ERP can help boost business efficiency

By Zatni Arbi

JAKARTA (JP): You are the CEO of a very large company. Your annual sales topped US$2 billion last year. You have invested millions of dollars in computers and network infrastructure. You have trained all your employees to use the latest software.

So how come you have not seen the productivity boost you expected from such a huge investment?

How come there are so many complaints from your customers because they did not receive the shipment of their orders by the date promised by your sales department? Why can't you pinpoint the source of the delay in the production, as one division keeps pointing their fingers at other divisions over the delay?

Why can't you cut down on waste in the production chain and operations? Why are inventories of finished products in the warehouses so huge and yet customers still have to wait a long time for deliveries?

In short, why does it seem you are losing control of your company?

The answer is that you need a software system that integrates all the processes in your organization. Over the years it has become clear that computerization alone is not enough to streamline operations and turn an organization into a competitive beast. Your accounting department may be using the latest computer-based general ledger. Your production lines are perhaps already fully computer operated, with robots doing most of the jobs. Your staff talks to one another with e-mail through your Intranet. Your purchasing department orders supplies through the Extranet and your suppliers confirm orders through the same route.

Your sales department receives orders through the Internet. However, as long as what you have is a number of "islands of automation", you will not be seeing the magnitude of productivity boost that you would like to have as the result of the painful and expensive automation exercise.

Enter ERP, or Enterprise Resource Planning. In a nutshell, it is a collection of seamlessly knitted software programs that enable all your islands not only to talk to each other but also to coordinate operation, thereby maximizing efficiency.

Chain reaction

There is a short list of vendors that provides ERP solutions to companies all over the world. Industry analysts sometimes call their products "enterprise applications", although the vendors themselves may not use this term or even "ERP" itself.

Nonetheless, the five biggest ERP vendors are said to be SAP, Oracle, Baan, Peoplesoft, and JD Edwards. The German-based software house SAP is by far the biggest of all. Its product, R/3, which was first introduced in 1992, is reportedly used by half of the largest 500 companies in the world.

An article in the Nov. 3, 1997, issue of Business Week provides an excellent example of how this enterprise application system works: A salesperson in the field uses his notebook to log on his company's R/3 system and check the latest price of the product that his customer wants to purchase.

At the same time, he checks the discount that he can offer to this customer because he is buying 1,000 units. Then, if the customer agrees with the price, an order of the product is placed. This will trigger a chain of events. As the order is being recorded, product availability is checked in order to determine delivery dates.

Perhaps a portion of the order can be delivered immediately from other parts of the world where the company also has production plants while the rest will have to be produced first.

Then the R/3 manufacturing module will instruct the warehouses that have the inventory to start shipping the products to the customers. It will also schedule the production of the rest of the order. In order to meet the promised delivery date, perhaps additional manpower will be needed. The human resource module will then alert the personnel manager that an X number of temporary workers will be required in the factory.

For production, fresh supplies of parts may be necessary. The materials planning module will then alert the purchasing manager that he needs to reorder these parts from respective suppliers.

In the meantime, the customer can also log on the company's R/3 to track the progress of his order. He can then make plans for the promotion of the incoming product in his local stores in time. He can even place another order if he wants to. Everything is streamlined, transparent and efficient.

An ERP, as Dataquest aptly puts it, "is an enterprise-wide management system". It helps managers plan the four Ms -- Man, Money, Materials and Machines -- to obtain their highest "synergistic value". It helps them meet deadlines, reduce waste, cut down on other costs, ensure just-in-time delivery from their suppliers, etc.

Needless to say, the key to an ERP's success is flexibility. Because they are mostly written in object-oriented language, the packages can be customized to suit the need of individual organizations. SAP's R/3, for example, is used by Intel Corp. and Microsoft, each with different operations and requirements.

In a perfect world, everybody would welcome a boost in a company's efficiency, which will definitely bring about higher competitiveness and profits. However, just as there are people who are not happy with the reform that has started to take place in Indonesia, there will be people who resist changes that will be caused by implementation of an ERP system.

However, when implemented correctly and successfully, an ERP such as SAP's R/3 can totally transform an organization into a money-making machine. As SAP correctly says it on its Web site, "It's more than software. It's a strategic solution". It is not surprising ERP is becoming an absolutely necessary investment to make for today's companies.