Benefits of ERP

1. INFORMATION INTEGRATION
The first and most important advantage lies in the promotion of integration. The
reason ERP systems are called integrated is because they have the ability to
automatically update data between related business functions and components.
For example, you need to only update the status of an order at one place, say in
the order processing system; all the other components will automatically get
updated. Therefore, when a customer places an order and the order is entered
into the system, it triggers a lot of processes and actions in a number of modules
— finance, production planning, production, inventory management, and so on.
The invoices are automatically generated, materials requirements are identified,
production is planned, the inventory is checked and any item required
but not in stock is ordered, and the customer is informed as to when the ordered
item can be expected. The uniqueness of this system is that information updating
happens instantaneously.
Thus, you get up-to-the-minute information at your fingertips. This information
integration leads to better decision-making and trouble shooting of problems.
Another advantage of this integration is that the people who are involved in a
project are also interlinked to each other. This integration has tremendous
potential for improving productivity.
2. 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 in purchasing and inventory control. Most
purchasing departments urge the materials management to anticipate material
demands well ahead of actual need. All inventory systems have safety
mechanisms like safety or buffer stock, re-order level, and so on built into them
to avoid a situation where the material is out of stock. The non-availability of
an item that is required for production can result in several hassles like missing
delivery schedules, losing customer goodwill due to the delayed delivery or
even losing the customer to competition. One can avoid this situation by
requesting for the materials well in advance of its requirement (early requests)
or by keeping a large buffer stock or maintaining a very high re-order level.
 Nevertheless all this means that larger inventories must be kept, which means
money getting blocked.
Thus in order to reduce the lead-times, the organization should have an efficient
inventory management system, which is integrated with the purchasing,
production planning, and production departments. In this era of just-in-time (JIT)
manufacturing, the knowledge of the exact lead-times for each and every item is
of paramount importance for uninterrupted production. For a company dealing
with hundreds and thousands of raw materials and components, keeping track of
the lead-times for each and every individual item manually is a practically
impossible task.ERP systems help in automating this task and thus make inventory
management more efficient and effective. Also, since the ERP system is integrated
and the materials management 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. For
example, consider that an order is received for supplying say 100 cars with air-
conditioners. As soon as the order details are entered into the system, a series of
actions are triggered. The system will check whether the items are available in the
finished goods inventory. Then it will generate a BOM for the order and will check
whether all the items are available in the inventory. Since all the records are kept
in the system’s database and since everything is up-to-date, finding out the parts
that are to be ordered takes no time (a task which could have taken days in the
case of a manual or non-integrated system).

3. ON-TIME SHIPMENT
ERP systems also provide the freedom to change manufacturing and planning
methods, as needs change, without modifying or re-configuring the workplace
or plant layouts. With ERP systems, businesses are no more limited to a single
manufacturing method, such as make-to-stock or make-to-order. Instead, many
manufacturing 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.
4. REDUCTION IN CYCLE TIME
Cycle time refers to the average time taken to complete a single unit. ( The
lead time refers to the length of time it takes from the date of receipt of an
order to the date of delivery. )At one end of the manufacturing spectrum is
the make-to-order operation where the cycle time and cost of production
are high. This is because in a make-to-order situation, the manufacturer
starts making the product or designing the product only after receiving the
order. He will procure the materials and components required for
production only after getting the order. On the other end of the
manufacturing operations is the make-to-stock approach, where the
products are manufactured and kept in the finished goods inventory before
the order is placed. In both cases, the cycle time can be reduced by the ERP
systems, but the time will be saved more in the case of make-to-order
systems. In the case of make-to-stock, the items are already manufactured
and kept in warehouses or with distributors for sales. Here the cycle time is
reduced not in the shop floor, but during the order fulfilment.

5. IMPROVED RESOURCE UTILIZATION

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 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.
Waste not only raises costs, it also affects customer service levels and
customer goodwill. The capacity planning features of most ERP systems
offer both rough-cut and detailed capacity planning.

6. 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 performs as
expected
ERP systems have proved that they can produce goods at the flexibility of make-
to-order approach without losing the cost and time benefits of made-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. Also, with the introduction of web-enabled ERP systems, customers can
place the order, track the status of the order, and make the payment from the
comforts of their homes. The customer could get technical support by either
accessing the company’s technical support knowledge base (help desk) or by
calling the technical support. 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 these are possible because of the use
of the latest developments in IT by the ERP systems and go a long way in
improving customer satisfaction.
7. 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. Therefore, an organization needs to choose its suppliers or
vendors very carefully and monitor their activities closely so that problems can
be rectified before it can disrupt the functioning of the company. To realize
these benefits, corporations rely heavily on supplier management and control
systems to help plan, manage, and control the complex processes associated
with global supplier partnerships. ERP systems provide vendor management
and procurement support tools designed to coordinate all aspects of the
procurement process.

8. INCREASED FLEXIBILITY
 As competition is growing, companies must learn to respond more rapidly
to customers’ demands as well as changes in the market. They will need to
be able to design new products or re-design old products quickly and
efficiently. Only then will companies be able to capitalize 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.
Sometime flexibility means quickly changing something that is being done
or changing completely to adjust to new product designs. At other times,
flexibility is the ability to produce in small quantities in order to obtain a
product mix that may better approximate actual demands and reduce work-
in-progress inventories.
Regardless of the definition of flexibility, traditional fixed automation
manufacturing facilities, while efficient, are often inflexible.
A flexible organization is one that can adapt to any changes in the
environment, rapidly. With technological revolution, the rules of the
marketplace are changing at a rapid pace. Newer and more competitors are
emerging each day. New and complex problems have to be tackled every
day. New market segments have to be penetrated not in order to succeed
but simply to stay in business. New marketing strategies have to be devised
and implemented at very short notices. Companies have to constantly find
new ways to keep the customer satisfied.
ERP systems help the companies to remain flexible by sharing the data
across the departmental barriers and automating most of the processes and
procedures, thus enabling the company to react quickly to the changing
market conditions.

9. REDUCED QUALITY COSTS

Quality is defined in different ways—excellence, conformance to specifications,
fitness for use, value for the price, and so on. Typically the 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.
 4 types of quality costs:
Internal failure costs (costs of scrap, re-work, 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 marketplace)
• 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)
For example, in the design phase of a new product or service, the cost of
correcting a defect may be minimal. If that defect goes undetected and the
company releases the product or service to the public, it will incur a much greater
cost to resolve the problems that result.
The quality management systems in ERP packages support the benchmarking and
use of optimal product design, process engineering, and quality assurance data by
all functional departments within the manufacturing enterprise, thereby
facilitating definition of repeatable processes, root cause analysis, and the
continuous improvement of manufacturing methods. This documentation
supports the job functions of the quality assurance and production managers in
validating the manufacturer’s conformance to ISO 9000, good manufacturing
practices (GMP) worldwide, and a variety of country-specific standards of quality
assurance.

10. BETTER ANALYSIS AND PLANNING CAPABILITIES

Another advantage provided by ERP systems is the boost to the planning
functions. It becomes possible to carry out flexibly, and in real-time the filing and
analysis of data from a variety of dimensions. The decision-makers can get
information they want, thus enabling them to make better and more informed
decisions.
11.IMPROVED INFORMATION ACCURACY AND DECISION-MAKING CAPABILITY
The three fundamental characteristics of information are accuracy, relevancy,
and timeliness. Information has to be accurate, it must be relevant for the
decision-maker, and it must be available to the decision-maker when he needs
it. Any organization that has the mechanism to collect, collate, analyse, and
present high-quality information to its employees, thus enabling them to make
better decisions, will always be one step ahead of the competition.