ERP SOFTWARE: AN ESSENTIAL CATALYST FOR GROWTH

Introduction

ERP Implementations are worldwide known for their inherent implementation challenges, technological complexities and soaring costs during implementation. Analysts often debate the benefits of ERP system over the amount of effort and cost that an ERP implementation demands.

Despite a few odds against ERP, due to numerous tangible & intangible benefits of ERP software (even with the slightly high costs), not only large enterprises but even small & medium size companies invest in implementation of ERP system.
This article explores the challenges that ERP software address and the benefits that organizations reap over the period after implementing ERP software.

Managing Information – The New Challenge of Scaled Up Business

Up to long time after their establishment, businesses usually work on the paper based management systems like books or registers, Microsoft Excel or in extreme cases some customized stand alone software developed locally, which often costs a dime as compared to the cost of ERP software. For a small business or newly established business, this is effective both in terms of cost as well as management needs. However, as business grows up and expands to new locations, units or subsidiaries, these low cost arsenals often refuse to troubleshoot the new problems of information management that rise-up with the economies of scale.

In real life the everyday struggle of a grown up businesses is mainly centered around managing the monstrously growing information, whether it is financial transactions data, inventory data, production information, vendor data, employee database or even emails. The mis-management of this information can have serious business implications; like incorrect invoices leads to delayed payments from customers or taxation issues; wrong inventory levels lead to hassles at production bays; overstock locks up much needed working capital; inappropriate production schedules lead to wasted man-hours, delayed productions and deliveries degrade customer satisfaction levels etc. – each of these jolt the customer trust and market position of the company.

Scaled up business is an integrated huge mass of information about man, machine and material where each function is inter-dependent on the information and support from other functions. On large scales, seemingly simple task like generating correct Invoice become strenuous say – 1500 invoices a week based on 500 Purchase Orders with 10,000 items with multiple price strategy – isn’t that too complex?

Companies that try to meet this new challenge raised by business expansion with old techniques like increasing manpower realize much sooner that not only did this cost them high but the problem also snowballed to a dangerous level.

ERP Software – an effective solution to information management

This is where enterprise resource planning software – ERP comes into the picture. The benefit of ERP is that it solves two basic problems of magnitude – one, handling too much & too complex data easily and two, integrating the fragmented pieces of information to build a significant and manageable mass, which become basis of strategic analysis and decision making.

Petra Schubert of Centre for Applied Information and Communication Technologies (CAICT), Copenhagen Business School, Denmark and Susan P. Williams, Institute for Information Systems Research, Germany conducted an empirical study on the benefits from current ERP. Some concrete findings are given below, for rest of the case study please visit here.

1. Two e-commerce companies LeShop and Digitec were able to guarantee just-in-time deliveries efficiently only after the introduction of the new version of their ERP system.
2. At Weiss + Appetito all information is centrally available for all subsidiaries. eltromat has access to accurate and current information to assist in the decision making process for management. The data quality is particularly praised in this case.
3. On the functional level benefits in the form of improved business intelligence are clearly in the foreground. The generation of analyses and reports for corporate management, e.g. key performance indicators (KPI), management cockpit (ad-hoc analyses) or the monitoring of contracts, purchase orders and shipments are mentioned here.

Another study, conducted on customers of ebizframe ERP system in India revealed that customers benefited financially by improving efficiencies. ERP System enabled automation expedited tasks like preparation of customer quotations, multi-tax invoices, accounts reconciliations etc. improved by a few weeks, which resulted in decrease of debt collections by more than three weeks in some cases, benefiting the operational cash flows and reducing the need for high interest business overdrafts or loans.

These studies conclude that “Acceleration of Business Process” and “Transparency in the Business Transactions” are two most important benefits of the ERP software that impact every nook and corner of the business. An ERP System also benefits business by timely detection of errors and triggers the alert much before it impact the business continuity or have high bug-fixing costs.

Simple but Significant Question: Is ERP costly?

Top Management often cites that implementing ERP system is often costly affair for the company. This used to be true few years back, but no more.

Owing to many innovative technologies developed in recent past, ERP systems now offer more configuration options, robust technology for reduced support, and use Open Source components to lower license fee for clients. These factors enabled the vendors to descend the base cost of ERP software.

However, the highest cost determinant in any ERP implementation is the cost of customization. Though most modern ERP systems have ample customization options and vertical-specific variations to meet the businesses needs, companies in their zeal (often to have higher employee buy-in) demand vendors to customize the ERP to match their exact business processes (which may not be necessarily the best practices). Heavy customization magnifies the ERP cost to large extent and also elongates the implementation time, causing delay and frustrations. While the fact remains that much of customization can be avoided by training employees to adapt to the business process available in the ERP.

If a company can adapt the ERP software with only essential customization, not only can it benefit by the global practices incorporated in the system, but also save huge money and time. Thus cost of an ERP depends on the management’s willingness to go with the ERP or the extent of customization it needs.

Can you live without ERP Software?

For a business with lots of transactions as a daily routine, software is more than a necessity. In current competitive scenario, business cannot operate without effective enterprise software.  Whether that software will be ERP or set of custom applications remains a matter of choice and available budgets.

Business that do not choose one integrated software like ERP often juggle with multiple software applications for different functions i.e. one for finance, once for sales, one for production & so on. While it does solve some issues, it creates another set of business problems – integration issues between multiple applications, more IT manpower software maintenance and above all – lack of an integrated decision making system. These intangible costs and lost opportunities are often ignored, which over time period cost much more than the price of implementing ERP. Business 10 years back could manage without ERP. But no more!

Now employees, vendors and management – all require speed and accuracy of information. Customers are much more demanding in terms of product pricing, delivery times, customer service levels and the brand value of the company.  Only an integrated business solution like an ERP system can offer required competitive edge to the growing businesses.

With all its pros and cons clubbed together, ERP software remains an essential catalyst for growth.