Installing an ERP system has many advantages - both direct and indirect. The direct advantages include improved efficiency, information integration for better decision making, faster response time to customer queries etc. The indirect benefits include better cQrporate image, improved customer goodwill, customer satisfaction, and so on. In this chapter we will see some of the benefits of the ERP systems. They are:
. Reduction of lead-time
. On time shipment
. Reduction in cycle time
. Better customer satisfaction
. Improved supplier performance
. Increased flexibility
. Reduction in quality cost
. Improved resource utility
. Improved information accuracy and decision making capability.
Reduction of lead-time
The elapsed time between placing an order and receiving it is known as the lead¬time. It plays a significant role in purchasing and inventory control. Most purchasing departments urge the managers to anticipate material demands well ahead of actual need. All inventory system have safety mechanisms like safety stock, re-order level and so on built into them, to avoid the situation were the material is out of stock. The consequences non availability of an item that is required for production can result in a lot of problems like missing the delivery schedules, losing the customer goodwill due to delayed delivery or even losing the customer to the competition. One can avoid this situation by requesting for the materials well in advance rather than when they are actually needed (early request), or by keeping a large buffer stock, or by maintaining very high re-order level. But, all these means that larger inventories must be kept which blocks the money. Also, the practical consequences of allowing longer times for delivery seems to be that the present lead-times just grow to take up whatever slack alone. Perhaps, this is due to the 'squeaky wheel principle buyers who expect the shortest lead-time complaint the loudest when the deliveries are late and thereby receive the most attention from the suppliers. So the Company should find out the minimum lead-time and should attempt to correct supplier's delivery delays instead of automatically increasing existing lead-times.
In order to reduce the lead-time, the organization should have an efficient inventory management system, which is integrated with the purchasing, production planning and production departments. In this era of just-in-time manufacturing, the knowledge of the exact lead-times for each and every item is of paramount importance for uninterrupted production. For a company dealing with hundreds and thousands of raw materials and components, keeping track of the lead times for each and every individual item manually, is practically an impossible task.
The ERP systems help in automating this task and thus, make the inventory management more efficient and effective. Also since the ERP system is integrated and the materials management module is integrated with other modules like sales, marketing, purchasing, manufacturing and production planning, the demand for a particular item can be known as early as an order is
received. For example, consider that an order is received for supplying, say, hundred cars with air conditioners as soon as the order details are entered into the system, a lot of actions are iriggered. The system will check whether the items are available in the finished goods inventory. Then it will generate a Bill of Materials for the order and will check whether all the items are available in the inventory. Since all the records are kept in the system's database and since every thing is up-to-date, finding out the parts that are to be ordered takes no time (a task which could have taken days in the case of a manual or non integrated system). Once the items that are to be manufactured are identified, and once the production planing system prepares a production plan, the material
On time shipment
Today, companies m~st be able to deliver customer-specific products (made-to¬order) with the lead-time of standard, off-the-shelf products. The companies must be able to change the mode of production from make-to-stock to make-ta-order, yet retain the cost and time advantages of off-the-shelf products. Today, the ERP systems provide the freedom to change manufacturing and planning methods as needs change, without modifying or reconfiguring the work place or plant layouts. With ERP systems, businesses are not limited to a single manufacturing method, such as make-to-stock or make-to-order. Instead, many manufacturing and
planning methods can be combined within the same operation, with unlimited flexibility to choose the best method - or combination of methods - for each product at each stage throughout its life cycle.
Reduction in Cycle Time
Cycle time is the time between receipt of the order andJdelivery of the product. At one end of the manufacturing spectrum is the make-fa-order operation, where the cycle time and cost of production are high. This is because in a make-to¬order situation the manufacturer starts making the product or designing the product only after receiving the order. He will procure the materials and components required for production only after getting the order. On the other end of the manufacturing operations is the make to sfbck approach, where the products are manufactured and kept in the finished goods inventory before the order is placed. '
In both cases the cycle time can be reduced by the ERP systems, but the reduction will be more in the case of make-to-order systems. In the case of make-to-stock, the items are already manufactured and kept in warehouses or with distributors for the sales. Here, the cycle time is' reduced not in the shop floor, but during the order fulfillment. In the earlier days, even for the made-to stock items, the cycle used to be high. This was because the process was
manual and if computerized, not integrated. Suppose a customer places an order. The order entry clerk has to check whether the' order is available in the warehouse nearest to the customer. If it is not availaele there, he will have to check whether it is available in any other warehouse or with any of the distributors. Then he will have to process the order, inform the concerned warehouse or distributor to ship the item, inform the finance department to raise the invoice, and S9 on. All this used to take a lot of time-few days or sometimes even weeks.
Improved Resource Utilization
As manufacturing processs become more sophisticated and as the philosophies of elimination of waste and constraint management achieve broader acceptance, manufacturers place increased emphasis upon planning and controlling capacity. The creation of an accLJrate, achievable production schedule requires the availability of both materi~1 and capacity. It is useless, and indeed wasteful, to have financial resources. tied up in material, if the capacity is insufficient or improperly planned. Wave not only raises costs, it also affects customer service levels and customer goodwill.
Improved Supplier Performance
The quality of the raw materials or components and the capability of the vendor to deliver them on time, are of critical importance for the success of any organization. So, an organization needs to choose its ,suppliers or vendors very carefully and monitor their activities closely, so that the problems can be corrected before it can disrupt the functioning of the qompany. To realize these benefits, corporations rely heavily on supplier management and control system to help plan, manage and control the complex proces~es associated with global supplier partnerships.
The ERP systems provide vendor management and procurement support tools designed to coordinate all aspects of the procurement process. They support the organization in its efforts to effectively negotiate, monitor and control procurement costs schedules while assuring superior product quality. The supplier management and control processes or comprised of features that will help the organization in managing the supplier relations, monitoring the vendor activities and managing the supplier quality.
Increased Flexibility
Because competition is growing, the companies must learn to respond more rapidly to customers' wishes as well as changes in the market. They will need to design new products are redesign old products quickly'and efficiently. Only then will companies have the chance to capitalize on opportunities while they are available. The window of opportunity is often quite small. The manufacturing process must be flexible enough to accommodate new product designs with minimal disruption or time loss.
Flexibility is a key issue in the formulation of strategic plans in companies. Some times flexibility means quickly changing something that is being done, or completely to changing to a.djust to new product designs. At other times flexibility is the ability to produce in small quantities in order to produce a product mix that may better approximate actual demands and reduce work-in-progress inventories.
Reduced Quality Costs
Quality is defined in many different ways - excellence, conformance to specifications, fitness for use, value for the price, and so on. Whereas manufacturing and design engineers are typically responsible for some of the technological issues in the quality assurance for products, operations managers often conduct the analysis of quality-related costs, which is an important task.
Strategic opportunities, or threats, frequently motivate the launch of aggressive quality management initiatives. Analyzing the cost of quality can provide the financial justification for implementing them. Typically, the quality costs are in the range of 20% of the cost of goods sold. Carefully planning quality improvement activities not only improves quality, but lowers quality-related costs.
Improved Information Accuracy and Decision making Capability
To survive, thrive and beat the competition in today's brutally competitive world, one has to manage the future. Managing the future means managing the information. In order to manage the information, in order to deliver high quality information to the decision makers at the right time, in order to automate the process of data collection, collation and refinement, organizations have to make Information Technology (IT) an ally, harness its full potential and use it in the best way possible.
We have seen that in today's competitive business environment, the key resource of every organization is information. If the organization does not have an efficient and effective. mechanism that enables it to give the decision makers the right information at the right time, then the chances of that organization succeeding in the next millennium are very remote. |
