What are the Benefits of an ERP System?
The considerable benefits of an ERP are seen by many as the panacea to company ills. While an ERP system cannot overcome poor management, it can certainly help to offset managing and administering problems in operations which affect the over-all productivity. Even in well-managed companies, the complexity and speed of modern business needs integrated management information to enable profit growth in highly competitive environments. An ERP can provide this capability and that is why Gartner reported recently that the worldwide ERP market grew almost 4% to US$25.4B in 2013 (the last full year available). So, what are the benefits?
ERP (Enterprise Resource Planning) enables a business to standardize on one application for its operations. A major benefit is the reduced Total Cost of Ownership (‘TCO’) which arise as a result of a single software support agreement and avoidance of the classic support response ‘It’s not our software, that’s causing the problem, it must be the other package’. There is only one place that the buck stops with support problems.
Interoperability issues are removed and inter-module interfacing (for example between Logistics and Financial Management) is the responsibility of the supplier. A well designed ERP should also provide a consistent user interface across modules (benefit: simpler training, quicker on boarding, simpler first-line support).
Complete Functional Scope
The range of modules should include the full functional scope necessary to run a business. This scope will vary across industry sector. At the very least, the scope should span: Financial Management, Human Resources Management, Inventory Management, Production Management, Logistics, Purchasing, Sales and Marketing, and Customer Relationship Management. This is topped off by a Reporting and Business Intelligence Suite.
Centralized Data Model
An ERP is designed around a single logical central database, so that one item of data (such as a customer delivery address) exists in only one place on the system. This is called a normalized data model and its great benefit is that an item of data need only be changed once and that will be reflected in all appropriate places (but not in historical data).
It is this centralized data model that also delivers the benefit of considerable reporting power.
When reporting from a single database, there are considerable benefits in that is easy to link disparate items of data and extract information relatively painlessly. This provides tremendous decision support capability to managers and offers the opportunity to ‘mine’ data for valuable management insight.
Timeliness of Information
The single database also enables the speeding up of access to information and process cycles. Responsiveness to customer requests – for example establishing the earliest delivery date for a large order – is improved dramatically. This builds a company’s ability to compete and out-perform its competitors.
The corporate dashboard is a real-time snapshot of the company’s worldwide operations and Key Performance Indicators. Most leading ERP systems offer this functionality as standard – it is a key benefit arising from the ERP features of Integration and a single database.
Tighter Financial Controls
ERP system’s benefit of integrated and comprehensive financial management with the minute data has become much more significant as regulations tighten following events such as the derivatives-triggered collapse of China Aviation Oil in Singapore.
Enterprise Resource Planning offers project management software on a grand scale, with tight control of resources and up-to-the minute accurate project costs. Additionally, what-if modeling enabling straightforward analysis of the likely corporate impact of a project.
Streamlined sourcing and procurement processes enable a centralized buying model and rapid alignment to customer requirements (for example with configure-to-order business models driving sourcing). Expense control is simplified and expenses policies can be enforced by the ERP.
The Nirvana of a Closed Loop System
Marketing can be used to drive production and sourcing through a ‘closed loop’ and actual sales feedback adjusts the planning cycle in real time. The classic problems of over promise/under-deliver are removed at a stroke.
In conclusion, with the Asia-Pacific ERP market (excluding Japan) growing at 6.5 percent in 2013 to reach US$12.6 billion, the ERP Singapore share is likely to increase more rapidly as a result of the drive to improve the use of ERP as more companies recognize the wide range of benefits they deliver. Better management information, tighter financial control, improved customer response and retention all result in improved profitability and market share. These benefits of an ERP system are there for the taking!