Benefits OF ERP

Installing an ERP system has many advantages-both direct and indirect. The direct advantages
include improved efficiency, information integration for better decision-making, faster response
time to customer queries, etc. The indirect benefits include better corporate image, improved
customer goodwill, customer satisfaction, and so on. In this chapter we will see some of the
benefits of the ERP systems. They are:
Reduction of lead-time
On-time shipment
Reduction in cycle time
Better customer satisfaction
Improved supplier performance
Increased. flexibility
Reduction in quality costs
Improved resource utility
Improved information accuracy and decision-making capability.
REDUCTION OF LEAD-TIME
The elapsed time between placing an order and receiving it is known as the lead-time. It plays a
significant role iri purchasing and inventory control. Most purchasing departments urge the
managers to anticipate material demands well ahead of actual need. All inventory systems have
safety mecha- nisms like safety stock, re-order level and so on built into them, to avoid the
situation where the material is out of stock. The consequences of the non availability of an item
that is required for production can result in a lot of problems like missing the delivery schedules,
losing the customer godwill due to delayed delivery.
ON TIME SHIPMENT
Today, companies must be able to deliver customer-specific products (madeto-order) with the
lead-time of standard, off-the-shelf products. The companies must be able to change the mode of
production from make-to-stock to make-to-order, yet retain the cost and time advantages of offthe-shelf products. Today, the ERP systems provide the freedom to change manufacturing and
planning methods as needs change, without modifying or reconfiguring the workplace or plant
layouts. With ERP systems, businesses are not limited to a single manufacturing method, such as
make-to-stock or make-to-order.

IMPROVED RESOURCE UTILISATION

As manufacturing processes become more sophisticated and as the philosophies .of elimination
of waste and constraint management achieve broader acceptance, manufacturers place increased
emphasis upon planning and controlling capacity. The creation of an accurate, achievable
production

BETTER CUSTOMER SATISFACTION

Customer satisfaction means meeting or exceeding customers' requirements for a product or
service. Assessment of the degree of satisfaction is usually made on at least three measures:
Whether the product or service includes the features that are most important to the customer
Whether the company can respond to the customers' demands in a timely manner, a criterion
that is especially important for custom products and services
Whether the product or service is free of defects and p~rforms as expected.
IMPROVED SUPPLIER PERFORMANCE
The quality of the raw materials or components and the capability of the vendor to deliver them
on time, are of critical importance for the success of any organization. So, an organization needs
to choose its suppliers or vendors very carefully and' monitor their activities closely, so that
problems can be corrected before it can disrupt the functioning of the company. To realise these
benefits, corporations rely heavily on supplier management and control systems to help plan,
manage, and control the' complex processes associated with gobal suppliers.

INCREASED FLEXIBILITY
Because competition is growing, companies must learn to respond more rapidly to customers'
wishes as well as changes in the market. They will need to design new products or redesign old
products quickly and efficiently. Only then will companies have the chance to capitalise on
opportunities while they are available. The window of opportunity is often quite small. The
manufacturing process must be flexible enough to accommodate new product designs with
minimal disruption or time loss. Flexibility is a key issue in the formulation of strategic plans in
companies. Sometimes, flexibility means quickly changing something that is being done,or
hanging to adjust to new product designs.
REDUCED QUALITY COSTS
Quality is defined in many different ways-excellence, conformance to specifications, fitness for
use, value for the price, and so on. Whereas manufacturing and design engineers are typically
responsible for some of the technological issues in the quality assurance for products, operations
managers often conduct the analysis of quality-related costs which is an important task. Strategic
opportunities, or threats, frequently motivate the launch of aggressive quality management
initiatives.
The typology has four categories:
Internal failure costs (costs of scrap, rework, re-inspection and low production yields for nonconforming items that are 'detected before they leave the company)
External failure costs (warranty claims, repairs, and service costs that result when the failure is
detected in the market place)
Appraisal costs (cost of inspecting upon arrival, during manufacture, in laboratory tests and by
outside inspectors)
Prevention costs (design and development of new quality equipment, evaluation costs of a new
product or service, training of quality personnel).
MPROVED INFORMATION ACCURACY AND DECISION-MAKING CAPABILITY
To survive, thrive and beat the competition in today's brutally competitive world, one has to
manage the future. Managing the future means managing the information. In order to manage the
information, in order to deliver high quality information to the decision-makers at the right time,
in order to automate the process of data collection, collation and refinement, organizations have
to make Information Technology (IT) an ally, harness its full potential and use it in the best way
possible.

ERP systems serve an important function by integrating separate business functions-materials

management, product planning, sales, distribution, finance and accounting and others-into a
single application. However, ERP systems have three significant limitations:
1. Managers cannot generate custom reports or queries without help from a programmer and this
inhibits them from obtaining information quickly, which is essential for maintaining a
competitive advantage.
2. ERP systems provide current status only, such as open orders. Managers often need to look
past the current status to find trends and patterns that aid better decision-making.
3. The data in the ERP application is not integrated with other enterprise or division systems and
does not include external intelligence.
There are many technologies that help to overcome these limitations. These technologies, when
used in conjunction with the ERP package, help in overcoming the limitations of a standalone
ERP system, and thus, help the employees to make better decisions. Some of these technologies
are:
Business Process Reengineering (BPR)
Management Information System (MIS)
Decision Support Systems (DSS