Benefits of ERP (Enterprise Resource Planning)

Enterprise resource planning (ERP) integrates internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc.  ERP links all the departments across the company into a single centralized computer system and serves. It is not so easy task to cover the entire company or organization in a centralized computer system. But ERP software combines various departments together into a single integrated system, so that the various departments can share information and communicate with each other very easily. There are many benefits of ERP system, which are as follows

1. Ease of data access with data integrity

ERP enables user to access real time organizational data in a hassle free manner. People will not have to depend on the different department to access important data and derive organizational trend. All departments can access every data independently: like stock data, payable, retrieval, sales margin, production status, material work in progress status, delivery due date, delivery address, customer, and supplier design document etc.

Data integrity means to ensure correct data in the data base. There are many ways through which the integrity violation may occurs, like one employee entered wrong data/information, software problem etc. There are many way to stop the redundancy:  some of these are backing up data in another place, controlling the access of data with the security system, using error detection technique, etc. ERP control the unauthorized access of data and everything to protect data integrity.

2. Reduces data redundancy:

Data redundancy means some data are kept in the multiple locations or some data can be derived from other data. Duplicate information typically hampers the total system. ERP enables to reduce data redundancy. Through ERP a company can easily stop to store duplicate data in their system. When the company look that there is a redundancy, then they can change it very easily.

3. Activity monitoring reduces Sabotages:

ERP keeps track of all the change logs that are made by an employee in an organization. If someone sabotages and changes the data in some place then it may affect everywhere in the system. For example, let us think of company that manufactures steel and sells it to different companies. Now, if some employee changes the unit price of any item from 1rupes to 50 paisa, then the same will be reflected in the total system. It is virtually impossible to remember each and every item and its corresponding price. If this occurs then the company looses 50% of money on that particular item. But using ERP the company can monitor every change through logs. Hence, if someone tries to sabotage data, through ERP we can easily recognize that person.

4. Reduces time:

The time factor is one of the most important part of an ERP system. ERP reduces a huge amount of time for an organization.  In the manual system, each and every department is dependent on pen and paper work, so it can take a huge amount of time. ERP reduces per activity time because there is no data redundancy and all the data are easily accessible, so the data availability is very high. ERP reduce time for each and every department.

1. Making Invoice: When a customer orders some item to a company, the accounts department makes the invoice and sends it to the customer.
2. Purchase: ERP helps to generate the order for a particular item. It helps to search the suppliers, so that company can easily find the supplier’s name, who supplies the item. Also it is easy to return the item to the supplier if there is any dispute with it. ERP makes low quotation in this competitive market.  ERP also tracks who can supply the product within time, who can’t. ERP helps the company to dispatch the product timely. The availability of the stock is also maintained by the ERP software. By this the company can reduce the over consumption, maintain minimum and maximum stock level. Suppose a company / organization wants to generate 300 work order manually. Each employee make one work order in one hour and the working hours for the company is 8hours/day. Then one employee can make 8 work orders in a day. Now if the organization wants to make 300 work orders in a day then the company must need minimum of 38 employees. But using ERP the employee can generate a work order in one minute. Hence for making 300 work orders it takes 300 min. in this way ERP can save huge amount of time and revenue also. To generate 300 reports in manual way company has to recruit 38 employees, and pay their salaries. Using ERP one employee can perform work of 38 employees and the company pays only one person for doing this type of work. So the company makes the profit.
3. Manufacture: BOM creation needs human elegancy and experience. If there is an existing valid BOM is available, and any product to be sold, then ERP significantly reduces the productions planning time, material planning time and also work order time. From the previous BOM the company makes everything which is required for manufacturing the product through ERP.
4. Store: ERP reduces the time taken to know the inventory level and the inventory valuation during the inventory audit. ERP reduces the time taken from material movement and material traceability. It means tracking which item can be used for which purpose and who can take which item. If it’s not returned in proper time then the company charge that parson / department for that particular item. ERP reduces to make material requisition slip. If a customer orders for 1000 items, then it is easier to generate requisition slip through ERP, because ERP stores it when it is made for the first time. It also makes Goods Receipt Notes. Company can make Delivery Challan or Delivery Order for sales and job work.

5. Unaccounted Inventory loss :

Any company which is working through pen paper, they tend to face high amount of inventory losses, as it is not possible to memorize each and every item which is there in the store.  I have experienced the huge margin of error occurring in the company store if inventory is managed manually. I went to a company for financial auditing. There I saw that each and every department is corrupted, they could not deliver any report at the right time. Each and every department takes minimum of two days to provide us the report and there were too much unaccounted inventory losses for that company. So if the company uses ERP they can stop the unaccounted inventory losses. And it is seen that the company who don’t follow the ERP has at least 2% inventory loss over the inventory valuation where it is very easy to reduce it to less than 0.5 % using ERP. Through the ERP the company can easily keep track of the items which are in the store. The company can easily track who is responsible for which item and the purpose also. In this way the company can easily protect the unaccounted inventory loss.

6. Ease of sales planning:

Sales planning help the company to quote competitively in the complex market environment. Normally the quotation is done by raw materials cost multiplied by overhead cost. And ERP calculate both the things easily, more effectively and more accurately. Company can calculate overhead cost of the materials, overhead time very easily using the ERP. Through ERP software a company can quote more competitive rates than the other company. So it increases the possibility that they win the tender and after bagging the tender it reduces the possibility that they end up making loss. ERP reduces the winner’s curse by a huge margin.

7. Over consumption :

Because people are more accountable they tend to be more careful and the accountability       comes from monitoring any extra usage of raw materials or consumables during production.

ERP reduces over consumption during the production. Through ERP the company knows the inventory level of the store. So it is easier to purchase or produce the material as per requirement.  It also reduces the misuse of the raw materials during the production which means the production department uses the exact amount which is required during the production.  People tend to be very careful when the companies produce any product during their work. ERP reduces 3% of material consumption easily. It also increases the growth of the learning curve.

8. Strong organizational process:

Through ERP any company can make strong organizational process. ERP focuses that the companies follow few industry best practices. ERP ensure the company is on time for the full delivery. There are different strategies used by the different companies to grow up their business. Some basic rules are

Just In Time (JIT)

SCRUM

Getting Things Done (GTD).

Just In Time (JIT) strategy basically started by Motorola. After that this techniques is adopted by all the Japanese company and the success of ‘TOYOTA’ is the bench mark of JIT in the world. The fundamental concept of JIT is retrieving any material exactly you needed or you produce the product at schedule time.

ERP reduces the inventory level, inventory ideal time. Each and every item are easily traceable as per production lots, stock moves etc. Through ERP a company can understand the inventory level and ERP can reduces inventory holding cost.

ERP forces small companies to adopt industry base practices.

9. Better CRM:

Customer Relationship Management (CRM) is the one of the important part of any business organization. Basically it includes marketing, customer service and technical support. ERP provide more ways for better customer relation with companies. ERP can store every data of a company. So if any customer loss any data accidently, the company provide can provide each and every thing which a customer required. Service after sales creates a better Customer relation. Through after sales service only company can collect feedback about their product. If there is any failures or changes required then company can easily handle it. So in this way any company (using ERP) creates a better relation with their customer.