ERP can help boost business efficiency

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.