The idea behind enterprise resource planning is to integrate as all of the computing needs of the company into a single system that can provide all of the necessary functionality needed. That is a tall order.

Traditionally, each department had its own specialized system to do its job. Usually that means its own separate database as well. The secret to combining all of these programs is to make it possible for all departments to share the same centralised database. A true Enterprise Resource Planning (ERP) system will employ different modules for each department with all of the software using a single centralized database.

The Problem

Let’s look at a single customer order and the typical steps required to complete the transaction in order to understand the problem:

1. A customer calls and places an order.
2. The order is recorded (on paper or electronically)
3. The order is sent to the warehouse (either the actual form or an email)
4. A warehouse order picker collects the actual items purchased (using the paper order or a printed email)
5. The items are boxed and along with the order form are sent to the shipping department
6. A mailing label and packing slip are created and the pertinent information recorded (on paper or electronically)
7. The information is sent to billing
8. The items are loaded on a truck and tracking information recorded (on paper or electronically)
9. Billing eventually sends the customer an invoice or receipt depending on the payments arrangements (on paper or electronically).

The lack of an integrated database means an employee must either manually enter the information on paper forms or type the information into their department’s computer program. Typically, the information is emailed between departments if stored electronically. The warehouse needs a printed form for the order picker and shipping needs a printed mailing label to put on the package and a printed packing to put inside the package.

Copying or re typing all of this information so many times is time consuming and expensive because payroll is one of the biggest expense items for any business. Each time the data is copied by hand or retyped, the probability of someone making an error increases as well. To make matter worse, until the order is actually shipped, no one in the company really knows the status of the order.

The ERP Solution

With modular applications capable of using a single database, all of the information is available at each step of the process.

Let’s look at that same customer order again using and ERP system.

1. A customer calls and places an order. The available inventory, the customer’s purchasing history, credit rating, shipping schedule and other pertinent information are available to the order taker.
2. The order taker types the order into the database.
3. The warehouse order picker pulls up the order on their handheld computer and collects the actual items then takes them over to the printer and attaches the packing slip to the order.
4. Shipping boxes the items, prints the mailing label and sends the package to the loading dock.
5. The items are loaded on a truck and a tracking number entered into the database.
6. Billing sends the receipt or invoice to the customer.

The greatest advantage of a streamlined system is employees enter data once into a single centralized database and the ERP system automatically routes the order to the next department when completed. The single database makes all of the pertinent information available to each employee at every step in the process. An ERP system can reduce overall fulfillment costs and improve customer service. If the customer calls next week, the person answering the phone can pull up the data and answer any questions asked.

ERP can also benefit management by provided a single view of the business and financial data making forecasting and decision making easier.

Cost Factors

Customer service improves as soon as the employees learn how to use the ERP system. Customers, partners and suppliers will see immediate benefits. An ERP system is a major investment but its monetary benefits are long term. A Meta group study of 63 companies found that it took approximately 31 months to recover the costs. After that, the median annual savings from the new ERP system was $1.6 million per year.

Some of the costs involved in implementing ERP are:

Training – most managers underestimate training costs because they fail to realize that workers almost invariably have to learn a new set of processes, not just a new software interface.

Integration and Testing – You will need to run both the old and new system in parallel during the implementation phase. The final test before going live is to run real purchase orders through the system, from order entry through shipping and receipt of payment using the employees who will eventually do those jobs.

Data conversion – even clean data may demand some overhaul to match the ERP implementation.

Data analysis – thoroughly check all data analysis needs before deciding on the ERP system.

Consultants – the consultant agreement is probably more important for controlling costs and any other aspect of the project. Contracts must be detailed and spell out timelines, responsibilities and how to handle delays and cost overruns.

Employee Retention – there is a very real danger your IT employees will jump ship after they are fully trained in integrating and operating your new ERP system. Contracts requiring a minimum term of service in exchange for the training may be in order. Consult your legal advisors.

Post Implementation Needs – there will be maintenance and administration that will require dedicated employees for the duration. Budget for it.

Return on Investment (ROI) – calculate how many months or years it will take to recoup the cost.

Employees – some employees will leave and other’s performance may suffer during the adjustment phase. Anticipate this and plan for dealing with it to minimize the fallout.

License-free Alternative

With Open-source alternatives catching on rapidly more and more small to medium sized businesses are able to get their businesses in order by adopting open source ERP systems.  Not only the lack of licensing cost is an attraction for these businesses to adopt open source ERP systems but also the superiority of the solution is often better than what well-known brands of ERP systems.