive to business operations. It usually takes most businesses from one to three years to fully implement ERP. Integrating an ERP system with other software applications or legacy systems used by a company can be challenging. Additionally, ERP systems can be complex and difficult to use, especially for users who are not familiar with ERP systems. Therefore, additional training for the workers will need to be offered.
- Resentment from managers. While ERP software tries to coordinate and link together all of the department in a business, different ways of operating in different departments will now have to be reduced to one common system. This may cause resistance to change as departments and their managers are being forced to give up tried-and-tested ways of operating in daily basis. ERP implementations can be disruptive to business operations, so it is important to get buy-in from all stakeholders early on in the process.
Supply Chain Management (SCM) is becoming an increasingly significant application of Enterprise Resource Planning (ERP) software. Operations managers can improve customer service and gain competitive advantage by controlling supply chains and all of the stages in the production process.
