What is an enterprise resource planning (ERP) system, and how do you determine if your company really needs one? First, let’s define what an ERP system is. Then, we can look into why you would need one and whether the benefits of an ERP system for your company would more than justify the time and expense of selecting and implementing one.
As a business analyst, you may already know that an ERP system is a set of modules that provides support for integral business functions such as sales management, purchasing management, manufacturing management (if applicable), inventory management, human resources, and financials. Thus, an ERP system provides the integrated management of business processes and the automation of routine transactions. The specific business processes that are supported can vary based on your industry. The major benefits of an ERP system are increased productivity and efficiency, and these result from the integration and automation the software provides.
Considering An ERP? Here Are Two Main Reasons
Organizations looking for a new ERP system – whether they have a current ERP system or non-integrated legacy applications in place – do so for two main reasons. The first is that their existing systems are no longer adequate and business processes are no longer working, that is, these processes are broken. The second is that the existing systems no longer support the growth of the company and do not function optimally.
1. Broken Business Processes
Often the first noticeable symptom that you need a new ERP system is that some business processes are no longer functioning correctly – that is, something is broken. One example might be an inventory management issue, such as data not being constantly updated and pushed out to every relevant department. This can lead to obvious problems such as frustrated customers or overstocking.
ERP software is able to integrate and automate different functions precisely because it uses a single centralized database to store and retrieve all relevant data. This means that any time data is retrieved for a particular function, it is automatically up to date. For instance, what the sales department sees is the same as what the shipping room sees, although of course, some types of information may be visible only to certain users based on their job functions. Usually a breakdown is really a breakdown or delay in communications. Let’s say that your current systems require different departments to key in the same information separately – this can not only impede efficiency but also invite errors and duplications.
2. Rapid Growth
The second driver behind the need for new ERP software is a company’s response to growth or change. Many smaller companies can get along fine for a time with spreadsheets or some combination of disparate software systems. But as they either grow or merge with another business to become larger, the added complexity and size no longer allows for legacy systems to function optimally.
Closely related to this, and often a result of growth, is a change to business goals. For example, imagine a manufacturing shop decides to open additional locations or wants to offer more complex product lines or some form of on-demand or custom manufacturing. The systems in place may simply not be able to meet the requirements that the new goals create.