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The Incomplete List of Enterprise Resource Planning (ERP) Benefits & Advantages

12/5/17 10:42 AM


Why not a complete list?

There is no doubt ERP can bring many benefits to a company. I’ve used ERP to bring benefits to companies I’ve managed; I’ve helped many other companies implement ERP with great results. My experience tells me creating a complete list of ERP benefits & features would be impossible. To understand why it is impossible, let me lay a list of the high level problems companies without an integrated ERP face, along with how ERP addresses these issues, leading to the benefits & advantages of ERP. Then I’ll explain why a complete list is impossible.

You can eliminate multiple systems and data sources.

I hear over and over from people looking for a new ERP system that they have outgrown their current system. What they really mean is they have outgrown their systems (plural). They are running their organization using multiple systems that are “integrated” by having meetings, developing spreadsheets, and by hoping everyone remembers to do everything correctly.

As new problems arise, solutions to each problem are developed. This may involve a checklist, more spreadsheets, maybe an Access database or even purchased software to address a specific issue. Next thing you know, there are so many different procedures, checklists, and spreadsheets that no task is easy to complete. As the company grows, the need for more administrative staff grows. Somehow though, problems that were already “solved” keep popping up. Finally, someone in the organization reaches a point of clarity and says, “There has to be a better way.”

There is a better way: Purchase and implement one integrated ERP system that handles everything from quotes to cash. This results in one source for data; it also results in more information for users and executives and fewer meetings and spreadsheets.

There is no magic here. ERP alone does not solve every issue. Trained users of the ERP following proven procedures will bring about the desired results. Does this require work? Of course it does; but it’s work that pays dividends. It’s addressing the root cause of problems brought on by having a patchwork of solutions.

You can eliminate repetitive data entry.

An environment with multiple non-integrated systems and data sources has a close relative: repetitive data entry. The amount of repetitive data entry that goes on in this environment is probably more than you think.

For example, let’s say a manufacturing organization has an accounting system and a separate production system. A customer order is entered in the accounting system. To build what the customer wants, the same order has to be entered in the production system along with the customer information. Materials need to be used to build that order. These part numbers need to be entered in the production system for the bill of material, and they need to be entered into the accounting system so purchase orders for the materials can be created. The purchase orders are created and the materials come in. The accounting system can keep track of the inventory; but then material is used for a production order, and the accounting system has no idea what a production order is. The production system needs to be told which material requirements were satisfied, and that amount of inventory needs to be adjusted out of the accounting system.

That’s a lot of repetitive data entry—and the list still isn’t complete. There are many production orders with different due dates and different levels of progress. How does the company keep track of it all? Spreadsheets and meetings, of course! Chances are the list of orders and due dates for the meetings are produced from either the accounting or the production system, but the notes that arise out of the meeting are handwritten.

I could go on, but hopefully you get the point. The lack of integration causes gaps in information that a human has to fill with time and labor. Even if some of these steps were streamlined by exporting and importing data, the number and required order of steps make the process unstable and prone to errors.

You can improve performance by reducing guessing.

A major consequence of multiple non-integrated systems is that employees fill the information gap with guesses. They don’t guess because they are lazy; they guess because getting good data is too time consuming. In the accounting system/production system example from the previous section, no company does all the things needed to keep the data in both systems clean and in sync. It’s too difficult, so they come up with shortcuts to get by. These shortcuts leave gaps; those gaps are filled with guesses. Here are some examples of reasonable business questions that I’ve seen answered by guesses, not facts:

  • When is that order scheduled to be completed?
  • What product line has the highest gross profit?
  • What were the costs on a specific work order?
  • What and when are the projected material shortages?

The slippery slope of guessing is at some point a company can become comfortable with guesses over facts. If that happens, it’s not a long stretch before people start believing the guesses are facts.

I’ll take an educated guess over no answer any day, but a company should strive to make decisions based on facts. One of the benefits of ERP is that it can answer all of the questions above—no guesswork involved.

You can communicate more and talk less.

A benefit of an integrated ERP system is the easy flow of data to all the departments that need it. Customer demand creates work orders. Work orders create demand for raw materials and capacity. Materials are issued to work orders; labor is reported against work orders developing a real-time work in progress (WIP) value. Shipments are made against customer orders, invoices are made against shipments.

The information flows not through conversations, but through the system. It works when users follow a defined procedure that assures the proper information is available for downstream departments. You should still talk, but the conversations can begin with possible solutions to known problems as opposed to uncovering problems. (The latter being basically every production meeting I’ve ever been to or conducted.)

You can better predict what materials are needed when.

I am always amazed how material managers at companies that don’t have an integrated ERP system make sure the materials are there when production needs them. What they do with the incomplete information they get seems like an impossible task; but I see it played out over and over again. Can that many companies have the perfect person in that role? Can that many companies be that lucky?

Of course they all aren’t that lucky. Upon closer examination, some trends emerge about the people in that role and what they do. First, the person has usually been at the company or in the industry for many years and are good at educated guesses. Second, they also tend to follow a simple rule for materials acquisition: When in doubt, buy it. They are filling the information gap with guesses and inventory. In other words, they are using the two tools they have. Good for them; but giving that person better tools will yield better results.

The benefit of ERP is that it provides material managers with data to execute against. They can buy—and not buy—with confidence and inventory levels will drop. Material Resource Planning (MRP) will organize all the material requirements, compare those requirements to inventory and projected inventory, and suggest what to buy and when to buy based on order policies.

MRP is based on simple math. It not only works, it works well. And when it doesn’t, it’s not the fault of the MRP; it’s more likely the fault of an untrained user. If an 11-year-old drives a car and gets in an accident, no one would blame the car.

You can manage capacity.

As bad as material managers have it, no one has it worse than schedulers. As a general rule, they get virtually no data beyond what orders are due when, but they are still responsible for making sure everything gets out on time. In addition, when sales needs an answer as to whether something can ship sooner, they ask the scheduler.

This poor person has one tool and one tool only: an educated guess. That’s why schedulers are usually longtime employees who know the manufacturing industry very well. They've “seen it all” and can predict better than anyone else what will or won’t happen.

Schedulers will absolutely benefit from the data an ERP brings, but the entire organization benefits as well. Every order on the shop floor represents a promise made to a customer. The question for every new order is: Can your organization fulfill the order by the customer’s request date, without jeopardizing the promises already made. Companies that manage their capacity through an ERP can get a best date available from the ERP at the time of order entry. A promise is made based on data. The scheduler’s job is then to execute the schedule and react to any roadblocks that arise. This is no easy task, but executing a realistic schedule is better than trying to execute a schedule that is impossible to follow.

Why this list is incomplete…

Creating an environment where data replaces guesses opens up doors beyond the obvious ones I mentioned above.  How well an organization replaces guesses with facts has a direct impact on the benefits that organization will achieve as a result. An organization like Visual South can guide companies through the process of implementation and training to get the most from an ERP system; we have been doing this successfully for over 20 years. We can’t do it alone, though. An organization’s commitment to replacing guesses with facts is directly related to the results they see.

Related: It’s Not a Solution Until It’s Implemented

Here's the other thing to consider when thinking about the benefits of ERP. We’ve seen employees use the data to streamline processes that weren’t even considered broken. Create the right environment to foster the creativity of your employees and the list of benefits will grow year after year.

If you want to know more about how to get the most out of an ERP system, I recommend my eBook, ClearFocus, 6 Steps to Successfully Implement ERP.

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Topics: ERP research

Jack Shannon

Written by Jack Shannon

Jack is the President of Visual South and has been working with ERP since 1996 when he bought it in his role as a Plant Manager. Since 1998 he has worked for Visual South with roles in consulting, sales and executive management.