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Impact of ERP on Organization Performance - Paper Example

7 pages
1831 words
Carnegie Mellon University
Type of paper: 
Dissertation introduction
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

ERP (Enterprise Resource Planning) is defined as a "business management software that allows to manage and optimize in an integrated way the operating processes of the different departments of a company, through transparent processes in real time" (Almajali, Masadeh, & Tarhini, 2016). An ERP system allows the company to organize the entire business process and automate it to achieve the highest possible profitability, which saves effort and time for employees and business managers. Thus, it allows automating many of the processes carried out by companies, from accounting, human resources, purchasing, finance, and manufacturing. Everything is in the same software so that it can be managed efficiently. The decisions can also be taken immediately since different parameters can be analyzed at once.

Having an ERP system in a company allows it to unify and order all the information available, access the data immediately and safeguard them. Besides, this process requires the revision of the procedures before the implementation of the software, which directly affects its optimization (Almajali, Masadeh, & Tarhini, 2016). With the implementation of an ERP, both the internal processes of the company (accounting, finance, production, costs, inventories, and sales) and external (its relationship with customers and suppliers) are integrated, leaving all the information compiled and automated in a single shared database (Addo-Tenkorang & Helo, 2011). This also allows the exchange of internal information, with all the advantages that this implies in the daily management. The advantage of this type of system is that there is a single database for all the transactions of the company. Its implementation must be a planned activity and must be accepted by all the members of the company, (from the managers to the middle managers of each area).

From the definition of an ERP, it can be noted that it is an information system which is supported by computer and computational technologies to make it efficient and effective, so it often resembles software, this information system is based on the following four pillars (Dezdar & Ainin, 2012):

Hardware - Refers to the requirements of computers and workstations necessary to install and work with the ERP program.

Software - Corresponds to the ERP system through which it is introduced, stored, calculated and distributed all the information of the company.

Server - It is the physical or virtual site where all the information of our ERP is stored and retrieved

Network- Refers to all the necessary system to connect all computers with each other with the server, so that a large number of people can use and share at any place and time the information of our ERP.

ERP systems are increasingly used by companies that find in them the best way to integrate all the processes of management and distribution of their businesses and monitor them, improving the productivity and increase a companys profits by reducing costs. Due to the emergence of the cloud, ERP software has evolved expanding the range of activities beyond production, logistics, distribution, accounting and human resources (Hong, Katerattanakul, & Lee, 2014). Today they also allow working online and in multitasking formats. Thus, companies interested in keeping under control the processes of their organizations without anything being registered and perfectly coordinated do not hesitate to implement an ERP software in their businesses with the aim of improving the management of their finances, the monitoring of production or the stock as well as other processes related to the relationship with customers (CRM) (Parto, Sofian, & Saat, 2016). It is essential to keep in mind that not all ERP systems are the same. Depending on the size and area of work of the companies, they will need a type of ERP software or another. The main characteristics of an ERP system are that they must be comprehensive, modular and adaptable (Parto, Sofian, & Saat, 2016):

Integrals: All areas or departments of the company communicate and exchange information during the execution of the different business processes. The management and control of these processes must be integrated into the ERP solution, so that the information is not duplicated and the processes are carried out in the most efficient way possible, knowing their traceability at all times.

Modular: Each company manages its business processes or has different departments from other companies, and that is why an ERP system must allow choosing the components of the solution according to the needs of each business. These components can be purchases, sales, materials, finances, warehouse control, and human resources among others.

Adaptable: Each company manages its processes, standards, and parameters. That is why ERP systems must be able to adapt to every need through the configuration of business processes. An ERP system is designed to quickly develop new processes according to the needs of each company.

Diagrammatic Representation of the ERP Modules

Figure 1 and 2 showing different ERP modules

Benefits of ERP systems

By nature, most companies are oriented to the creation of projects, for which it is essential that each movement is registered in a system, either manually or automatically. However, it is still surprising how many service organizations rely on spreadsheets and manual processes to manage vital areas. There are many advantages to having an ERP system for a service company, among which are the availability of information for all users, the minimization of data redundancy and the centralization of all information in a single database (Almgren & Bach, 2014). When managing the business with an ERP software, the information of all the functional areas of a company are stored in a single database; therefore, there is no need to go to each department to know details about any process. In the service industry, the details are what make the difference in the quality perceived by the client, so the efficient management of the projects will be the critical factor for satisfaction (Abdullah, Albeladi, & Atiah, 2013). The benefits that an ERP brings to a company are as follows:

Module 1: Manufacture Resource Planning

Optimization of internal organization and fast decision making

The ERP facilitates the organization of the company and allows optimizing processes and resources, which affects the optimization and efficiency of the management itself and the relationship with customers, especially if the company has also implemented a CRM (Customer Relationship Management) (Azevedo, Romao, & Rebelo, 2012). Access to all company information easily, quickly and orderly allows us to make decisions based on data and not beliefs, which will avoid impulsive, erroneous or poorly focused decisions. For this, of course, the analysis and interpretation of these data must be correct.

Greater control

The implementation of an ERP allows greater control in all operations since each of these is reflected and assigned to an individual or resource, at a specific time and date, with some objectives and as a consequence of a procedure, which allows Follow up on all processes in each of its stages (Wang, He, & Wang, 2012). Technology gives companies efficient and simplified solutions to execute tasks. With an EPR tool, it will no longer be necessary to wait for hours or days for a response, ERP solutions for companies break the barriers and eliminate the communication difficulties to interweave all the departments.

Planning for the future

Through having historical information, behaviors, and trends, the company can create future scenarios with realistic estimates, minimizing the margin of error. Companies that have an ERP software have sufficient information to make forecasts and estimates for future dates with greater success (Schlichter & Kraemmergaard, 2010). The overall goal of this type of systems is to guide the managers of the companies and improve their skills, dealing with improvements in the processes of reducing losses of time and money. The idea is that this tool can help the workers of a company to react in a better way to any circumstance that might arise, providing them with a suitable and efficient way of handling any problems.

Module 2: Human Resource Management

Increase in Productivity

The automation of internal processes will increase employee productivity, duplicate tasks will disappear, and redundant information will be eliminated. With an ERP software the grouping of the invoicing, the planning of the purchases, control of the stock as well as the management of shipments and exports in the case of companies that work are carried out abroad, to register and organize all the documentation associated with each package that is exported or sent is easily done (Madapusi & DSouza, 2012). With the ERP system, the company will observe a remarkable improvement in the operation and competitiveness of a company resulting in a reduction in expenses in stationery, since it is not necessary to print press releases. On the other hand, it optimizes the speed of answers and essential management for the operation of the business.

Cloud support

A company will be able to keep their information safeguarded in cloud systems to which each one of their employees will have access (Parto, Sofian, & Saat, 2016). For the new collaborators that will be arriving it will be much easier to have an induction process for the company if they easily find in this place the necessary work and training manuals.

Module 3: Finance Resource Management

Saving time and costs

ERP not only captures and stores data, one of the primary functions is to work and calculate with this data to automate daily tasks of users. From the information provided by the different departments, the ERP can calculate in just a few seconds the needs of materials in quantity and date for the production of a product from the list of materials and delivery needs. It calculates and automatically performs tax models such as VAT or IRPF in periods (Seethamraju & Sundar, 2013). An ERP can calculate the costs associated with a product, project or section, and can make the payroll of all employees based on hours worked, seniority, and position (rank). An ERP easily does all these reports in just a few seconds and with 100% reliability of calculations. The normalization of processes and workflows directly affects the optimization of time and resources, which will reduce costs.

Orderly growth and management of information and financial ratios

Most of the ERP are modular, scalable and connected to each other, which allows the case of growth the incorporation of new modules and the organized flow of information between them. An ERP allows total control of the business process, from the creation of the product to its sale to the end customer. Therefore it makes the processes profitable and increases the probabilities of profit (Scavo, Newton, & Longwell, 2012). The return of processed information is one of the most important purposes of an ERP, through reports, dashboards (through the connection of the software with a business intelligence platform) and ratios or indicators financial statements that denote the state of the company from the perspective of business numbers.

Control of accounting and finance and optimizing decision making

ERP is multi-channel and multi-site software so that the staff can work online from anywhere and whenever they need it. Besides, some ERP systems such as Sage Murano include the possibility of multi-company for those organizations that manage more than one company can coordinate them independently but with the same software (Almajali, Masadeh, & Tarhini, 2016). The ERPs provide data...

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