Enterprise Resource Planning (ERP)

Introduction:

• ERP is business process management software that helps businesses integrate and
manage the different functional areas such as finance, marketing, operations and
human resources in order to help them collaborate their efforts in a better way.
• Example: Fast fashion retailer, you would ideally want one software to manage
many aspects of the business such as communicating with suppliers, managing
inventory levels, making payments to suppliers and handling quality problems.
• ERP is built to cater to each organizations structure based on their size and strength
regardless of the industry.
• ERP system focuses on business process integration that allows:
Integration of systems and services, Automation of business process, Secure
sharing of data among departments.

Benefits of ERP
Operational Efficiency (FC)

Focused IT cost: ERP can unify your IT costs and improve efficiency. This is similar to the
concept of DevOps, essentially instead of spending resources on multiple systems that all
need dedicated staff, infrastructure and support teams, you can focus all these costs into
one ERP. Using a single system also reduces training requirements for end-users as they
only need to interact with one system than interacting with numerous individual
applications.
Example: The CRM software serves clients on returns, queries and HRM software serves
employees on their holiday hours, weekly pay, tasks. A combination of the two systems
to serve both sets of end-users greatly reduces costs related disparate systems.
Customer Service: ERP can benefit customer service as it allows client information to be
centralised and streamlined, which thus allows your sales team to focus on building and
maintaining customer relations rather than maintaining spreadsheets. At the end of the
day, the number one thing a business is concerned about is customer acquisition and
retention. Therefore, by improving customer service the business is directly affecting its
profitability and revenues. The higher customer satisfaction is, the
Application: A retail store with modern ERP can provide better service because they have
a holistic view of the customer including all customer history. They would be able to
provide reliable order tracking and prioritize the best customers.
Decision Making (TC)

Total Visibility: ERP allows total access to every important process in your business by
making data from every department easily accessible to you and your senior management.
The availability of all your company’s information in a centralized location allows for
increased collaboration between teams e.g. Dev + Ops and more streamlined completion
of task. All of this makes it possible to make quick decisions in confidence as you can rest
assured that you’re seeing the full, complete picture at any given moment.
Application: Retail store can monitor their inventory levels on a daily basis, including
future contracts yet to be received and inventory currently in transit. By knowing precisely
where you stand regarding inventory, you can control working capital accurately.

Improved Reporting and Planning: ERP provides better insight into the business which
can allow the company to generate a single, unified reporting system for every process.
By having a single source of truth, the ERP system can readily generate useful reports and
analytics at any time. Corporate planning is also improved as many ERP vendors offer
business intelligence services with their software. Therefore, allowing management to
plan accurate forecasts and budgets, ultimately enhancing their decision-making process.
Application: A retail store could use accurate and timely reports such as income and cash
flow statements which could then be used to plan to identify operational strength and
problem areas that need improvement. Allowing the company to make better informed
decisions based on trends and metrics.
Drawbacks of ERP (CCCC)
Cost of software: The upfront cost of the software alone could prohibit many businesses
to implement this system into their business, especially the small-to-medium businesses.
SMBs can avoid the upfront cost with a cloud solution, typically paid on a monthly basis.
However, users will only have access to the product as long as they pay for it and could
work out to be much more expensive in the long term.
Application: Retail store could attempt to first use cloud solution, once they experience
sufficient benefits then commit to a full license for an ERP software to be implemented.
Cost of maintenance: Businesses must take into account the cost of manpower and time
necessary for a successful deployment. These could include hiring additional IT staff, ERP
consultants, software training specialist. Moreover, you may need to invest in new
hardware to properly support your ERP such as servers and compatible device. Traditional
ERP vendors typically also charge an extra fee for maintenance on top of the licensing fee.
Application: Retail store is in the process of implementing an ERP solution from Workday
Inc. Apart from needing to pay the cost for licensing, substantial costs are incurred
through hiring new IT staff and also maintaining new hardware purchased.

Customization process: Customization is one of the main aspects of ERP, but it can also
get out of hand quickly. Customizing your ERP software properly takes time, effort and
money. According to Panorama Consulting Group, many businesses often fail to correctly
implement ERP which ends up diminishing the best practices build into the system and
make it immensely difficult to upgrade in the future.
Application: Lidl and SAP. Lidl required extra customization as their inventory keeping
system differed from that of other companies and they did not wish to change this.
Therefore, the product had to be customized but resulted in disaster with losses of €500m.

Complexity: ERP provide a plethora of new functionalities, but this could lead to every
complex IT infrastructure. Therefore, it is common that a business get too focused on the
potential of ERP but fail to properly plan for its implementation. Sometimes also a
business could have systems too large and complicated for their processes leading to a
poor Return on Investment.
Application: Vodafone attempted to transition to a modern ERP system, but their
customer information failed to all migrate which caused inaccurate account information
for their clients. This resulting in a multi-million pound fine.