Question:
Critically evaluate the importance of an ERP or Enterprise Resource Planning System in contemporary organizations?
Today’s business scenario:
The rising multinationals around the world has added to the global competition for businesses. The global markets have become so competitive that the survival is only of the fittest. The present day rational customer with varied demand and preferences prefer to buy different products and services after careful review. This way the comparison between different company products and services is made before making purchase. The product pricing, product quality, availability and various other factors contribute to the product sales. Therefore the present day business requires controlling its operation through an integrated system that could assist in information gathering and later decision making so that the desired outcome is received. The system which brings together the production, sales, cost and various managerial system requirements can actually help the company in taking most appropriate decisions so that the cutting edge advantage can be gained by the company (Jayachandran, 2004).
Enterprise Resource Planning or ERP is actually business management software that helps in collecting, storing and processing data for supporting business operations. The various processes that are supported include the following functions.
In recent years the investment in the IT or Information Technology sector has risen manifolds. This system up-gradation has resulted in increasing business capacity, its effectiveness and achieve error free outcome. ERP therefore helps in integrating various business applications for the purpose of increasing business efficiency (Laudon & Laudon, 2009).
Explaining ERP application:
Enterprise Resource Planning or ERP can help the present day organization in many ways. This can be depicted as below.
It can be explained as follows.
The business environment includes both internal and external environment where the organization operates. The internal environment is under control of the organization management through decision making as it can respond to the decision making and guidelines of the higher management regarding production related decisions. However the external environment is controlled various factors out of control of the organization including environmental, government, economic etc. ERP helps in improving both the internal and external business environment through the application of IS or Information Strategy plan framework. It includes the following guidelines.
(Caniels & Gelderman, 2007)
The business strategy includes the strategies that could help the organization achieve its objectives and goals through the available resources to the organization. ERP helps in achieving the various objectives and goals that are part of the business strategy. It helps in increasing the efficiency of the business and thereof the ability to manage and review things better through the new application. This way the organization is able to achieve higher profits and gains through the available resources.
ERP helps in improving the functional strategy through the application of the IM, KM and IS strategy more efficiently.
1. IM or Information Management strategy helps the business organization to keep records of the important information for the business in one technological space that could be easily accessed by the concerned authorities for the decision making process.
2. KM or Knowledge Management strategy helps the business organization to fetch more information about the decision making through the available historical data input that could support the decision making and help in reaching out to a more desired outcome and results.
3. IS or Information system strategy helps the business organization to use the available update information for the organization such that all the factors affecting the business can be identified, business capacity can be evaluated and hence the most appropriate business decision can be reached out.
(Corta, 1993)
The implementation of the ERP system helps in the following ways.
The business results hence achieved through application of ERP system includes the followings.
This way a change in the recent business process can be achieved and the implementation of the reviewed policies and decision making can be done accordingly. This way ERP application can help in achieving following benefits.
(Flores & Mynra, 2006)
1. Talking Rain:
Talking Rain is an organization that deals in beverage distribution. The company has its area of operation in Washington State. The company followed the old method of manual process of filling orders and correlating transactions for customer purchase. A Spreadsheet along with handmade table and data inputs were used and distributed in various departments for informing them about transactions and keeping records. This took a lot of time wastage and loss of productivity from the business operations.
After the application of ERP system called Microsoft Dynamics NAV, the company is now able to feed and withdraw information from one system. The spreadsheet filling and distribution process has come to an end which is not only saving time but also paper. Kevin Klock the president of the company also confirmed that after the application of ERP system the business operation has achieved more effectiveness. The productivity of the business has increased through the information fetching from one source. This has resulted in distributing information easily through emails to the concerned departments without any delays. Various department operations such as accounting, manufacturing, production etc. has been brought together so that the decision making can be made through the central authority after careful go through of the whole information about the business process. This way the production scheduling, business investment, time consumption has been taken under review to achieve high end gains and profits for the organization.
Criticism can be made on the basis that the printed spreadsheets are easily to be taken anywhere and therefore there is no fear of it getting broken. In a production environment where the machinery is working, workers are doing work. It really becomes important to reach out to every single one of them and direct the business plan and operation. Therefore carrying emails through laptops and mobile phones is rather a riskier job which can be easily broken or damaged. The spreadsheets are easy to handle and thus can be carried along in all kind of business environment (Gregory et al., 2009).
Mackay and Sposito is actually a civil engineering company that takes contracts for the related projects. The company was facing difficulty in regular business estimation in terms of cost estimation, time constraints, delays etc. The result was undue delay in whole project work and the rise in cost resulted in effecting the business profitability. Furthermore the company felt uneasy while applying for the new projects as it was not sure of the capability it possesses.
After the application of ERP system called Microsoft Dynamics SL, the company is able to access information for the already initiated process from finance, material management, inventory management and various other departments. This has helped the company high level officials to keep a control over the business operation and review the extent of project completion that has been achieved. The payrolls are now dispatched in two days than five days as earlier. Finally the company is now able to access the historical data that helps in easy decision making for applying to the new projects. Therefore ERP system application has given the company a cutting edge advantage of of realizing its cost estimation and applying for new projects and tenders easily after careful go through of the past information.
Criticism can be made here on the basis that the information made available through online medium has a threat of being getting stolen or damaged due to the presence of hackers and viruses respectively. This way by using ERP system the important information of the company is kept at stake which can easily be damaged, destroyed or get stolen through outer interferences (Rao & Klein, 2004).
ERP at Yorkshire Water has also made it easier for the efficient managing of the various business operations such as sales, finance, human resource management etc. This way the company is able to manage the whole business operation, cut down its wastage of supplies and control over its expenses through the integrated system that is offered through ERP application. This way the company has been able to improve its sales and distribution process and brought controls over business operation and finance movement. Also the human resource management and assets accounting has been assisted through the ERP application.
Criticism is done on the basis that the Yorkshire Water requires to increase efficiency of human resource through directions and guidelines which could help increase employee participation. For this purpose training and development programs should be proposed to increase the efficiency of the human resource (Nixon, 2001).
The down side of using ERP includes the followings.
1. A huge one time investment in the system updating is required to achieve high benefits for the future through application of ERP system in business operations.
2. The dependence on computer increases which may result harmful for the organization as the technical error could result in loss, damage or stealing of the important document or business information.
3. It sometimes difficult to make the new ERP system applied and developed in an industry environment which is based on old notions and work methods.
4. Human resources in the company may find themselves incompatible to use and apply the ERP system that may lead to various issues such as Absenteeism, employee turnover etc.
5. ERP system could only help in decision making and supporting business. Hence it could not bring in success all by itself.
6. Proper training is required to be given to the employees before ERP application in the entire system which is a very time and cost consuming concept.
(McAfee, 2002)
Conclusion:
In the end, ERP has been effectively applying the changes in the organization which is helping them achieve the enhance business capacity. Various business processes such as accounting, human resource, inventory, production and others are managed through one integrated system. Also the information available on the ERP system helps in decision making process. The result is that the organizations are able to make full use of the available resources by allocating them appropriately to the business operation. Finally the business organizations has been able to achieve high end goals of increasing output, production and human resource capability which has helped increase profit margins and improve productivity of business. Thus the ERP system has helped in increasing control and reviewing of the whole business operation such that the organization goals are fulfilled and the most desired outcome is achieved.
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