Benefits of ERP system in any

company which are going today

Installing an ERP system has many advantages - both direct and indirect. The direct advantages

include improved efficiency, information integration for better decision making, faster response time

to customer queries etc. The indirect benefits include better cQrporate image, improved customer

goodwill, customer satisfaction, and so on. In this chapter we will see some of the benefits of the ERP

systems. They are:

. Reduction of lead-time

. On time shipment
. Reduction in cycle time

. Better customer satisfaction

. Improved supplier performance

. Increased flexibility

. Reduction in quality cost

. Improved resource utility

. Improved information accuracy and decision making capability.

Reduction of lead-time
The elapsed time between placing an order and receiving it is known as the lead¬time. It plays a

significant role in purchasing and inventory control. Most purchasing departments urge the managers

to anticipate material demands well ahead of actual need. All inventory system have safety

mechanisms like safety stock, re-order level and so on built into them, to avoid the situation were the

material is out of stock. The consequences non availability of an item that is required for production

can result in a lot of problems like missing the delivery schedules, losing the customer goodwill due to

delayed delivery or even losing the customer to the competition. One can avoid this situation by

requesting for the materials well in advance rather than when they are actually needed (early

request), or by keeping a large buffer stock, or by maintaining very high re-order level. But, all these

means that larger inventories must be kept which blocks the money. Also, the practical consequences

of allowing longer times for delivery seems to be that the present lead-times just grow to take up

whatever slack alone. Perhaps, this is due to the 'squeaky wheel principle buyers who expect the

shortest lead-time complaint the loudest when the deliveries are late and thereby receive the most

attention from the suppliers. So the Company should find out the minimum lead-time and should

attempt to correct supplier's delivery delays instead of automatically increasing existing lead-times.
In order to reduce the lead-time, the organization should have an efficient

inventory managementsystem, which is integrated with the purchasing, production planning and

production departments. In this era of just-in-time manufacturing, the knowledge of the exact lead-

times for each and every item is of paramount importance for uninterrupted production. For a

company dealing with hundreds and thousands of raw materials and components, keeping track of the

lead times for each and every individual item manually, is practically an impossible task.

The ERP systems help in automating this task and thus, make the inventory management more

efficient and effective. Also since the ERP system is integrated and the materials management module

is integrated with other modules like sales, marketing, purchasing, manufacturing and production

planning, the demand for a particular item can be known as early as an order is

received. For example, consider that an order is received for supplying, say, hundred cars with air

conditioners as soon as the order details are entered into the system, a lot of actions are iriggered.

The system will check whether the items are available in the finished goods inventory. Then it will

generate a Bill of Materials for the order and will check whether all the items are available in the

inventory. Since all the records are kept in the system's database and since every thing is up-to-date,

finding out the parts that are to be ordered takes no time (a task which could have taken days in the

case of a manual or non integrated system). Once the items that are to be manufactured are

identified, and once the production planing system prepares a production plan, the material

On time shipment
Today, companies m~st be able to deliver customer-specific products (made-to¬order) with the lead-

time of standard, off-the-shelf products. The companies must be able to change the mode of

production from make-to-stock to make-ta-order, yet retain the cost and time advantages of off-the-

shelf products. Today, the ERP systems provide the freedom to change manufacturing and planning

methods as needs change, without modifying or reconfiguring the work place or plant layouts. With

ERP systems, businesses are not limited to a single manufacturing method, such as make-to-stock or

make-to-order. Instead, many manufacturing and

planning methods can be combined within the same operation, with unlimited flexibility to choose the

best method - or combination of methods - for each product at each stage throughout its life cycle.

Reduction in Cycle Time

Cycle time is the time between receipt of the order andJdelivery of the product. At one end of the

manufacturing spectrum is the make-fa-order operation, where the cycle time and cost of production

are high. This is because in a make-to¬order situation the manufacturer starts making the product or

designing the product only after receiving the order. He will procure the materials and components
required for production only after getting the order. On the other end of the manufacturing operations

is the make to sfbck approach, where the products are manufactured and kept in the finished goods

inventory before the order is placed. '

In both cases the cycle time can be reduced by the ERP systems, but the reduction will be more in the

case of make-to-order systems. In the case of make-to-stock, the items are already manufactured

and kept in warehouses or with distributors for the sales. Here, the cycle time is' reduced not in the

shop floor, but during the order fulfillment. In the earlier days, even for the made-to stock items, the

cycle used to be high. This was because the process was

manual and if computerized, not integrated. Suppose a customer places an order. The order entry

clerk has to check whether the' order is available in the warehouse nearest to the customer. If it is

not availaele there, he will have to check whether it is available in any other warehouse or with any of

the distributors. Then he will have to process the order, inform the concerned warehouse or

distributor to ship the item, inform the finance department to raise the invoice, and S9 on. All this

used to take a lot of time-few days or sometimes even weeks.

Improved Resource Utilization

As manufacturing processs become more sophisticated and as the philosophies of elimination of waste

and constraint management achieve broader acceptance, manufacturers place increased emphasis

upon planning and controlling capacity. The creation of an accLJrate, achievable production schedule

requires the availability of both materi~1 and capacity. It is useless, and indeed wasteful, to have

financial resources. tied up in material, if the capacity is insufficient or improperly planned. Wave not

only raises costs, it also affects customer service levels and customer goodwill.

Improved Supplier Performance

The quality of the raw materials or components and the capability of the vendor to deliver them on

time, are of critical importance for the success of any organization. So, an organization needs to

choose its ,suppliers or vendors very carefully and monitor their activities closely, so that the

problems can be corrected before it can disrupt the functioning of the qompany. To realize these

benefits, corporations rely heavily on supplier management and control system to help plan, manage

and control the complex proces~es associated with global supplier partnerships.

The ERP systems provide vendor management and procurement support tools designed to coordinate

all aspects of the procurement process. They support the organization in its efforts to effectively

negotiate, monitor and control procurement costs schedules while assuring superior product quality.

The supplier management and control processes or comprised of features that will help the
organization in managing the supplier relations, monitoring the vendor activities and managing the

supplier quality.

Increased Flexibility
Because competition is growing, the companies must learn to respond more rapidly to customers'

wishes as well as changes in the market. They will need to design new products are redesign old

products quickly'and efficiently. Only then will companies have the chance to capitalize on

opportunities while they are available. The window of opportunity is often quite small. The

manufacturing process must be flexible enough to accommodate new product designs with minimal

disruption or time loss.

Flexibility is a key issue in the formulation of strategic plans in companies. Some times flexibility

means quickly changing something that is being done, or completely to changing to a.djust to new

product designs. At other times flexibility is the ability to produce in small quantities in order to

produce a product mix that may better approximate actual demands and reduce work-in-progress

inventories.

Reduced Quality Costs

Quality is defined in many different ways - excellence, conformance to specifications, fitness for use,

value for the price, and so on. Whereas manufacturing and design engineers are typically responsible

for some of the technological issues in the quality assurance for products, operations managers often

conduct the analysis of quality-related costs, which is an important task.

Strategic opportunities, or threats, frequently motivate the launch of aggressive quality management

initiatives. Analyzing the cost of quality can provide the financial justification for implementing them.

Typically, the quality costs are in the range of 20% of the cost of goods sold. Carefully planning

quality improvement activities not only improves quality, but lowers quality-related costs.

Improved Information Accuracy and Decision making Capability

To survive, thrive and beat the competition in today's brutally competitive world, one has to manage

the future. Managing the future means managing the information. In order to manage the

information, in order to deliver high quality information to the decision makers at the right time, in

order to automate the process of data collection, collation and refinement, organizations have to

make Information Technology (IT) an ally, harness its full potential and use it in the best way

possible.

We have seen that in today's competitive business environment, the key resource of every
organization is information. If the organization does not have an efficient and effective. mechanism

that enables it to give the decision makers the right information at the right time, then the chances of

that organization succeeding in the next millennium are very remote.