Why Implement an ERP?
by Kenneth Hamlett
Companies implement ERP systems for various reasons including increased productivity and cost reductions.
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Many companies implement enterprise resource planning (ERP) systems. An EPR system is an integrated system that can manage both internal and external resources in a business. The specific reasons companies invest in this technology vary, but typically, cost reductions and productivity enhancements top the list. A wide variety of ERP offerings exist in the marketplace. Most offer the same basic functionality, while features and specific operations differ. The small business owner owes it to himself to perform vigilant due diligence before investing in an ERP system.
Because ERP systems integrate all aspects of a company s operations, they decrease the order-to-cash cycle. The speed of the order-to-cash cycle determines how quickly a company gets paid for its good or services after the sale. Typically, companies with fast order-to-cash cycles experience increased cash flow. Non-integrated software systems often require multiple data extracts to various spreadsheet programs, or they require uploads from one system to another. These gaps in data flow slow the response time from the time the order gets received to the time payment gets received from the customer. The longer it takes for the customer to pay, the more cash a company has as outstanding. This results in decreased cash flow.
One of the key components of an ERP system is its integrated system architecture. This integration allows a company to use the same system across multiple geographies. A company that runs an ERP system can have a customer service center in Dallas, a warehouse in Baltimore and a main office in Houston. All of these locations use and see the same data regardless of their physical geography. In this case, the ERP system eliminates the need for storing redundant data in multiple physical locations. It also eliminates the requirement for each location to upload or extract data to and from the central data storage site.
ERP systems increase productivity. Because an ERP system integrates data and processes across multiple departments and locations, it allows a company to move product faster, process orders quicker, invoice customers more rapidly and reconcile shipments sooner.
ERP systems give companies access to a multitude of company information. Previously, this information was either unavailable or difficult to obtain with other systems. Also, the information tends to have more accuracy and relevancy because it all comes from one source, not multiple sources. Because most ERP systems provide companies with various reporting tools. they make generating time-sensitive, up-to-date information more user friendly.
Simply implementing an ERP system does not provide a company with immediate benefits. As a result of implementing an ERP system, most companies re-think and re-engineer their current business processes and methodologies. An ERP system seeks to streamline business operations by integrating the data and refining the processes required to operate an organization. Many companies that implement an ERP system discover their company has many functional silos. In other words, very little integration exists from one department to the next.
About the Author
From 2002-2006, Kenneth Hamlett was publisher and head writer for UNSIGNED Music Magazine, an online publication with over 100,000 readers. Prior to establishing UNSIGNED, Hamlett was a business solutions analyst and spent 15 years formulating and writing proposals for supply chain business solutions. He is a graduate of the New York Institute of Photography.
- computer system on blue circle ground image by patrimonio designs from Fotolia.com