Chapter 3 : Strategic Initiatives for Implementing Competitive Advantage

Enterprise Resource Planning

INTRODUCTION OF ERP

• Cross-functional enterprise system
• With an integrated suite of software modules - integrate all departments & functions through an organization into single IT system.
• That support the basic internal business processes of a company.
• Integrating and improving their back-office systems.
• Results in major improvements in customer service,production, and distribution efficiency.

THE IMPORTANCE OF ERP

• Business integration and Improved Data Accuracy:
• ERP system is composed of various modules/ sub modules where a module represents a particular business component. If data is entered in one module such as receiving, it automatically updates other related modules such as accounts payable and inventory. This updating occurs at real time. For example at the time a transaction occurs. Since, data needs to be entered only once at the origin of transaction, the need of multiple entries of the same data is eliminated. Likelihood of duplicate/ erroneous data is, therefore, minimized. The centralized structure of the data base also enable better administration and security provisions, which minimizes loss of sensitive data.
• Planning and MIS: 
• The various decision support tools like planning engines and simulations functions, form integral part of an ERP system which helps in proper utilization of resources like materials, human resources and tools. Constrained based planning help in drawing appropriate production schedules, thereby improving operation of plant and equipment. As a part of MIS, an ERP system, contains many inbuilt standard reports and also a report writer which produce ad hoc reports, as and when needed.

• Improved Efficiency and Productivity:
• In addition to provision of improved planning, ERP system provides a tremendous boost to the efficiency of day to day and routine transactions such as order fulfilment  on time shipment, vendor performance, quality management, invoice reconciliation, sales realization, and cash management. Cycle time is reduced for sales to cash and procurement to pay sequences.
• Establishment of Standardized Procedures: 
• ERP system is based on processes of international best practices, which are adopted by the organizations during implementation. Department silos are purged and maverick practices are done away with. Because of top down view available to management, chances of theft, fraud and obsolescence are minimized.
• Flexibility and Technology:
• Due to globalization environment, where production units, distribution centres and corporate offices reside in different countries, organizations need multi currency, multi language and multi accounting modes, in an integrated manner. These provisions are available in most of the ERP systems, particularly in products offered by tier 1 and tier 2 vendors. ERP vendors are also quick to adopt latest technologies, from mainframe to client server to internet. Unlike a bespoke system, Upgrading to latest technology for a running ERP system is uncomplicated, involving mostly adoption of service packs and patches.