What is ERP?
ERP is an Enterprise resource planning software that attempts to integrate all departments and functions across a company onto a single computer system that can serve all the different departments’ particular needs.
Each department typically has its own computer system optimized for the particular function that it performs. ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and effectively communicate with each other. This integrated approach can have a tremendous payback if the implementation is done properly.
Take a customer order, for example. Typically, when a customer places an order, that order moves from one department to another with details often keyed and rekeyed into different departments’ computer systems along the way. This causes delays and lost orders. Moreover, no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department, for example, to get into the warehouse’s computer system to see whether the item has been shipped. This results in slower response to the customer’s queries, thereby leading to lower customer satisfaction levels.
ERP vanquishes the old standalone computer systems in finance, HR, manufacturing and the warehouse, and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. Finance, manufacturing and the warehouse all still get their own software, except that now the software is linked together so that someone in finance can look into the warehouse software to see if an order has been shipped. Most vendors’ ERP software is flexible enough that one can install some modules without buying the whole package. Many companies, for example, will just install an ERP finance or HR module and leave the rest of the functions for another day.
How does ERP improve a company’s business performance?
ERP aims at improving the business processes in an organization. It plays a major role in changing the way a company takes a customer order and processes it into an invoice and revenue – often known as the order fulfillment process. That is why ERP is often referred to as back-office software. It doesn’t handle the up-front selling process, although most ERP vendors have recently developed CRM software to do this; rather, ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling it. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order like the customer’s credit rating and order history from the finance module, the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module etc..
People in these different departments all see the same information and can update it. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, you need only log in to the ERP system and track it down. The order process moves smoothly through the organization, and customers get their orders faster and with fewer errors than before. ERP can apply that same magic to the other major business processes, such as employee benefits or financial reporting.
What are the major reasons for the companies to implement ERP?
Following are the five major reasons why companies undertake ERP –
1. To integrate financial information
2. To integrate customer order information
3. To standardize and speed up manufacturing processes
4. To reduce inventory
5. To standardize HR information
How long does an ERP project take?
The ERP implementation not only requires software installation but also a major revamp of the business processes and systems within the organization. To do ERP right, the way one does business will need to change and the way people do their jobs will need to change too. And that kind of change doesn’t come without pain.
ERP implementation varies from company to company and also depends upon the scope of work. The real transformational ERP efforts usually run between one and three years, on an average. The important thing is not to focus on how long it will take but rather to understand why one needs it and how one will use it to improve one’s business.
What are the hidden costs of ERP?
Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. The experience shows that the budget overrun will be more in the following areas –
2. Integration and testing
4. Data conversion
5. Data analysis
6. Consultants ad infinitum
7. Replacing your best and brightest resources
8. Implementation teams can never stop
9. Waiting for ROI
10. Post-ERP depression
Why do ERP projects fail so often?
People don’t like to change, and ERP asks them to change how they do their jobs. The software is less important than the changes the companies make in the way they do business. If one uses ERP to improve the way the people take orders, manufacture goods, ship them and bill for them, one will see value from the software. If one simply installs the software without changing the way people do their jobs, one may not see any value at all.
At its simplest level, ERP is a set of best practices for performing different functions in a company, including finance, manufacturing and the warehouse. To get the most from the software, one has to get people within the company to adopt the work methods outlined in the software. If the people in the different departments that will use ERP don’t agree that the work methods embedded in the software are better than the ones they currently use, they will resist using the software or will want IT to change the software to match the ways they currently do things. This is where ERP projects break down. Political fights break out over how—or even whether—the software will be installed. IT gets bogged down in long, expensive customization efforts to modify the ERP software to fit with powerful business barons’ wishes. Customization makes the software more unstable and harder to maintain when it finally goes live.
Getting people in the company to use the software to improve the way the job is done is a bigger challenge. If a company is resistant to change, then the ERP project is more likely to fail.