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Why Your Company Needs an ERP System

Guest post by: Marty Zigman

Article Overview: You may be familiar with an ERP system, but you may not know exactly how it will help your business. This article discusses the two main problems companies face without an ERP system, and how a company benefits by having one in place.

Why Your Company Needs an ERP System

Since discussing “what is ERP”, it is going to be useful to you to hear about some of the benefits of actually using an ERP system. Specifically, we’re going to discuss two main problems when your company does not have an ERP system, and how your company benefits from adopting one.

1. Too Many Competing Systems Leads to Fulfillment Breakdown

Let’s make the assumption that a company is not using an ERP system. Instead, they’re using separate systems to perform functions for ordering, accounting, inventory, purchasing, etc. Companies that use this type of model have disjointed practices. Essentially, their record keeping will be all over the place. This kind of practice looks as follows: you will have to enter an order on a separate system, then print the order, then use a different system to fulfill the order; then go to an accounting system, and then go to the inventory system to keep track of inventory. As you can see, the room for errors in this process is large. And what always happens is that there are errors and information between systems that gets out-of-sync which leads to breakdowns in reporting. Such errors as wrong quantities, wrong prices, missed orders, running out of stock, etc., are all commonplace without an ERP system. Did we say that a lot of time is wasted?

An ERP solves the disconnected record problem because, simply put, everything is intelligently working together. This means that from the order entry function, people can see if there’s an inventory in stock, then they can sequence the move to take the inventory out of stock and ship it. When shipment happens, the customer receives an invoice and accounting for sales to the general ledger is completed. No extra work required. This process occurs without double entry, and it minimizes the amount of mistakes that occur. Instead, there is one logical record for the transaction. When a business delivers right the first time, there is much greater customer satisfaction and more profit.

2. A Company Will Find it Difficult To Grow

The second main problem that occurs without an ERP system is that a company will find it difficult to grow. This occurs because a company will continue to add more people to their processes. While it is natural to add people to a growing business, a poorly organized business requires more people to perform low value activities such as double-entry, reconciling the differences between information in systems, and assembling data to assess what is happening to make decisions. All of this "keeping-it-all-together" action is done so you can trust what you are doing without making gross errors. As the company grows, have you ever heard the expression, "herding cats"? Without the low-value activities, you quickly get out of control.

A fundamental way to tackle larger problems is break them down into smaller units. As you have greater orders for your goods and services, the natural response is to divide the challenge into smaller, highly efficient actions or steps. With an ERP system in place, this capacity to divide work is a lot easier. When processes are fully integrated, you can continue start and stop action along a coordination continuum. While you do this, with good ERP systems and their implementation, you do not need extra people overhead for control systems because information is always real-time; not disjointed due to discrete islands of information that need ongoing care. The bottom line is more profitable.

Ultimately, an ERP system makes it easier to grow. Without these systems, you may grow – but at a slower pace, and at a lower profit margin. You can be sure that your competitors will adopt these superior systems and hence have better practices to make them more profitable and competitive. Be on the better side of that equation sooner and adopt an ERP to enjoy profitable growth.

Copyright © Marty Zigman 2011

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