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How Can ERP Enhance My Company's Performance?

Chcoolate cake with cream cheese frosting

It’s time to bake! What is your approach?

First you’ll probably decide what you want to make. You are trying to impress the neighbors for a block party tonight so you decide to make your specialty: chocolate cake with cream cheese frosting. You set up your kitchen by gathering your materials (mixer, spoons, pans) and ingredients! Upon fetching the flour you find that you are out, right when it’s needed! There is nothing else to do. You have to put everything on hold and rush to the store and pray that you can still produce the cake in time for the big event. The whole way to the store you debate if Target or Trader Joes would be quicker and forget about price shopping because this is an emergency. Finally you get home to make the most perfect delicacy anyone has ever seen and pack it up for the party. Before you head out you decide to re-read the host’s e-mail to make sure you have the right directions and to your dismay you see: “Please bring dessert, but nothing with milk products, some of the guests are highly allergic.” Now what?

This approach can fly at home because for most, output is low and the cost of disaster is minimal. (Maybe you would just bring Oreo’s that were in the cupboard.) But imagine asking a full-sized company to function like this. Misreading customer orders, lacking inventory, production times running down to the wire, over-paying vendors, which all goes on to damage your end product. The greatest gizmos and gadgets in the world would fail under this system simply because they were mismanaged.

Luckily time has been invested to create solution for this in the business community. Enterprise Resource Planning, often shortened to ERP, is process management software that automates and integrates back office functions (operations, product planning, manufacturing, sales, and accounting, to name a few possibilities) to manage a business. The automation of these tasks makes them more accurate and timely.

Automation is more than just using technology, it means that systems are able to function independently without constant human direction. For example, an ERP system is smart enough to make adjustments across the business if inventory is sold. In the general ledger, Inventory on Hand will decrease and Accounts Receivable will increase. For inventory management it will know to decrease the inventory level of the assembled piece that was sold, as well as all of its input components. It can even go on to notice that the inventory for component A is low and needs to be re-ordered and draw up a purchase order to get more from your desired vendor.

All of this will be done instantaneously after the sale is made and done with 100% accuracy (if implemented correctly) every time. Traditional methods would require multiple employees to spend time receiving these documents, processing them, and passing them off to another employee. Each hand-off runs the risk of human error and certain delay from transfer time.

Beyond efficiency, ERP systems can also help your business better allocate labor. Human capital is by far the most valuable aspect of any company, and, for most, it is also the most expensive. Implementing a comprehensive ERP system can free up your employees from the mundane routine tasks involving data entry in order to take on activities that they are more interested and passionate about, keeping them more engaged in their work.

At face value ERP systems do exactly what the title suggests: They allow a business to organize and plan out how to use their resources most effectively. Beyond that, they allow this same business to allocate time more wisely. Instead of wasting hours on tedious tasks like counting inventory, employees can be re-engineering their processes, innovating their product, or finding new customers – all of which adds value directly to the business.

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