What is ERP?

Business processes are multidimensional across organizations and could be quite unique and specific to each organization. To guarantee that an organization’s goals and objectives are realized, these business processes must be appropriately coordinated and integrated. A manufacturing organization for example must be concerned with the efficient requisition and utilization of inventory, the production system in operation, storage of raw materials and finished products and the distribution of the finished products. 

Alongside this, the organization must be concerned with the management of human resources within the organization and its system of accounting. All these are different business processes that the management of an organization must consider to drive the organization to success. As much as they could be independent business units within an organization, having them function independently could be sub-optimal for an organization. This is essentially why we have Enterprise Resource Planning. Enterprise Resources Planning is basically a software used by organizations to manage and coordinate their different business processes from inventory management, production and sales, finance and accounting systems and human resources and other industry-specific business functions.

The history of ERP dates back to the early 90s where it was primarily concerned with material resources of manufacturing companies. It helped solve the problems associated with the proper management of material resources in companies and was known as MRP (Material Resources Planning). Over the years, it has developed to include other important business functions and offers the major advantage of centralizing business data and information systems. ERPs ensure that each business process and function have access to the same set of data and information since this set of data and information would be stored in the software as it is entered by whichever unit or business process the data originates from. Data entered into the system is made available to all business units for further use and optimization of business operations. 

In the past, each business function was left to source for its data or at best would have to undergo some bureaucratic processes to obtain data from other business units. The effect is that data is acquired well after it is required, and in cases where data is entered from multiple sources, various business units within a single organization may work with different sets of data, undermining any decisions made from such data. With the use of ERPs, data can be obtained in real time as they are updated once they are available and made available to every business process. This also reduces the level of duplication of duties and responsibilities since data entered once doesn’t have to be re-entered by other business functions. The ultimate effect is a reduction in cost.

As a software leveraging the benefits of technology, ERPs introduce automation to business processes particularly those that are routine in nature. This means that employees have more time to concentrate on other tasking business functions which ultimately would increase their productivity and also save time and cost for the organization in the long run. Automated business processes reduce the risk of errors of oversight and subjectivism to a large extent which leads to the optimization of business processes. ERPs also have the additional advantage of embedded internal control systems. This internal control system is automated and built into the system. With this system in place, the risk of sidelining or overriding control processes is very low as long as the system does not get tampered with. Internal control procedures like authorization, separation of duties, access controls, etc. can be in-built in the system. Compliance measures with regulatory and legal frameworks as well as business policies can also be monitored with an ERP.

In conclusion, the risk of having every business unit/process functioning independently is reduced to a large extent with the deployment of an ERP in an organization. In essence, the system encourages collaboration among different business processes. This enhances the principle of goal congruence as every business process and unit engages in continuous communication and as a result have the same sense of direction and drive towards the attainment of organizational objectives. Collaboration ensures that the organization can take advantage of synergistic benefits which ultimately improves the business performance of the organization.