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Home > Balance Sheets Checklists > Key Components of an Optimal Enterprise Resource Planning System

Balance Sheets Checklists

Key Components of an Optimal Enterprise Resource Planning System


Checklist Description

This checklist assesses the importance and the key components of optimal enterprise resource planning (ERP) systems and what to look out for when thinking of installing one.

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Definition

ERP computerized systems integrate a company’s entire business operation. Simply put, an ERP system binds together different computer systems for any large organization, with each department having its own system that communicates and shares information with the rest of the company’s systems. ERP integrates all key areas, including accounting, planning, purchasing, inventory, sales, marketing, PR, finance, human resources, and any other areas of importance to a company. Installing an ERP system enables a company to monitor and manage effectively the performance level of equipment, while simultaneously increasing uptime and increasing responsiveness, thus facilitating and fulfilling customer needs as well as streamlining company performance.

Although originally developed for large companies, ERP also benefits small and medium-sized companies and those involved in service rather than manufacturing, with ERP programmers creating a new generation of software that is easier to install, more manageable, and importantly, cheaper. The new systems are more modular, allowing installation to proceed gradually as a company evolves. ERP can also be outsourced, with the ERP manufacturer supplying the technology and the support staff required. This option has proved easier and cheaper than buying and implementing a whole system in-house. Hosted ERP or web-deployed ERP enables a company to run its ERP system through a web-hosted server and access it via the internet. This allows companies to reduce their IT investment in hardware and personnel.

ERP systems have also expanded through the evolution of technology to include new functions such as linking ERP to other software systems that affect the supply chain. This allows companies to view inventory and its status as it moves through the supply chain. ERP has also been adapted to support e-commerce by making order fulfillment and distribution easier and simplifying electronic procurement.

Computer security is included within an ERP to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement.

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Advantages

  • Deploying an ERP system can improve efficiency and reduce operational costs.

  • New levels of transaction visibility can be gained for all involved in a process.

  • Companies can make smarter business decisions, keep up to date with customer requirements, track inventory, implement and maintain industry best practices, and forecast product demand.

  • Complex computer applications can be replaced with a single, integrated system.

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Disadvantages

  • ERP systems require the installation of new technical support and training of staff, and they are expensive.

  • They desensitize operations procedures and rely on the whole system working.

  • Systems can be difficult to use or too restrictive.

  • The system may be overengineered relative to the actual needs of the customer, resulting in lack of personal service.

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Action Checklist

  • Evaluate all company needs carefully and create a list of business issues that the ERP system has to address.

  • Research potential ERP vendors by talking to other companies that have similar working requirements. Avoid choosing an ERP system vendor too quickly.

  • Check the user-friendliness of the system.

  • Ensure that you can customize the system to meet your requirements comprehensively.

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Dos and Don’ts

Do

  • Assess plenty of systems and see how they can work for your company.

  • Look at the needs of your company from every angle.

  • Check that your personnel are up to the task and, if not, check that you can employ the right personnel.

Don’t

  • Don’t sign up to an ERP without all the facts.

  • Don’t expect an ERP to run the business for you without your input.

  • Don’t be too ambitious and believe that the system will solve any ongoing problems with communication within your company.

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Further reading

Book:

  • Magal, Simha R., and Jeffrey Word. Integrated Business Processes with ERP Systems. Hoboken, NJ: Wiley, 2011.

Articles:

  • Scott, Judy E., and Lisa Kaindl. “Enhancing functionality in an enterprise software package.” Information and Management 37:3 (April 2000): 111–122. Online at: dx.doi.org/10.1016/S0378-7206(99)00040-3
  • Wailgum, Thomas. “ERP definition and solutions.” CIO (April 17, 2008). Online at: www.cio.com/article/40323
  • Wei, Chun-Chin, and Mao-Jiun J. Wang. “A comprehensive framework for selecting an ERP system.” International Journal of Project Management 22:2 (February 2004): 161–169. Online at: dx.doi.org/10.1016/S0263-7863(02)00064-9

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