Benefits of ERP

5 October 2013

Benefits of ERP

Introduction
Installing an ERP system has many advantages both DIRECT and INDIRECT. DIRECT advantages include improved efficiency, information integration for better decision-making, faster response time to customer queries etc.

INDIRECT advantages include better corporate image, improved customer goodwill, customer satisfaction etc.
5 October 2013 Benefits of ERP 2

Benefits of ERP
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 decisionmaking capability
5 October 2013 Benefits of ERP 3

Reduction of Lead-Time
The elapsed time between placing an order and receiving it is known as the LEAD-TIME. Plays a significant role in purchasing and inventory control. All the inventory systems have safety mechanisms like safety stock, re-order level etc to avoid OUT OF STOCK situation. Out of stock may lead to missing the delivery schedules, losing the customer goodwill due to delayed delivery or even losing the customer to the competition.
5 October 2013 Benefits of ERP 4

Reduction of Lead-Time (contd)

So, larger inventories must be kept, which blocks the money. In order to reduce lead-times, the orgn should have an efficient inventory mgmt system, which is integrated with the purchasing, production planning and production depts. For a company dealing with hundreds of raw materials and components, keeping track of the lead-times for each and every individual item manually, is practically an impossible task.
5 October 2013 Benefits of ERP 5

Reduction of Lead-Time (contd)

ERP systems help in automating this task and thus, make the inventory mgmt more efficient and effective. As Materials Mgmt module is integrated with other modules like Sales, Marketing, Purchasing, Manufacturing and Production Planning, the demand for a particular item can be known as early as an order is received. ERP reduce the lead-time and make it possible for the orgns to have the items at the time they are needed (JIT inventory).
5 October 2013 Benefits of ERP 6

On-Time Shipment
Today, 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 off-the-shelf products. With ERP, many mfg and planning methods can be combined within the same operation, with unlimited flexibility to choose the best method or combination of methods for each product at each stage throughout its life cycle. As all modules are integrated, the production efficiency will be high.
5 October 2013 Benefits of ERP 7

On-Time Shipment (contd)

Another step to shorter Product Development cycles is increased efficiency in design and development activities. ERP allow smooth integration with popular CAD package to simplify exchange of information about drawings, items etc.

Thus, by integrating the various business functions and automating the procedures and tasks, the ERP systems ensure on-time delivery of goods to the customers.
5 October 2013 Benefits of ERP 8

Reduction in Cycle Time

CYCLE TIME is the time between receipt of the order and delivery of the product. In make-to-order and make-to-stock operation, the cycle time can be reduced by the ERP systems, but the reduction will be more in case of make-to-order systems. In make-to-stock, the cycle time is reduced not in the shop floor, but during the order fulfillment. Since all the data, updated to the minute, is available in the centralized database and since all the procedures are automated, almost all of these activities are done without human intervention. This efficiency of the ERP systems helps in reducing the cycle time.
5 October 2013 Benefits of ERP 9

Improved Resource Utilization

The creation of an accurate, achievable production schedule requires the availability of both material and capacity. It is useless, and indeed wasteful, to have financial resources tied up in material, if the capacity is insufficient or improperly planned. The capacity planning features of most ERP systems offer, both rough-cut and detailed capacity planning. ERP systems also have simulation capabilities that help the capacity and resource planners to simulate the various capacity and resource utilization scenarios and choose the best option.
5 October 2013 Benefits of ERP 10

Improved Resource Utilization (contd)

The efficient functioning of the different modules in the ERP system like manufacturing, materials management, plant maintenance, sales and distribution ensures that the inventory is kept to a minimum level, the machine down time is minimum, the goods are produced only as per the demand and the finished goods are delivered to the customer in the efficient way. Thus, ERP systems help the orgn in drastically improving the capacity and resource utilization.

5 October 2013

Benefits of ERP

11

Better Customer Satisfaction

Customer satisfaction means meeting or exceeding customers requirements for a product or service. ERP systems have proved that they can produce goods at the flexibility of make-to-order approach without loosing the cost and time benefits of make-to-order operations.

This means that the customer will get individual attention and the features that he/she wants, without spending more money or waiting for long periods.
5 October 2013 Benefits of ERP 12

Better Customer Satisfaction (contd)

With introduction of web-enabled ERP systems, the customers can place the order, track the status of the order and make the payment sitting at home.

Since all the details of the product and the customer are available to the person at the technical support department, the company will be able to better support the customer.
All this is possible because of the use of the latest developments in IT by the ERP systems.
5 October 2013 Benefits of ERP 13

Improved Supplier Performance

An orgn 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. The ERP system provide vendor mgmt and procurement support tools designed to coordinate all aspects of the procurement process. There is a growing trend for orgns to establish partnership agreement with their suppliers. Supplier quotations and contracts can be created to support the procurement of all products and services required by the enterprise.
5 October 2013 Benefits of ERP 14

Improved Supplier Performance (contd)

The ERP systems searches for the best-fit supplier contract and automatically assigns it to the corresponding purchase order or requisition. Since most suppliers have their systems connected to the companys system, the information regarding an order is transmitted to the suppliers systems almost instantaneously. The Quality Management System in the ERP systems, provides all the tools needed to implement Total Quality Management programs within an orgns procurement function.
5 October 2013 Benefits of ERP 15

Increased Flexibility
Because of competition, companies will need to design new products or redesign old products quickly and efficiently. Manufacturing process must be flexible enough to accommodate new product designs with minimal disruption or time loss. FLEXIBILITY means quickly changing something that is being done, or completely changing to adjust to new product designs. Traditional Fixed automation manufacturing facilities, while efficient, are often inflexible. Product flexibility is the ability of the operation to efficiently produce highly customized and unique products.
5 October 2013 Benefits of ERP 16

Increased Flexibility (contd)

ERP systems not only improve the flexibility of the mfg operations, but also the flexibility of the orgn as a whole. New competitors emerging every day, new mktg strategies to be devised and implemented at very short notices, find new ways to keep the customer satisfied.

ERP help the companies to remain flexible by making the company info available across the deptal barriers and by automating processes and procedures.
5 October 2013 Benefits of ERP 17

Reduced Quality Costs

Quality is defined as excellence, conformance to specifications, fitness for use, value for the price etc. Quality costs are in the range of 20% of the cost of goods sold. Carefully planning quality improvement activities not only improves quality, but lowers quality-related costs. This means that the customer will get individual attention and the features that he/she wants, without spending more money or waiting for long periods. Quality related costs are Internal failure costs, External failure costs, Appraisal costs & Prevention Costs.
5 October 2013 Benefits of ERP 18

Reduced Quality Costs (contd)

Internal failure costs Costs of scrap, rework, re-inspection and low production. External failure costs Warranty claims, repairs and service costs that result when the failure is detected in the market place. Appraisal costs Cost of inspection 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.
5 October 2013 Benefits of ERP 19

Reduced Quality Costs (contd)

In the design phase of a new product or service, the cost of correcting a defect may be minimal. Material Inspection Systems offer a wide range of capabilities for process supervision and control.

By ensuring that the company has an efficient and effective quality assurance and management system, the ERP systems play a vital role in reducing the cost of quality.
5 October 2013 Benefits of ERP 20

Improved Information Accuracy & Decision-making capability

To survive in todays competitive world, one has to manage the future. Managing the future means managing the information. THREE fundamental characteristics of information are accuracy, relevancy and timeliness. High quality information enables employees to make better decisions. Today, an organization cannot function as islands of different departments. If all the information islands were integrated into a single system, then the impact of that would be dramatic.
5 October 2013 Benefits of ERP 21

Improved Information Accuracy & Decision-making capability (contd)

So what is needed is a system that treats the organization as a single entity and caters to the information needs of the whole organization. The strength of ERP systems is Integration & Automation and that is why implementation of ERP systems will help in improving the accuracy of information and thus help in better decision-making.

5 October 2013

Benefits of ERP

22

5 October 2013

Benefits of ERP

23