ERP systems are the business management software tools used to manage enterprise data. They allow businesses to automate and integrate processes across the organization - from sales and marketing, accounting, supply chain, and order management to production, human resources, and customer service functions. The web-enabled, real-time operational data that ERP systems provide enable managers to make better decisions and improve responsiveness to customer needs.
These systems are a major investment; middle market organizations can spend anywhere from tens of thousands to several million dollars on new ERP software and related services. But there are a number of reasons that investment is justified. ERP systems can:
- Replace legacy non-supported systems. ERP systems eliminate legacy systems that maintain incompatible data and cause fragmentations. Integrated systems provide shared information across the organization, and this information can be displayed in user-friendly ways such as business dashboards to continuously monitor business performance.
- Drastically improve key business processes. Business process improvements are major drivers for ERP initiatives. For instance, increased efficiency in sales leads to the ability to provide lower quotes, reduced lead times, and improve overall responsiveness to customer needs. In manufacturing, concurrent engineering means faster product design and production. In service, data on customer service histories and parts under warranty are available to expedite customer problem resolution and show accurate charges. ERP systems also provide a tight linkage between sales and support functions, helping to improve customer service capabilities.
- Reduce operational cycle times (i.e. increase agility) and costs (i.e. improve profitability). In accounting and finance, properly selected and implemented ERP systems enable more accurate and timely processing of accounts payable and receivable transactions, resulting in improved cash flows, decreased financial close cycles, and enhanced financial management and reporting practices. In HR, ERP systems enable an integrated view of an organization's human capital resources and capabilities to various operational functions.
ERP systems do pose a few challenges, however. Beyond the initial significant financial resources required, perhaps the greatest challenge lies in successfully changing the organization's culture and business processes to take maximum advantage of the system's capabilities. ERP systems impose an "integrated systems" approach by establishing a common set of applications supporting business operations. Achieving maximum business value from the system will heavily depend on the organization's ability to break down the silos and ensure key processes are re-engineered throughout the organization.
Recent advances have created exciting opportunities for middle market organizations to take advantage of powerful ERP system capabilities. Proper selection and a thoughtful, well-managed implementation are key to getting maximum value out of the investment.
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