Benefits of implementing ERP (enterprise resource planning) software

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Information about Benefits of implementing ERP (enterprise resource planning) software
Business

Published on March 28, 2014

Author: mahendraprabhuk7

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ERP is a common topic in Business Administration. It's not so difficult. Benefits of implementing ERP is shared in a comprehensive manner.

1 BENEFITS OF IMPLEMENTING ENTERPRISE RESOURCE PLANNING SOFTWARE IN ENTERPRISES: A SEMINAR REPORT 13HM16 MAHENDRA PRABHU K NITK MBA 2013-15

2 Abstract and Introduction In the present context ERP is a software package installed in hardware systems which handle information across all functions and departments inside an enterprise. This includes voluminous, diverse and complex information database stored inside aptly designed and regulated software architecture design. Entire software architecture and individual database involved in ERP can be integrated to be made available on one computer server. ERP in-built functionalities can perform many types of automated processes and generate custom reports. ERP software developed by top ERP vendors has capability to cover every possible function in an organisation and has emerged as visible brands for the entire IT industry.ERP software is one of the best products the IT industry has offered to companies in all other sectors. The purpose of this study is to assess the cost benefits and related implications of implementing ERP software in organisations. All ERP software developers and vendors have highly lucrative marketing tactics in which they need to invest substantially. All ERP vendors try to become more visible and felt in their market amongst the competition which is intensely fierce. All leading ERP vendors in India are Foreign MNCs and have established themselves as niche brands.

3 What is ERP software? ERP is a software architecture that facilitates the flow of information among the different functions within an enterprise. Similarly ERP facilitates information sharing across organizational units and geographical locations. It enables decision-makers to have an enterprise-wide view of the information they need in a timely, reliable and consistent fashion. ERP provides the backbone for an enterprise-wide information system. At the core of this enterprise software is a central database which draws data from and feeds data into modular applications that operate on a common computing platform, thus standardizing business processes and data definitions into a unified environment. With an ERP system, data needs to be entered only once. The system provides consistency and visibility across the entire enterprise. The primary and related benefits are explained later in detail. Information integration concept ‗Integration‘ is a key concept in ERP. ERP collects, manages and distributes information across functional boundaries and helps break down information ―silos‖—those barriers that stand in the way of full cooperation between production, materials, planning, engineering, finance and sales/marketing. The resulting higher quality, reduced time-to-market, shortened lead times, higher productivity and lowered costs can help improve customer service and increase sales and market share as well as margins. ERP consists of active in-build intelligence to integrate relevant information across various information databases. Real time integration of measurements, analysis and simulation capabilities can help companies plan better and react sooner and more effectively to changes in demand, competitive actions, and supply chain disruptions. To say in short, ERP systems integrate all business management functions including planning, inventory/materials management, engineering, order processing, manufacturing, purchasing, accounting and finance, human resources, and more. Sub-functions or Modules The most modules in a general ERP software is Supply chain Management, Human resource Management, Financial Resource Management, Manufacturing and Materials resource management, Organise management and E-Commerce. An ERP software solution like SAP can maintain information and business processes for a variety of business functions such as Manufacturing, Supply Chain Management (SCM), Financial Resource Management (FRM), Human Resource Management (HRM) and Customer Relationship Management (CRM). Prior to the concept of ERP systems, every department within an organization had its own customized computer applications. For example, the human resources department, the payroll department, and the financial department all had their own computer applications

4 Structural division of functions into sub-functions

5 General Perceived Benefits A primary benefit of ERP is easier access to reliable, integrated information. A related benefit is the elimination of redundant data and the rationalization of processes, which result in substantial cost savings. Improved visibility: Due to the centralized nature of ERP systems, organizations can track inventory levels on a daily basis, including inventory in transit and future consignments to be received. This visibility can enable organizations to control their working capital requirements to a great degree. This visibility also enables organizations to run their enterprise in accordance with their strategy, while empowering them to make quick decisions to pursue opportunities. Reduced operating costs: One of the most immediate benefits from implementing an ERP is reduced operating costs: such as lower inventory control costs, lower production costs and lower marketing costs. By avoiding duplication of information but not reinventing the wheel for common business processes, an ERP provides opportunities for cost reduction and value- added tasks, leading to increased margins. Standardized business processes: Most ERP vendors design their products around standard best-business processes, which are based on industry best practices. Organizations can use these business processes to standardize their own processes. This process consistency allows a consolidated view of the business across the distributed enterprise, enabling organizations to drive continuous improvements, as operations are streamlined and there is healthy synergy between departments and functions. The improvement also comes from transparency and reduction in human errors due to automation of inter-company transactions. Improved compliance: With ERP, organizations can enforce compliance related to different regulations such as Sarbanes-Oxley or industry specific initiatives such as 21 CFR part II. Real time analysis: The biggest advantage of an ERP system is with its real time capabilities and the ability to see what is going on with your company as it happens. It is handy when you deal with high volume of business process. With an ERP system, your company will never have inventory shortages or wasted time spent transferring files. Integrated Information: The key benefit of implementing ERP is integration. ERP helps in reducing operational costs by coordinating various departments of the organization. The major idea behind ERP is to control accuracy as well as redundancy of data and data entry. This centralized working system is able to replace multiple, disconnected databases with a single system, incorporate different applications and data sources. It also aims to lowers help desk support and marketing cost. In addition, this real time application has the capabilities of interfacing internal and external entities. Moreover, ERP is an ideal application to improve the cooperation between departments and employees as well as communication with prospects and customers. Enhanced and Efficient Technology: This software enhances day to day management activities. It also supports strategic planning that defines objectives for the business. Since it has better data accessibility, top management can also use this tool to make better and more effective decisions. In addition, ERP system has a capability of eliminating manual activities and streamlining critical business processes for many departments of an organization. The following are some more benefits that improve the efficiency of an ERP system:

6 Easy Reporting: An ERP system improves and customizes reporting. It provides easy technique of generating reports. With better access to data you can generate and manipulate reports anytime you want to. User Friendliness: This robust and user-friendly application easily eliminates problems without over-grown data tables. Moreover, non-technical people can easily access data or information using ERP applications. This handy application also allows you to deal with high volumes because of its real time capability and future based orientation. Cost Reduction: An ERP system can integrate costs, profits and revenue information. Its ability to reduce cost can be greatly enhanced if the data that is being captured is analyzed and evaluated properly. Easy Data Accessibility: An ERP system enables you to access real time data and increase self-service of critical information. Many ERP vendors are providing mobile functionalities so that you can always remain connected and well-informed in regards your business processes and performance. Better Communication: ERP system improves communication between departments within an organization. It also offers a variety of timely, speedy and software-compatible services with flexibility; such as web based applications. Increased Security: ERP system not only improves data integrity and security but also enhances the data restrictions, allowing you to keep your customer information and company data safe and secure. Providing Business and Financial Solution: ERP offers the best business and financial solutions for almost every type of organization. By permitting flow of resources and finances into different and vital business activities it enables enterprises to increased efficiencies in its daily operations. Accuracy & Consistency: An ERP enables companies to maintain consistent and accurate data throughout all the departments enabling the complete flow of information to be viewed through a single system. The department heads can see the timing of employees and total work completed. It provides better visibility and helps in improving the performance of the organization. Better Resource Management: This centralized application provides the tools and reporting capabilities to allow management to better allocate valuable resources. This allows decision makers to monitor and take action during crucial times and prevent delays.

7 Source: http://panorama-consulting.com/using-erp-systems-to-increase-productivity/ Source: JISTEM J.Inf.Syst. Technol. Manag. vol.10 no.1 São Paulo Jan./Apr. 2013

8 Monetary Advantages Any company investing in any new tools or equipment will want to know that the investment will pay off—have sufficient return on investment (ROI) to justify the expenditure. And that‘s certainly the case with an ERP system. The financial benefits of ERP may be realised in many different ways. Some organisations use ERP software to make savings in departmental budgets; being able to compare cost savings with revenue gains, leads to better decision making when setting targets. A primary benefit of ERP is easier access to reliable, integrated information. A related benefit is the elimination of redundant data and the rationalization of processes, which result in substantial cost savings. Reduced operating costs: One of the most immediate benefits from implementing an ERP is reduced operating costs: such as lower inventory control costs, lower production costs and lower marketing costs. By avoiding duplication of information but not reinventing the wheel for common business processes, an ERP provides opportunities for cost reduction and value- added tasks, leading to increased margins. However there are few companies which faced unexpectedly long ROI time period. Implications on vendors and developers: All ERP software developers and vendors have highly lucrative marketing tactics in which they need to invest substantially. All ERP vendors try to become more visible and felt in their market amongst the competition which is intensely fierce. All leading ERP vendors in India are Foreign MNCs and have established themselves as niche brands. Implications on Financial Reporting ERP systems can also make it easier to identify non-productive areas of the business, allowing managers to move staff to where they can better benefit the organisation. Still more savings can be realised by speeding up the monthly close process in financial accounting and management, in which a firm‘s books are temporarily closed and analysed to produce a set of financial statements that indicate how well the company is performing. A faster temporary and informal close process allows management, information analysis to be made available sooner, giving the organisation more time in which to analyse the figures before producing financial statements. Full or partial automation of this process by ERP can lead to significant reductions in the close cycle. The boost to business from these financial benefits is obvious. Better cash flow and liquidity is a critically important part of both riding out an economic downturn and taking maximum advantage of the recovery.

9 Apart from the low cost of ownership and savings achieved by standardizing one application to manage multiple business functions, usage of ERP promises much more. With a successful implementation of an ERP system, top management can have a consolidated view of sales, inventory and receivables at the same time. An ERP system improves and customizes reporting. It provides easy technique of generating custom reports. With better access to data you can generate and manipulate reports anytime you want to. Finance module is an important module in ERP software system, the most important to the finance function, 70% of respondents stated that their ERP system has enabled better financial reporting, while 52% have realised better cash flow and liquidity. One of the main benefits of ERP is better financial reporting which can generate customised reports. Does ERP deserve the entire Credit? Most companies will identify inventory reduction as one of the biggest benefits of an ERP system. Many companies actually achieve the savings that they anticipate, but it is the implementation effort and the focus on procedures and discipline that generate inventory reduction (without increasing shortages), not the software itself. Nevertheless, the software implementation is the mechanism for the improvements so it‘s not unfair to give the ERP system the credit. ERP generates monetary benefits through cost containment techniques than additional revenue generation. Substantial effort is involved in training employees to work with ERP systems who are often resistant to change. The extracting best possible advantages offered by ERP lies in high uncertainty zone. Some ERP applications may not possess useable flexibility in rare and unexpected situations. .

10 Outcomes and Discussions on assorted Survey findings Source: http://www.eworksglobal.com/reports_127732110464062500.html Source: http://www.carillon.biz/surveys.html

11 Source: http://www.erpsoftwareblog.com/2012/10/manufacturing-company-facts-on-erp-benefits/ Panorama case: ERP systems integrator and consultant, Panorama Consulting Solutions conducted the research survey during the four-month period of September, 2012 to January, 2013. The results are based on data from 172 respondents who completed a survey on the Panorama website. Seventy-one percent reported revenues of $300 million or less and 21 percent of respondent companies had revenues of $1 billion or higher. Cost, duration, and benefit summary. Although project duration and cost fluctuate from one year to the next, three points stand out about the current data: o Over 50 percent of projects experienced cost overruns o Over 60 percent experienced schedule overruns o Fully 60 percent of respondents received under half of the expected benefit from their ERP implementation This chart summarizes the top-level results:

12 Although these numbers are bad, they are consistent with failure rates reported in other studies and enterprise software domains such as CRM. The following table reports Panorama data for the last four years: Implementation budget, time schedule and realizing benefits Figure: According to the survey 53 percent of ERP projects exceeded their budget Source: http://www.zdnet.com/2013-erp-research-compelling-advice-for-the-cfo-7000011619/

13 Figure: Regarding schedule 61 percent of respondent ERP projects went beyond planned time duration Source: http://www.zdnet.com/2013-erp-research-compelling-advice-for-the-cfo-7000011619/ The survey shows a significant problem with respect to realizing benefits from the ERP implementation: o 27 percent of respondents realized less than a third of anticipated project benefits o 11 percent realize no benefit at all from their ERP implementation o 22 percent achieved between a third and one-half their expected benefit

14 Figure: In other words fully 60 percent of the ERP projects in the survey realized less than half their desired benefit. By any reasonable measure, these projects are problematic. Source: http://www.zdnet.com/2013-erp-research-compelling-advice-for-the-cfo-7000011619/ ERP success and customer satisfaction: The survey makes a distinction between "implementation outcome" and "customer satisfaction." As the following chart shows, only 10 percent of the respondents called the ERP implementation a failure, meaning 90 percent either did not know or believed their project to be successful: RoI/Payback period: The survey reports an average payback period of 25 months (down from 32 months in 2009). The graph below shows that over half the respondents did not recoup their costs or were unsure: Source: http://www.zdnet.com/2013-erp-research-compelling-advice-for-the-cfo-7000011619/

15 When reading this data, bear in mind that respondents who have not completed an implementation will naturally report no payback — after all, the software is not yet operational. More troubling is the 25 percent who are unsure of their ERP payback period. One wonders whether these people had a clear set of goals and business when starting their project. Selecting suitable vendor and Upgradation All ERP software developers and vendors have highly lucrative marketing tactics in which they need to invest substantially. All ERP vendors try to become more visible and felt in their market amongst the competition which is intensely fierce. All leading ERP vendors in India are Foreign MNCs and have established themselves as niche brands. There are different types of ERP software brands available in the market, but companies must choose the right ERP system to suit their needs. India's leading web-based ERP solution provider ERP even offer mobile capabilities so that you can always have a finger on the pulse of your business activities. Since ERP solutions are the operational backbone of a growing or established organization, it's necessary to partner with a company that understands your business, can improve the quality and efficiency of your organization, and delivers a solution that will ultimately save time and expense. ERP software programs are being developed and updated all the time. Modern ERP systems are built for the internet-enabled world with e-commerce capabilities and provision for integration and collaboration with supply chain partners, customer portals, and enhanced tracking of incoming material and outgoing product to extend the visibility and control. Many companies are challenged by the continually changing requirements of Internet-based business processes and find that their current ERP system is not able to take them where they need to go. It‘s hard to put a value on the ability to take advantage of new and evolving e- business imperatives—or the cost of not being able to keep up with (or perhaps even lead) the competition. .

16 Difficulties in Implementation All surveys have found few companies which faced unexpectedly uncertain ROI time period. Another difficulty is resistance of both internal and external employees towards accepting this technological change especially in developing countries like ours. Working with ERP needs higher level of human skills and people using it undergo mandatory training by ERP professionals.

17 Interest in implementing a new or replacement ERP system usually starts with a need to address some operational difficulties—trouble in meeting production schedules, too much inventory, high costs, inability to meet competitor‘s moves, shortcomings of the current system, or sometimes just a general desire to improve performance. Once this interest is recognized, a project team is established to set a budget, select a system, and put together an ROI justification. ERP requires a huge amount of planning, co-ordination and support to reap the promised benefits. For instance, at the heart of any ERP system is information – if the information is entered incorrectly, the ERP system cannot deliver benefits. ERP is also about process – if employees in an organization resist the best practices in the process as underlined by the ERP, they will resist using the software, eventually resulting in poor ROI. As implementation of ERP changes the way people work, top management has to be proactive in explaining the reasons for, and how the organization as a whole will benefit from the implementation. A proper change management initiative can lower the potential risk of an ERP implementation, through a comprehensive communication and training process. To reap the full benefits of ERP, organizations need to partner with competent, proven service providers, with the technical and functional experience and expertise to ensure successful implementation. Conclusion There exists ERP software package for enterprise of all types and therefore the selection for the most suitable ERP vendor and product is itself a challenge. Implementation of ERP software has become a benchmark to distinguish between technologically advanced organisations and the rest. Every significant present day organisation needs ERP software to handle computerised information inside their organisation and continue to be in phase with competition. An ERP implementation can build the foundation for future growth with scope for continuous upgradation. There are few hundred ERP software developers, thousands of ERP vendors and millions of ERP customers across the world. It has been long time since the first concept of ERP came into existence and was utilised for commercial use. The financial expenditure allocation or budget involved for ERP implementation is quite substantial depending upon size and structure of your organisation and the industry to which is belongs to. This investment could be justified by the operational benefits offered by ERP as felt and quoted by many ERP customers in various surveys. The benefits offered by ERP software has been validated by thousands of satisfied companies who have successfully implemented ERP for themselves.

18 References: http://www.acgil.com http://www.aptean.com/en/Solutions/By-Application-Area/Enterprise-Resource-Planning- ERP/Resources-Folder/ERP-System-Benefits http://www.carillonerp.com/surveys/survey-results-the-top-erp-implementation-concerns http://www.eresourceerp.com/ERP-considered-backbone-of-e-business.html http://www.greenbeacon.com/GreenBeaconWebsite/Microsoft-CRM-ERP- Solutions/EnterpriseResourcePlanningERP.aspx http://www.itcinfotech.com/erp/erp-benefits.aspx http://panorama-consulting.com/2011-erp-report-erp-implementation-project-costs-and- durations-down-business-benefits-up/ http://www.zdnet.com/2013-erp-research-compelling-advice-for-the-cfo-7000011619/

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