Do I need ERP?
Prior to proceeding to an ERP system selection it is important for you to take a decision as to whether you really need one. The ERP systems are complex systems and their implementation in a small company is not always justified from the viewpoint of the implementation efforts required on the part of the company proper. Apart from this the question arises of whether the investment is justified.
Nevertheless, following a particular stage of its development every company needs an ERP system. We will make an attempt at describing that stage, so that you could find out whether your company has reached it.
It is within the very nature of the ERP system that the execution of any activity is to be planned in advance, after mathematical models at that. Models are very simplified, quite often, yet they enforce discipline under which almost any activity can be planned. Let us explain what planning means as this notion is very frequently mixed up with prognostication:
- Planning is a preparatory activity for all departments (resources) of the company to fulfill forthcoming commitments. For example, where a customer has placed an order the company departments must get prepared in such a manner that all activities of production, purchasing, shipment, etc. must be completed in good quality and within the agreed term.
- Forecasting is an activity where the future sales of end products are estimated. Depending on the specifics of production it may become necessary to also forecast the needs of raw materials, materials and semi-finished products.
That is to say, forecasting is a rather ‘mantic’ occupation, while planning is a strictly mathematical activity. The execution plan that is drawn for every future activity must be consistent with the potentials and load on all resources of the company and allow easy update if and when circumstances change.
In order to successfully implement an overall information system comprising the planning, management, control and analysis of all processes in a company it is necessary to have such activities existing and efficiently operating. It is a widely spread view, yet a wrong one, that the implementation of an ERP system will ‘create’, ‘set right’, organize and put in order these process in the company. It is true that the ERP systems contain inherent know-how in this respect, yet fine adjustment and its implementation with the user company is the responsibility of the entire management. The introduction of an ERP system, however, is a real catalyst for the processes of organization of the company even to a greater extent compared with the implementation of ISO, because the ERP system binds the company absolutely to operate in conformity with the selected business model. This is exactly the source of the major potential problem of most companies that are not ‘grown mature’ yet for an ERP system. Such companies are simply not willing, or are not ready, to implement these processes. These are often small companies in which commodity, resource and financial planning is still very simple and made almost by heart, management and control are exercised verbally and analysis is almost never made or historic references from the current warehouse programme are sufficient for the analysis. For companies, which are at this stage of their development the ERP system is simply neither necessary, nor appropriate.
To this point we mentioned where an ERP system is inappropriate. Now, we will show where an ERP system is necessary. Although the functionality of these systems has long ago surpassed their abbreviation, yet it can be used to make a simple check. That means, the company must need at least one of the Enterprise Resource Planning. Let us consider them one by one:
- Enterprise means, directly translated, and enterprise but it is used within the meaning of a large enterprise, a corporation. Often this means a holding or a big company in which many people and activities have to be combined.
- Resource means a resource. Where resources in the company become so many in numbers that their mental coverage becomes difficult, you are in need of an ERP system.
- Planning means planning. If you do not want to take the pains of feeding the required data into the system in order to make correct planning, you better do not waste your time in searching for an ERP system.
By the way, even if we have provided in a separate chapter the selection criteria for an ERP system we will just mention here that if the implementation is to make any sense the enterprise shall be larger than a living minimum. It is impossible to set an exact limit but practice has shown that if the system has less than 5-6 permanent users it is quite possible that they will be overloaded by information.
The ERP system becomes vitally necessary at the point where the processes of planning and performance control have become so difficult to do mentally that it is the right time to put them into an information system that will follow, provide guidance and sound alarms in the event of non-performance. At this point of time the existence of an introduced and well working system will enable the company to continue its growth without cataclysms. Despite the increased number of orders, the larger number of people that are to be controlled and the greater variety of external factors of influence, the ERP system allows the company to continue to fulfill customer orders in time and in good quality. The system makes possible the easy planning of resource load (commodity, human, monetary, etc.) in a great number of diverse activities and provides the opportunity for permanent control over anything that happens.
This is one of the reasons behind the opinion that the ERP system provides a competitive advantage. Usually, companies that have implemented such a system manage to meet their commitments as far as term quality and other factors are concerned in the majority of cases and quite naturally this makes them a preferred partner. In particular cases certain companies place an explicit requirement to their partners (suppliers, subcontractors, etc.) to have an implemented ERP system.
The absence of an ERP system in a larger (or a small, yet growing) company always means a hurried action on the verge of chaos, lack of integrated and timely information, poor ongoing control, slow and non-flexible adaptation to the constantly changing external factors, etc. If this sounds familiar to you that means it is time to consider an ERP system.
(c) 2007 Aloe Co