Discuss about the Benefits of Using ERP System In Business.
Businesses are established with an aim of making profit. Having a vision, mission and a goal steers the business operation. Proper business management guarantees success (Human 2005, p.42). a business consists of various processes that work together to ensure effective and efficiency in service provision or production.
Business processes are all activities performed in a business to achieve a set goal. For instance, in the manufacturing industry, the business processes involved include product manufacturing, quality assuranceand product correction or maintenance process. Development in technology has enabled businesses to effectively run the business processes to enhance their success. It has made it easy to provide services to the customers, to store data and transaction records, has made the reporting process easy and facilitates monitoring and auditing of the operations within the business. As stated by Bohnsack, Pinkse and Kolk (2014), businesses require business models to enhance proper planning of the business processes to facilitate success (p. 286). Though many businesses have not adopted the new technologies, the technologies have led to increased productivity, reduction in losses, effectiveness in production and high profits gain. The technology helps to improve a product or service and business processes or develop a new product/ service and operational process to enhance company efficiency and expand markets and hence realize high profits. Factors that contributes to businesses not acquiring the new technologies are financial constraints. The cost of adopting the technologies are high and require experts to facilitates their use. Small and medium enterprises find it expensive and opt not to invest in the technologies. However, since the technology has positive impacts to businesses it is worth investing in them. For instance, the Enterprise resource planning (ERP) system in manufacturingindustry. This is a system that integrate all business units of an organization and create a system that is capable of providing up?to?date and relevant information for the corporation’s decision makers and employees as well as business partners (Beheshti 2006, p. 185). The ERP software consists of multiple modules that are selected basing on which one suitably fits an organization.
As asserted by Cebeci (2009), enterprise resource planning is the information backboneof a company. It consists modules that are implemented in the organization depending on its needs. The modules include:
Human resource module that help the human resource to effectively manage the resources within the organization. He is in a position to manage employee information, job descriptions, performance and salaries. It enables him to perform his duties without having to check through the employees’ physical files.
Production module which helps manufacturing industries to plan on the production of a product, availability of raw materials budgeting for the whole process of manufacturing and determine daily production. As according to Van Nieuwenhuyse, De Boeck, Lambrecht and Vandaele (2011), this module facilitates proper planning in the manufacturing sector for them to achieve the set objectives.
Inventory module help to track an asset and its location within the organization. This help to reduce the time taken in manually tracking the assets whereby the process is tedious and prone to errors. The module also enables quick reporting of information
Sales module which help to manage sales transaction in an organization. It helps to trace orders, keeps records of sold goods and creating sales invoices
Purchase module which work on the procurement processes in an organization. This help to track the procured raw materials, to keep list of suppliers and the items they supply to the organization, sending quotations to suppliers and updating stock record.
Finance and accounting module which helps to keep records of financial inflow and outflow within an organization. It helps to keep records on balance sheets, money used to purchase or in other services and the payments done to suppliers and other related parties.
Supply chain management module which deals with the demand and supply of goods. It gives information on the movement of goods from the manufacture to the customer and vice versa. The module incorporates the role of each agent within the supply chain (Giannakis and Louis 2011, p. 25).
Customer relationship module which establishes a good relationship between the organization and the customers. It tracks customers feedbacks, complains and comments of goods and this helps the organization to improve on their products or services. some data mining features like internet that enables the customers feedback are necessary to determine customer behaviors (Marneick and Labuschagne 2005, p. 153).
As stated by Karsak and Ozogul (2009), it is necessary to select an ERP system that suits an organization’s operation (p. 661). Improper selection can cost the organization high cost on systems that may not be essential to them.
SAP the system application product is an ERP system that enables an organization to track its relationship with the customers. It integrates all the operation in a business and helps to easily manage the organization. It is applicable in all types of industries. The ability to provide accurate information to the decision makers allows making the right decision that helps to enhance efficiency and improve performance. It consists of finance and accounting, human resource and procurement modules.
Microsoft dynamics is an ERP system that enables an organization to grow. That is, it increases productivity and is flexible depending with the rate of growth of the organization
IFS applications are an ERP system that is suitable for manufacturing processes. It enables management of assets, resources, projects and supply chain.
Oracleis an ERP system that is integrated to provide financial services. it offers analytical services that enables a business to determine its performance and efficiency.
As according to Esteves (2009), the benefits of the ERP system should be assessed in relation to the organization set goals (p. 27). However most of the benefits are observed in all the organization. The ERP system enables accurate storage of data and also helps in tracking organization’s assets. This information enables accurate and timely reporting which is essential for decision making. This has enabled organization to make strategic plans that are suitable and gives them an upper hand in the competitive environment (Sadrzadehrafiei, Chofreh, Hosseini and Sulaiman 2013, p. 224). The system allows integration of information which therefore reduces the process of comparing data during report making. It also enables an organization to operate within the set regulations since it helps to trace and identify any deviation from the standards set. This helps to ensure efficiency of operations and also quality of the products and services provide. The systems also reduce redundancy of information by ensuring that the information is available to all the connected users from one source. This reduces the errors that comes with manual record keeping. These errors normally give wrong report which may affect the decision made on the stock taking and also on finances. This may affect the performance of the company negatively leading to failure. Therefore, the ERP helps to avoids such mistakes and hence increase the productivity level of the organization. The system also enables all the departments within the organization to collaborate and work effective. This enables easy flow of information and hence helps to save time that is normally used to move from one department to another to verify the information. Therefore, the staff has adequate time to focus on their given roles and this contributes to high production. The ERP system also allows expandability. When an organization grows, the system can accommodate more departments by adding them into the connection and being synchronized with the other departments so as to effectively work together. It allows accurate and efficient storage of information. It does not allow an individual to alter the stored information for personal benefit or blackmailing the organization. This ensures the security of the information is maintained. However, the cost of installation and maintenance is high (Chang, Cheung, Cheng and Yeung 2008, p. 940). It also requires the organization staffs to undertake some training. This consumes time and money that could be used for the development of the organization.
A business requirement is what a customer needs from his service or product provider. That is, the specific needs or demands that must be met to achieve the set goals (Adner and Levinthal 2004, p. 75). For this case the customer is the manufacturing industry and the supplier or service provider is the ERP software vendors. The manufacturing industries faces challenges within their operations which highly affects their performance. The ability of the organization to trace the raw material that was delivered by a supplier but wrongly place within the company is difficult. Due to many activities going on in the industry, most of the time raw materials may get lost and become untraceable. This leads to huge losses and spoilage. During purchasing of the raw material, suppliers may deliver materials that are not of good standard. This finally affects the quality of the final product. Poor raw materials therefore are a huge challenge to this manufacturing industry. In case there is a change in the product formula, it is a challenge to the manufactures to do the change since most of the formulas are modified through mathematical calculations which are long and complex. Wrong product formulation makes the final product to be different and might not be accepted in the market. This may end up putting the company at a loss. Most manufacturing industry suffer loss from expiry of produce goods. Since they produce in bulk, and have limited storage facilities, there is a tendency of piling newly produced goods on the previously produced once. Improper monitoring of the goods leads to the products expiring as they are within the company. This implies that the company undergoes losses. Since the market fluctuates depending with seasons. The company may fail to identify and respond to the seasonal demand pattern. This reduces the company’s competitiveness in the market and this gives other companies that have systems set to identify such market changes an upper hand (Nauharia, Wadhwa and Padley 2009, p. 37). This reduces the market for a company’s products which eventually affects their performance and profitability. During inflations, raw materials costs rises. This poses a challenge to the manufacturing company since it becomes impossible to determine the cost of the final product. This may reduce the profit that a company gets. Some errors that are normally caused during manual recording of information or redundancy of information in some databases normally provide inaccurate information that may affect the decision-making process. This therefore indicates that the forecast made concerning the company will not be accurate hence irrelevant for improvement of the company.
Therefore, the manufacturing companies will need a system that will help to reduce or eliminate these challenges. It also needs a system that will integrate its operations to ensure there is efficient and effective management which will improve the company’s performance and enable the achievement of the set objectives (Osterwalder, Pigneur and Tucci 2005, p.1). Therefore, the company business requirements include: easy traceability of raw materials and assets to reduce company losses, ability to control product formula changes especially in batch production so as to meet their market needs, the company need to be in a position to determine and monitor the quality of the raw materials so as to ensure consistency in the quality of the final product, it should also be able to realize change in market demand so as to be in a position to meet the demand when high and also to reduce production when the demand is low. The company should also be in a position to reduce the lead time of goods. That is, when a product is in high demand, the procurement of raw materials and processing the product and getting to the market should not be prolonged so as to ensure that the demand is met and the company maintain its competitiveness. The company also need a system that will help in predicting the future of the market. This is usually possible by checking the movement of products to the market and duration that a product takes within the market (Johnson, Christensen and Kagermann 2008, p. 67). There is also a great need for effective data collection method to ensure all the operations within the company are accurate and reliable especially for decision making. Therefore, a system that will meet all these manufacturing companies needs will be suitable for their operations.
The process of selection the software and the appropriate vendor is crucial. Attention should be paid in this step to ensure that one acquires the most suitable and functional software that meets the organization needs. Having in mind that there are many counterfeit vendors who deal with software that are not genuine, a person should value tis step and prioritize it. As affirmed by Ayag and Ozdemir (2007), most companies face challenges in the selection of the appropriate software to meet their needs (pp. 2180). When one is selecting a software, one should consider the needs that are to be met by the software. ERP system having the ability to store information, limit errors, enable timely reporting, and increase productivity does not necessarily mean that any ERP software will be appropriate for your business. Therefore, the needs that are to met need to be listed done according to the order of priority. This is by assigning the requirements with must have and less needed so as to identify the need to be addressed first. However, most organization fail at this point since they let the vendors chose the software for them. Just to come and learn that there are some features that are missing and are very important to the organization. The business should then determine how the available software will fit with the present infrastructure (Tsai, Lee,Shen, and Yang 2009, pp.2224). Some software may require one to totally demolish the current infrastructure which can cost the company a huge loss. Incase there is in appropriate technical fitting between the software and the current set up, one should consider finding more information from the experts on how to deal with the issue. Then you should carefully asses your options before deciding on the ERP system (Perera and Costa 2008, pp.10). This is important so as to ensure that the option taken is the best for the company.it is also important to identify the available vendors. This helps to determine who offer the required services for your organization at an affordable price. This will be an advantage to the organization since having a vendor who offer quality services at an affordable price will lower the expenses of acquiring the technology. From the different vendors one should also compare the cost of the software and also get relevant references to gather more information about the functionality and the challenges of the system. Also, one can get the software demos that can provide more information. Then from all the gathered information an organization is in a position to make the right decision of the appropriate software. When selecting a vendor, there are some factors to consider. It is important for the vendor to be local. This will give and advantage since the vendor will be easily available to train the staffs after installing the software in the organization. The vendor should also be in a position to understand the companies needs and provide the relevant software to meet the requirement. At a point where an organization is not in a position to make a decision between two vendors, the vendors should be presented to a group of experts who understand the organization needs and through presentations about the software by the vendors, they shall then make the right decision of the appropriate vendor.
Organization uses ERP system to process transactions and provide information (Passaoglu 2011, p. 157). For example, universities are in a position to feed information of the students who have paid their fee into their database using the ERP system and provide receipts immediately. This help the organization to keep records which can later be used for auditing and decision making (Dezdar and Ainin 2011, pp. 915). In manufacturing industry, using ERP enables the organization to obtain relevant information about the market and this helps to determine when to make orders or reduce production. This enhances the efficiency of the company.
Organizations uses ERP to manage their assets. As asserted by Khan and Hashemi (2017), human factors such as lack of accountability highly contribute to assets loss. During procurement and delivery processes, most staff who are involved tend to illegally poses the organization assets by not recording the actual number of good supplied this highly contribute to huge losses to the company. The ERP system offers a place where the supplier indicates the number of goods supplied and since this cannot be altered act as evidence and therefore become easy to trace the usability and the location of the given assets. This ensures that the organization is meeting its efficiency.
Organization also use ERP system to ensure compliance with regulations. For instance, in the food industries where regulations on formulations of the components is crucial, the ERP system help to ensure the regulations are met and hence quality product is produced. This enables the company to produce products that are preferred by the consumers and this increases its competitiveness in the market. The system helps to detect any deviation from the regulations and enables early correction to avoid losses and low-quality products. this ensures that the business improves its efficiency and its performance.
Once the ERP system is installed in a company, it ought to enjoy the benefits that comes with it. Therefore, the efficiency of the system is evaluated by assessing the rate at which the system is meeting the business requirements. As stated by Wei (2008), the knowledge of ERP system performance indicators can be developed to evaluate the efficiency of the system (p. 170). For instance, in the manufacturing industry, the performance indicators include the ability to trace raw materials and other assets, ability to identify and respond to seasonal markets demands, accurate and timely reporting of information and the level of information security are indicators that can be used to evaluate the efficiency of the system.
As stated by Doherty and Fulford (2006), organization ERP software are at security risk from hacker. Since the system is connected to the internet there are high chances that it can be attacked by hackers. This can lead to loss of information or money through blackmails. Also delayed updates of the software make it susceptible to hacking or virus attack. Organizations that provides full access rights to the staffs are at a high security risk. The ability of the staff to access any information from the system may lead to data alterations which can lead to compromised information obtained from the system and can affect the performance of the business. The ERP system is also at risk when people who are assigned to use the system have less or no training (Grabski, Leech and Schmidt 2011, p.70). This may lead to information loss by the staff giving commands such as delete without knowing what they are doing.
The organization play a bigger role in protecting the system and the information in it (Almorsy, Grundy and Ibrahim 2011 p.365). the ERP software should be regularly updated. This will help to reduce the attack from hackers and also virus infection. The update software is able to defend itself fromthese attacks. The security of the system should be regularly checked by the experts to ensure that the system is safe. The information stored can be backed up in the cloud computing this helps to retrieve information even after a hacking has been done (Armbrust et al 2010, p. 56). All the staffs who are to use the system should be thoroughly trained to avoid loss or destruction of the information. Access to the information stored in the system should be limited to staffs and software developers. This will help to reduce the risk of data manipulation and loss.
Conclusion
ERP system has brought tremendous development to businesses(Magal and Word 2011). The ability to integrate all business operation that they work together has enabled businesses to improve in their productivity, produce quality products, avoid redundancy of information and to safely store their information. This has steered businesses to great height and given them an upper hand in the competitive environment (Nicholas and Street 2007, p. 60). However, selecting the right software and vendor is crucial in the installation of the system. Though the system is at risk of hacking, data loss, and mismanagement by the staff security measures and proper training of the staffs helps to ensure the system operates as required to meet the business requirements. Therefore, I recommend businesses to adapt the technology for them to enjoy high profits.
References
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