HOW ERP SOFTWARE DELIVER ITS BENEFITS

Integrated software solutions that span the organization requires business processes to change.

“Integrated” means that the output of one department is the input of another. A good example is the Sales department—the source of many transactions. Whenever a widget (the product) is sold, it triggers a chain of events through a number of outputs.

Inventory will receive an input to locate the widget from among several warehouses and pull it from the one closes to the customer.

Order Entry will receive an input to enter the order into the system after it runs several checks on the new order (e.g., credit check).

Accounts Receivable will receive an input to record a pending sale. The record will contain transaction details such as the identity of the salesperson who brought in the order and the details of the sale itself (e.g., the sales price).

Another term for integrated software is ERP, short for Enterprise Resource Planning. The term is actually a misnomer since the software has nothing to do with planning resources. It does, however, have everything to do with the enterprise—the organization in its entirety. In the late 90s, I worked for the largest healthcare application services provider. Typically, we installed our proprietary software in their environment and processed their transactions at our data center. We provided application services to our client hospitals. Our software was modular and clients could license it on a piecemeal basis. They could license the clinical applications set that, in turn, consisted of separately license-able modules for nursing, radiology, etc. Our entire suite of software applications was an ERP even though my employer did not call it as such.

It should now be clear that integrated software requires business processes to change to derive the software’s maximum benefits.

ERP software does not, in and of itself, provide an organization with a competitive advantage. ERP can initiate the changes—also known as the “re-engineering”—of the business processes to make them more streamlined, efficient and more cost-effective.

Streamlined refers to the decrease in the number of steps—the “touch points” in today’s jargon—that a transaction takes as it winds its way through the system.

Efficient refers to the decrease in mistakes since the software does not miss a step in the transaction’s processing.

And more cost-effective refers to the reduction in the cost to process a transaction—from 20 to 3 cents, for example.

ERP implementation is a costly investment. For a mid-sized business (less than $500 million in revenues), it may even be the most costly expenditure of any kind. In return, ERP promises to create new competitive advantages to the company provided the implementation is done correctly.

It must not only be installed properly, it must be accompanied by the requisite business change in business processes, and, finally, be supported by senior management in order for the investment to deliver its benefits.

This is the promise of ERP fulfilled. The company’s competitive advantages will mainly come from the streamlined, efficient, and cost-effective business processes.