The importance of an enterprise resource planning system - Essay Example

 Critically evaluate the importance of an (ERP) enterprise resource planning system in contemporary organizations Introduction Across the globe enterprise resource planning is becoming highly popular. Its importance is greatly observed in large and medium-scale organizations. ERP or enterprise resource planning in modern era has been able to change the manner of organizational computing. 60% of the companies listed in Fortune Global List have adopted ERP systems. These systems are basically credited with shortening cycle times, reduced inventory, and improved practices of supply chain management and reduced operational costs. The information flow in an organization is enhanced by implementation of enterprise resource planning system. This study shall focus on various usages of ERP and its importance in business and management practices. Discussion Usage of ERP ERP can be stated as an integrated system of business management. It takes into consideration various functional areas like human resources, logistics, finance, production and accounting. The major aim of ERP is to organize process and operations in such a manner that there is optimal utilization of resources like men, machine, money and material (Djavanshir, Nazemi and Tarokh, 2012). This framework promises one database, one user interface and one application. Manufacturing Requirement Planning laid the foundation for evolution of ERP. There were some drawbacks associated with MRP which led to formulation of this innovative technology. ERP can only be implemented when there is a highly sophisticated infrastructure of information technology (Adam and O’Doherty, 2000). In earlier times, ERP systems were designed so as to work collaboratively with mainframe computers. The three tier architecture of client server is exploited to a great extent by enterprise resource planning. For ERP systems other enabling technologies comprise of Workflow, Group Ware, Work Group, Data Warehousing, Electronic Data Interchange, Intranet, Internet, etc. There are some important characteristics of ERP that has made this framework beneficial for all contemporary organizations as highlighted in figure 1. Figure 1: ERP System Firstly, flexibility of ERP in terms of responding to any form of organizational changes. Technology of client server supports ERP to access wide array of database ends. An ERP framework demands for an open system architecture (Chvatal and Gerwig, n.d.). This indicates that any module can be detached as and when required without causing an impact on other modules. ERP system is comprehensive by nature since it needs to support various functions. This system is not just confined to organizational boundary and needs to deliver best business practices (Dietze and Mobus, 2013). The major areas benefitting through these systems are inventory management, procurement or supplier management, financial management, customer flexibility or responsiveness and personnel management. In overall context, ERP provides multi-facility, multi-platform, multi-mode manufacturing, multi-lingual and multi-currency facilities (Laudon and Laudon, 2004). ERP also helps to reduce information gap existing between organizations. Business benefits from ERP with examples ERP systems are able to provide competitive advantage to all organizations in terms of increasing business performance. There are several factors through which business performance is improved such as supply chain integration, inventory management, order receiving, customer order management, shipping, production management and planning, human resource management and other business related activities. Thus benefits gained by organizations from ERP systems are multi-dimensional, as it ranges from operational improvement to making strategic decisions (Cloud Consulting, n.d.). The overall benefit framework can be divided into operational benefits, managerial benefits, strategic benefits, IT infrastructure benefits and organizational benefits. Operational benefits are basically achieved by companies in the form of cost reduction, cycle time reduction, productivity improvement, quality improvement and customer service improvement. Labor cost reduction is initiated by ERP systems in context of human resources, finance, customer service, IT services, etc (Drucker, 1969). Inventory cost is reduced by this system in inventory turns, warehousing costs and dislocation costs. Administrative expenses are also eradicated to a great extent through such frameworks. There is reduction in cycle time due to faster billing, customer enquiries, and order delivery activities in relation to customer support activities (Galliers and Leidner, 2009). Employee support activities are also improved in the form of payroll and HR activities, requisition, month-end closing, learning, etc. On the other hand, supplier support activities are also increased through ERP system in context of information exchange, payment and order processing. Productivity improvement is encouraged through ERP systems since work volume is increased with lower over-time and same workforce (Irani and Love, 2001). Data reliability is transmitted to data accuracy with the support of ERP systems. Managerial benefits are majorly in form of better resource management, better inventory management, better workforce and production management. This kind of technological infrastructure helps every organization to make sensible decisions for improved strategic planning. Strategic benefits are also explored with the support of ERP systems. Business growth is facilitated through utilizing the framework of ERP systems. For instance in products or services, companies can efficiently handle widespread functions located across the globe (Olhager and Seldin, 2003). With rapid changes in industry in terms of markets, regulation and competition, ERP framework enables a firm to acquire latest information possible. This innovative mechanism even initiates expansion into global markets while maintaining centralized operations. Managerial benefits which are obtained from enterprise resource planning are mainly intangible and can be only observed during strategic decision making. There are many multinational firms that have implemented ERP systems in order to give maximum benefits. Like, Coca-Cola Company is one such company who has been using ERP over the years. This was implemented to control overall global operations. A centralized operational system is facilitated through the framework of enterprise resource planning. Every department of this multinational company can effectively coordinate with the support of this platform. Wide array of information is exchanged through all the departments of this company so as to make strategic decisions (Ragowsky, Adams and Somers, 2005). Tata Motors is another renowned group which has been utilizing latest model of ERP approach. This company is inclined towards adopting advanced technology for obtaining positive outcomes. The ERP framework of this firm is aligned with managerial decision making along with global operational procedure. Conclusion As per this study, ERP or enterprise resource planning is a platform that can be used by organizations for making tasks simpler and easier. In earlier years it was difficult to exchange information but with evolution of ERP global operations changed magnificently. However the major issue lies in terms of investment being made for ERP framework. ERP systems are able to provide both intangible and tangible benefits to companies. This approach support businesses to establish a position in global market place. References Adam, F. and O’Doherty, P., 2000. Lessons from enterprise resource planning implementation in Ireland – towards smaller and shorter projects. Journal of Information Technology, 15 (4), pp. 305-16. Chvatal, C. and Gerwig, S. (n.d.). How Intel IT implemented a world-class ERP capability engineering team. [Online] Available at: [Accessed 31st January 2015]. Cloud Consulting (n.d.). Infrastructure as a Service (IaaS) Overview. [Online] Available at: [Accessed 31st January 2015]. Dietze, A. and Mobus, D., 2013. The Challenges of introducing ERP in SMEs. [Online] Available at: [Accessed 31st January 2015]. Djavanshir, R.G., Nazemi, E. and Tarokh, J.M., 2012. ERP: a literature survey. 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Communications of the Association for Information Systems, 16 (26), pp. 381-406. Read More