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Importance of an ERP

The benefits of implementing an Enterprise Resource Planning system are endless. First and most important, all ERP systems are focused on the customer and end results. This means better products and services produced and delivered quickly. ERP allows open communication among suppliers, vendors, customers and all other facets of the business. Second, ERP can put a company with a standard set of business practices across the whole organization. By doing this, it allows each department within the whole organization to operate in the same way. Each department despite its geographical location will hire the same, order the same and run the operation with a same style according to business needs.

Various aspect of ERP implementation can be study academically intended to record the impact of ERP system and the challenges of the implementation project itself. The reason for implementation is based on the organizational inclinations and regarding to change where the focus of implementing the ERP is mainly on the realization for the functions or importance in the ERP system.

Enterprise Resource Planning also can improve business performance of the organizations by implementing an efficient planning and control system that synchronizes planning of all processes through organizations. Solid information systems (IS) are required for competitive business that it will align with business processes. ERP system can give valuable information as well as enhance operating efficiency by changing the company strategies from developing in-house information system to purchasing application software.

Enterprise Resource Planning can streamline the business operations and play a role as a key of successful ingredient to gain competitive advantages within the organizations.

The systems also can help companies by integrating their business functions into a unified and integrated business process. It will create excellent if companies implement more enterprise based systems throughout their organizations.

In summary, ERP application can help organizations in various ways of business aspect. The common importance of ERP that can be concluded are, organization’s operating cost can be reduced, it integrates all parts of an organization, increases the efficiency of operations as a result of the integration, integration on information systems which enables free flow connection of information across the organization and enables consolidation of different software within the organizations.

In recent years, SMEs are impacted by the rapidly changing marketplace and their own ability to respond to these changes. ERP systems provide the platform for SMEs to address the competitive demand for the rapidly changing market place and to be successful in terms of: “improved customer relations and management, improved cycle time, improved quality, increased sales volumes, improved margins, reduced product development time, reduced manpower for routine (IS) partnerships, enterprise resource planning (ERP) implementation has been an important activity for improving supply chain efficiency in SMEs. Increasing reliance on SMEs by large companies caused SMEs to become the target of ERP vendors. Even though ERP systems were initially thought to run on large scale enterprises, SMEs are increasingly motivated to introduce ERP implementation. As companies grow in size and improve performance, they are most likely to have invested in ERP system that will grow with them. As mid size companies grow, they must learn to operate in a distributed environment and often experience proliferation of ERP and other enterprise applications. Many ERP vendors have been moving their attention toward SMEs by providing simpler and cheaper solutions from both the organizational and technological point of view and pre-configured systems based on best practices at a fraction of cost and time originally required for implementation.

Five reasons why SMEs need an ERP:

  1. Transparency: Profitability is key for organizations of all sizes, but for medium sized companies a lack of profitability can prove to be fatal in a much shorter time span. This is why they very rapidly need to identify – throughout the organization – which products, departments and customers are profitable and which are not. Also, a proper cost allocation is key. A well-implemented, reliable ERP system is crucial in this strategy execution.
  1. Data reliability: This second point is closely linked to the first one. To take the right decisions, you need data you can trust. “Tailor-made” systems, which have grown over many years through specific programming and interfacing with other applications. The consequences of a modification of one flow towards others within the system become very hard to predict. The system “tells that one product is not profitable anymore” while users can have a “gut-feeling” that this is untrue… This is fatal for the trust in the system. Once trust is broken, the ERP system loses its relevance.
  1. Integration of new technologies: a lot of medium-sized companies need to move fast, innovate, stay ahead of competition, propose new products and services, in order to attract new clients and keep faithful ones. The implementation of a state-of-the-art ERP solution allows a fast deployment of innovating technologies (mobility, real-time Business Intelligence & multi-channel sales, etc.)
  1. Reduce Total Cost of Ownership (TCO): if analyzed thoroughly, the maintenance cost of “tailor-made” legacy systems often reveals to be gigantic, offering no radical evolution perspectives. The TCO of an existing system is often considered low, as there is a limited license cost and many direct costs are already depreciated from an accounting point of view.  But if you consider all the components of the cost, including the dedicated personnel which are needed to support the system (limited outsourcing possibilities), the missed opportunities regarding innovation, the cost of wrong business decisions due to misinformation; then a lot of medium-sized companies soon realize the potential savings and additional sources of revenue behind a powerful ERP system.
  1. Reduce operational risk: the knowledge regarding “tailor-made” legacy systems often is contained in just a couple of “brains” in an organization. The potential discontinuation that could occur if something happens with these valuable “brains” is enormous. The advantage of an ERP system that can be implemented using standard available functionality is then double: any person that has experience with the implemented ERP solution can work on it (modify the configuration), the use of standard available functionality also guarantees smooth upgrades to new releases of the solution.

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