QUANTIFIABLE BENEFITS FROM AN ERP SYSTEM

Studies that surveyed the impact of erp systems on the performance of organizations indicate that
company size and industry segment do not affect the results. Benefits have been indicated for large
and small firms, whether they make standard or custom products or are in the service sector. Some
of the quantifiable benefits of implementing erp systems are:

 REDUCED INVENTORY AND INVENTORY CARRYING COST: The manufacturing nature of many
erp users makes the issues of process and material costs savings paramount.The main factor
behind these savings is that implementation of the erp systems allow customers to obtain
information on costs, revenues and margins, which allow it to better manage its overall
material cost structure.
 REDUCED MANPOWER COSTS: Improved manufacturing practices lead to fewer shortages
and interpretations and to less re work and over time. Typical labour services from a
successful erp system are a 10% reduction in direct and indirect labour costs.
 REDUCED MATERIAL COSTS: Improved procurement practices leads to better vendor
negotiations for prices, typically resulting in cost reductions of 5% or better.
 IMPROVED SALES AND CUSTOMER SERVICES: Improved coordination of sales and
production leads to better customer service and increased sales.Improvements in managing
customers contacts ,making and meeting delivery promises, and shorter order-to-ship lead-
times, leads to higher customer satisfaction, goodwill and repeat orders.
 EFFICIENT FINANCIAL MANAGEMENT: Improved collection procedures can reduce the
number of days of outstanding receivables, thereby providing additional available cash.

COMMON ERP MYTHS

There are many myths surrounding the concept, infrastructure, implementation and practice of
enterprise resource planning. Very often people are not willing to adopt erp because of these wrong
notions. In this section we will see some of the most common myths about erp and try to demystify
them.

1) ERP MEANS MORE WORK AND PROCEDURES

Properly implementing and managing an erp system is not an easy task. The transition from the
traditional systems or manual processing to erp is difficult as new skills have to-be learned, new
procedures 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.Trnsformation from the old
systems to the erp system is a difficult process. However, if the management and the
implementation team do their job properly, ensuring that employees are told what to expect and
given proper training, then the transition can be smooth. Once the employees get used to the new
systems they will understand the potential benefits and the effort saved through automation of
tasks 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 systems is that its implementation will make many jobs
redundant (because of the automation) and hence many employees will lose their job. Properly
implemented erp systems will automate many tasks in the organization, but this does not mean that
it will make people redundant. Yes, there will be changes in the job descriptions and the activities
people used to perform. Many tasks will be automated and the people who were doing those jobs
will no longer be needed. But erp systems also create new job opportunities and the very same
people whose jobs were automated could be used to fill the new positions and they are given proper
training on the new task. Here, the amount of the 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 also possible by the computer software and
hardware.

3) ERP IS THE SOLE RESPONSIBILITY OF THE MANAGEMENT:

Making the erp systems work is the responsibility of the employees. It involves every department
and every person within the company. The company management is not responsible for the day-to-
day operation of the erp systems. Their main job is to create an organizational environment in which
erp can thrive and give erp their full backing. They should also be involved in the development of erp
policies, usage guidelines, allocation of budget, package section and appointment of competent
professionals to implement and manage the erp systems. Only when the erp team has the full
backing and support of the management will they be able to implement the system smoothly.
Management should monitor the implementation and operation of the system, review the
process/status periodically and should take necessary corrective actions, if required. It should also
ensure that the erp implementation team gets the support and co-operation from all the
departments. However, assuming that the erp system will succeed just because the management is
fully committed to its implementation and operations is one of the biggest mistakes that an
organization can make. In fact, it is the employees-the day-to-day users of the system-who will
decide the fate of the erp system. If the employees are not fully appraised, trained, satisfied and are
not happy with the system, or are not using it properly, then the erp system will be a failure.

4) ERP IS JUST FOR 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 a properly implemented system as they will have all the information they
need in order to make informed decisions at their fingertips. The quality of the decisions and the
speed with which these are made are dramatically improved as the erp systems provide high-quality,
timely and relevant information. In fact, every employee in an organization benefits from the erp
systems. ERP system gives the store clerk to access and inventory record to find out the exact
quantity of an item-it shows the production supervisor to plan his activities; it allows ll employees to
apply for leave, get loans approved, get travel expenses reimbursed and so on.

However, in order to make the best use of the information processing power of an erp system, users
should be trained to fully utilize the various features available. If people are ignorant about their
features, they will find it useless and if they are not properly trained, they will find the experience
frustrating and tedious. People will not use the erp systems 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 so.
This hostility towards erp can be eliminated if users are properly educated and made aware of the
benefits of the erp system.

5) ERP IS JUST FOR MANUFACTURING ORGANIZATIONS:

This assumption is basically due to the way erp was historically developed from the methods of
material requirement planning (MRP) and manufacturing recourse planning (MRP II) ,which are
relevant to manufacturing organizations. In the manufacturing industry, MRP became the
fundamental concept of production management and control in the mid -1970’s. At this stage BOM
(bill of materials), which is purchase order management that utilizes parts list management and
parts development, was the prevailing trend. This concept unfolded from order inventory
management of material to plant and personnel planning and distribution planning, which in turn
became MPR II. This incorporated financial accounting functions, and came to globally cover all areas
of enterprise mainstay business and eventually came-to-be called ERP. But in reality, the concept of
enterprise-wide planning of resources is not limited to any particular segment of industry.

6) ERP IS JUST FOR THE ERP IMPLEMENTATION TEAM:

The erp implementation team usually consists of outside consultants, vendor representative and a
select group of employees. However, once the implementation and user training is over, the
consultants and vendor representatives will leave. It is then the responsibility of each and every
employee of the company to use the erp system properly and to make the best use of the new
features and facilities.

7) ERP SLOWS DOWN THE ORGANIZATION:

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 efforts were duplicated. The erp systems
automated the info flow across departments thereby eliminating duplications of efforts and
providing faster and more accurate results. In case of erp system, an order can trigger a host of
events that will take care of the materials procurement, production planning, invoice preparation,
information suppliers making and collecting payments, and so on. Today erp systems never function
in isolation. It is completely and seamlessly integrated with the supply chain management and
logistics management. This level of automation has dramatically improved the response time of
organization and has helped them to serve customers better. So, an erp system makes the
organization efficient and never slows it down.

8) ERP IS JUST TO IMPRESS CUSTOMERS:

It is true that a properly implemented erp system can help in serving customers better as it helps the
organization to react faster, respond better and deliver high-quality products and services at
astonishing speeds. This improved efficiency and quality goes a long way in improving customer
goodwill and other relations. So, with an erp system there are more satisfied customers, but that is
only one of the stages of such a system.
 9) ONE ERP PACKAGE WILL SUITE EVERYBODY:

There are hundreds of erp tools available in the marketplace. These tools differ in features,
capabilities, size, functionality, price, technical support, customizability, stability etc. Organizations
also differ from one another. Each has its own characteristics and identity. Assuming that one tool
will be suitable for all organization is wrong. Selecting and purchasing and erp tool without analyzing
whether it is suited for the organization will have disastrous consequences. For an erp
implementation to –be succeful, the tool that is implemented should be compatible with
organizational culture, practice selection of a tool that is best suited for the organization.

10) ERP IS VERY EXPENSIVE:

ERP packages come in all shapes and sizes. The sophisticated and high-end tools are very expensive.
Qualified people are required to manage the erp system. Thus, implementation and managing an
erp system is an expensive affair. However, 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 cycle, streamline the production process, reduce errors by
automating the monotonous and repetitive tasks, enable better management of projects by
providing quality information, improves customer satisfaction by resolving problems quickly, and so
on. When the benefits of the erp systems are considered, it becomes evident that the money spent
on it is money well spent and this system will pay for itself.

WHY IS ERP IMPORTANT TO A COMPANY

ERP is most important to companies because it improves the way a company takes a customer oder
and processes it into an invoice and revenue-otherwise known as the order fulfilment process. ERP is
often referred to as back-office software. ERP takes a customer order and provides a software
roadmap for automating the different steps along the path to fulfilling it. The truth about erp is that
it unifies a company , it allows the customers service team to understand the financial background
for a client if there is stock in the warehouse.It minimizes inventpory time.

ERP systems are transforming the way organizations do business, They are indispensable tools with a
huge impact on both the business and information technology worlds. An ERP system does the
following:

 Affects almost all organizations-irrespective of their size and nature.

 Forces the competition to change their strategies and processes.
 Influences business partners to become more competitive.
 Improves the profit of the consulting organizations.
 Is the most important tool for business process reengineering.
 Enforces best practice business processes in organization.
 Fully utilize the true potential of client-server computing to deliver an enterprise product.
 Changes the nature of the info system function and IT professionals.
 Changes the nature of jobs in all functional business areas.
 Implementation is very costly.
HISTORY OF ERP