Business information systems or if you want somewhat incorrectly ERP systems are an old topic of discussion in the business sphere. Each company will sooner or later reach the stage where an ERP system “needs.” However, many business owners and managers often do not have a very clear idea of what a business information system is and what it will bring to the company. So let’s say “humanly” what many people care about ERP systems – what it is.
A little theory
First, it is worth saying why enterprise information systems are called ERP systems. ERP stands for Enterprise Resource Planning. According to Wikipedia, the term was invented and first used by the Gartner Group in 1990 as an extension to the MRP (Material Requirements Planning) and CIM (Computer Aided Manufacturing) systems that have served and are still used by manufacturing companies to plan and automate production operations. It is clear that if the ERP system decides to deploy, for example, to hospitals or insurance companies, the production will not be so much planned. But be it, Czech and it should be added that a more concise designation enterprise information system is not the shortest, so we will use the designation ERP systems. And one more important note at the beginning, this article will not mention resources, for the simple reason that everything written here is based on years of personal experience gained by interviews with managers of companies, hospitals, and town halls that use ERP systems. Creating case studies focused on ERP systems implementation and consulting for future users and implementation partners of ERP systems is at the moment one of the key areas of activity.
Standardization of processes
The first major benefit of an ERP system in a company, which is reflected in every single area of its activity (if covered by the system) is the standardization of processes. This means that when implementing an ERP system, it is said that an invoice is issued by a member of the accounting department based on an application form being issued by an appropriately authorized employee, that is always the case and otherwise it will not be possible. Standardization of processes brings significantly more advantages than it might seem. Take at least the most important ones.
First of all, each process should be set up based on Best Practices. You can “import” it from elsewhere (the manufacturer or implementer of the ERP system will tell you, based on their experience, what is best at the moment) or you can use your resources. This may be the case, for example, if one branch (or employee) in a given activity performs significantly better than other branches. In this case, the way the most efficient branch and other branches work is analyzed, and the differences and potential sources of the higher performance of the branch are identified and transferred to the description of processes that will be implemented in the ERP system.
Furthermore, the standardization of processes brings substitutability of workers – from the point of view of the ERP system it does not matter whether the process is performed by John or James. If they both have the same permissions and job titles, the system will tell them what to fill in. Of course, when it comes to the welding process, where the system confirms the receipt of the product and after processing, it confirms the handover of the product to the next stage of production, so there may be a difference in quality and time that it takes John or James. However, both will know if you have the ERP system set up really “foolproof,” when and where to take the product and when and where to put it after processing.
Last but not least, standardization of processes brings the elimination of non-standard solutions, which is a euphemism for the consistently required use of a properly implemented ERP system to help eliminate mess in the company as well as small cheats resulting, for example, from filling out job postings ex-post. It will no longer be possible to do business with office equipment during business hours, as either a delay or unassigned machine operation would appear in the system. Similarly, it is not possible to extinguish foreign problems because compassion for a given working time has to be assigned to a particular order to be considered as actually worked, etc. Standardization of processes will thus help to detect several ailments and ultimately lead to imaginary figures about productivity work you get real numbers that you will not like at all. In other words, labor productivity is likely to drop in the first year of operation and some other key indicators will look worse than in previous years. But they will have a real foundation.
Acceleration of processes
Acceleration is also closely related to the standardization of processes. There are two reasons for this: first, no one has to figure out what to do and who to go for when it solves something standard for its job because the system automatically transfers it to the site itself in the workflow. On the one hand, it is no longer possible to leave things to ‘sometime next’, because for each process it is possible to evaluate its average length and the supervisor can be immediately informed of extreme deviations. If James issues invoices on average within 10 minutes, John within 12 minutes, and Jasper within two days, it will be relatively fast. For the next time, all three of them will take much more care to work faster than the 10 minutes in the entire invoice process.
Delegation of powers
Related to this is another important capability of the ERP system, which is the delegation of powers. If Eva goes on holiday, the system knows this from the confirmed holiday request and at the prescribed time automatically delegates the approval of invoices to approved persons – John and Jasper. The same can generally apply to any process firmly linked to any approval by a particular person. The delegation of powers can also be multi-level, it can allow the original user to divide the powers of several people (eg invoices to pay to John, invoices for collection to Jasper), etc. The advantage is that the list of people (or jobs) is set it up once and for the next time everything is done fully automatically.
Inferring personal responsibility
A very important function related to powers is to derive personal responsibility for each process and to consistently assign authorizations for individual activities. This is something that reliably lifts blood to at least some of the employees, and sometimes unfortunately justifiably. Once it is determined that the invoices are over 100 thousand crowns approved by the manager, so can have a more self-employed and self-responsible agent, who works late into the night and at 23:50 encounters an invoice for $105,000, which must be paid that day, but he doesn’t. On the other hand, even the most distant leadership will be able to find that in New York, Mr. Doe in the warehouse receives and releases goods only until 3 pm, even though he is supposed to sit there by 17. No one else will be able to register or release it, and when he puts it on a free shelf, sooner or later the goods will be lost in a paper because the system will not know their position. In most cases, circumvention of the system will come about in the middle and senior management is sufficiently responsive.
Accurate and immediate data recording
The big advantage of the ERP system is accurate and immediate data recording. Data must always be entered when they are to be entered. Without completing the input, the next step cannot be reached. It should not be possible in your interest to rewrite and write data sucked from your finger ex-post. In addition, the ERP system can be connected to an attendance system (ie a system that records access and movement within the company premises), individual machines, gates, etc. The collection of data can thus be fully automated, thus saving your employees time and money and real data available.
Automated data processing
Extreme and almost one of the main advantages of ERP systems is automated data processing. This means that calculations, evaluations, and comparisons with past predictions are automatically performed over the acquired data, and automatic text and graphical outputs are generated in the form of reports. Moreover, everything is available immediately. For example, if you had to spend x hours with an accountant for such a banality, such as the Profit and Loss Account or Balance Sheet, now everything is done immediately and automatically. The same applies to any other reports (eg ABC analysis of stock) that you define when implementing the ERP system in the required reports. In addition, tools can be used to alert you only to problematic areas (eg, deviations from the plan, budget overruns, productivity decline, etc.) and if everything is in order, they do not burden you with unnecessary information. Automated data processing is also a basic prerequisite for the practical implementation of the Balanced Scorecard (which we will discuss in a separate article) and hence of strategic management as such.
Eliminate errors and multiple versions of data
Before deploying an ERP system, many companies live in an “Excel” world, where the company is managed by a system of dozens of different tables, many of whom often do not know why to fill them, and when data between tables (or sub-systems such as accounting systems) override manually. There are several errors in the description and irregularities related to sending the table to a colleague for processing and after two hours you find that something is missing, send another, a colleague in the meantime sends output processed based on the first table, etc. you have full mail tables that you don’t know which applies. This will not happen to you with a single ERP system.
Dismissal of incapacitated workers
A frequent benefit of implementing a new ERP system is also clearing the company of some workers. It may not always be originally wanted, but that is unfortunately life. In principle, three types of people are leaving the ERP system. The first type is people who are unable to adapt to the new system, even if they used to be good at first – a typical example of such a person’s reaction is: “All my life I’ve been paying for this program and now, two years before retirement, I won’t learn anything new. “Another category of people are those who did almost nothing in the company and disguised it as their colleagues and, as a result, the changed statements of work. It’s not so easy with the new system, so you will soon find out that some people will be better off. The third category is people who fall a bit into both of the above categories – the typical response is: “They invented some new moron system here and think it will be different now. But I will not do it, but such people must leave, not only because of their poor performance but also because they are just spoiling their morals. Finally, the last group is people that the company dismisses because it no longer needs them – typically such people, for example, all the working hours were preparing reports that are already automated or rewriting data between systems, which is no longer needed.
Immediate decision making
Another group of functions of the corporate information system is more in the area of strategic management and comes only when the company has the appropriate management. The ERP system allows you to get an accurate and complete picture of the company’s operations at any time. Potential problems and opportunities can thus be detected immediately if management does so. Take the example of the introduction of two new products on the market. While the company had waited several months to evaluate the success of the initial sales phase, it now sees every day were to sell the product. After the first month, management may have the information that Product A sold extremely hard in the first week of the massive advertising campaign and sold substantially less than usual in the past weeks and that Product B sold for some reason was fairly in the other region. On this basis, it can immediately carry out additional analyses and decisions. He can find out that product A is already in need of a longer advertising campaign this year and that product B is selling so well in the other region, because the local retailer bundles product C, which management did not intend, but it looks like a great and especially working idea, which can be applied within a week in the remaining regions.
Accurate data for future estimates
Once you have accurate and complete data on the present and the past, you can only really begin to predict the future with realism – ie to deploy forecasting and business intelligence tools. Even here, however, there is a need for management synergies, since knowing the future is in itself useless. Only when management makes these steps to adjust the strategy based on these estimates can this knowledge lead to some tangible benefits. In addition, ERP systems go even further, delivering the ideal environment to implement consistent planning and budgeting at all levels of the company. The ERP system thus creates an environment suitable for true strategic management of the company, which would otherwise be extremely time-consuming.
Instant information for customers and partners
Management is not the only one who can benefit from a detailed and immediate knowledge of the state of all things in your company. The next can be, and for some types of companies (e-shops, logistics companies, etc.) it is also very often a customer, or a business partner (supplier, customer). ERP systems are commonly interfaced with ERP systems in other companies (usually through a standardized XML interface) or through the web interface, providing information to your customers who are just waiting for your shipment and can easily see what stage they are at.
Most of the benefits are only for people
Most of the benefits of business systems are about people at several levels. First, you need to make sure that people enter the right data at the right time. In addition, you must ensure that people listen to the system and do not circumvent it (at least not in mass, exceptions can always be identified sooner or later and possibly eliminated). And last but not least, you need to ensure at the management level that it can take advantage of all the new possibilities it brings. The manager of an important international company in the field of automotive parts sales told me once – one-third of the benefits from the new company information system goes for quality and consistently performed pre-implementation analysis (there is space for the best practices and process optimization) data to customers, process acceleration, etc.) and a third goes to management and our decisions that we make, make and do based on the data we get. And this division can be but agree, although the percentage may vary according to the type of business.