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ERP: How It Can Help Your Business

By March 7, 2011 No Comments

Ok, let’s start with the catches, two of them to be precise. The first: ERP doesn’t make your business better. It can’t. It’s only software. What it can do, though, is give your business the potential to become better. Be warned: filling this potential doesn’t happen by merely installing the software. Rather, it happens by installing the software and restructuring your processes. The idea behind restructuring is that operations need to be cleaned up and primed for automation. Restructuring often involves reengineering business processes, re-jigging reporting structures, learning new systems and managing change.These are many of the reasons why implementation projects are so grinding. Once ERP is implemented, though, business performance can really take off.

The second catch is that ERP implementations are risky and expensive. Depending on the study you read, you’ll learn that somewhere between 40 percent and 70 percent of all implementations fail. With the total cost of ERP ownership for small to medium sized businesses ranging between $150,000 and $2 million (over a 10-year period), the high failure rates don’t encourage investment. The good news is that good project management can drive almost any ERP project to success.

You’re probably thinking: ok, so he’s told me why ERP is scary, but hasn’t told what it is that ERP is supposed to do. Here goes. In a nutshell, ERP offers companies an opportunity to electronically integrate and consolidate business data. It does this by using a central database as a repository for information originating in far-reaching corners of the business. An airport hub-and-spoke model is a good analogy. The central database acts as an informational hub. The various application modules represent the spokes. Each of the modules supports a particular business activity or function, such as: finance, supply chain, planning, manufacturing operations, sales, purchasing, engineering, and HR (among many others). Electronic data originates at the module level, is validated for overall consistency and gets deposited in the database for storage. Once deposited, users of the different modules can access, combine, manipulate and analyse the deposited data.

In terms of benefits, this repository of business data can really give companies opportunities to do all of those things I mentioned tongue-in-cheek at the beginning of this article. To give some context, we implemented an advanced planning and scheduling module for one of our aerospace clients. Within one year, the client had improved its planning accuracy by more than 20%, had reduced its inventory costs significantly and had increased its rate of on-time deliveries. Equally importantly, it put itself in a much better position to respond to market shifts, which is a significant challenge for aerospace companies.

ERP also offers benefits relating to process automation. By setting up the systems to perform certain tasks, people can be freed up to do higher value work. Automation also helps break down barriers caused by time zone, language and currency differences.

As another example, we automated a client’s financial reporting and budgeting processes. Data and information were automatically drawn into a budgeting module, which eliminated most of the manual work and human errors relating to data entry and manipulation in Excel. The module allowed the user to run multiple what-if scenarios and prepare financial statements. From an effeciency perspective alone, the finance department cut its annual budget preparation time by 75 percent, allowing it to reclaim about 220 hours per year.

Financial management is but one example of an ERP module. Below, we take a closer look at this and other modules, as well as automation tasks:

Financial Management (FM)

Financial management modules can help a company automate many of the costly and time consuming tasks relating to finance and accounting. Examples of tasks that can be automated include:

  • Posting transactions to the general ledger
  • Preparing the financial statements
  • Preparing and adhering to budgets
  • Scenario analysis
  • Managing accounts receivables, billing and collections
  • Managing payables
  • Managing multiple currencies and languages
  • Administering rules relating to cash and budget management
  • Managing compliance with regulatory, tax and other reporting requirements

Manufacturing Operations Management (MOM)

MOM modules extend e-integration to the plant floor. By automating manufacturing operations, businesses can get better insights into overall equipment effectiveness, process efficiency, productivity and performance. Automation can extend to:

  • Job costing
  • Bills of materials preparation
  • Product data management
  • Master production scheduling
  • Production planning and scheduling
  • Capacity requirements planning
  • Work order management
  • Shop floor control
  • Equipment lifecycle monitoring, including scheduled maintenance

Supply Chain Management (SCM)

SCM modules are intended to streamline the flow of materials through an organization’s supply chain. Automation can extend from purchasing to delivery, and often includes:

  • Forecasting demand
  • Master and material requirements planning
  • Order management
  • Procurement
  • Inventory management
  • Warehouse management
  • Logistics management

Supplier Relationship Management (SRM)

SRM modules are intended to streamline procurement processes by centralizing and automating sourcing practices. Automation includes:

  • Supplier evaluation, ratings and approvals
  • Contract management
  • Procure-to-pay
  • Catalogue management

Customer Relationship Management

CRM is intended to help drive revenues and reduce the costs of earning those revenues. Automating processes relating to sales and customer management is aimed at making existing client happier and attracting new clients. Automated functionality can include:

  • Customer quotes and order processing
  • e-commerce
  • e-account management
  • Customer preference tracking
  • Flexible pricing
  • Customer service scripts
  • Searchable knowledge database to facilitate customer support
  • Rules for product returns
  • Marketing campaign management and lead management

Human Resources Management (HRM a.k.a. HCM)

HRM modules can standardize and automate many of the time-consuming HR administrative tasks. Automated tasks can include:

  • Employee performance management
  • Payroll and benefits administration
  • Labour tracking
  • Benefits administration
  • Recruitment functions, including: electronic resume submission and review
  • Training, development and skills management

Using MBA-speak, consultants will often tell you that ERP can offer a “real-time, transparent and holistic views of the enterprise”. What they’re saying, in other words, is that ERP can give you a live view of the business. With standardized and automated processes, ERP can also help your business become more efficient, productive and profitable.

Originally published here by Manufacturing AUTOMATION on June 10, 2010