Importance of ERP (Enterprise Resource Planning) in Organizations

Enterprise Resource Planning (ERP) system is one type of system that exists in an organization to integrate data to support all the main functions of the organization. ERP system can also be interpreted as a comprehensive software or application that supports the main functional areas in the organization. ERP is used to standardize, simplify and integrate business activities such as finance, marketing, customer service, human resources, distribution, procurement and other parts.

ERP Purpose

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The purpose of ERP is to change the flow of information to be dynamic and direct so as to increase the usefulness and value of information. In addition, the ERP system serves as a central storage that is able to eliminate redundancy and increase flexibility. The reasons organizations implement ERP systems are to fulfill the need to improve supply chain efficiency, improve access and customer service to obtain products, reduce operating costs, respond quickly to changes in the marketplace and extract business intelligence from data.

Another goal of an ERP system is to integrate parts/divisions and functions across all lines of the organization into a single infrastructure that serves the needs of each section/division. To integrate this ERP system is not an easy thing, one of the reasons is the very different needs in each section/division. For example, production employees have very different information needs than finance employees. Each section/division in the organization has its own computer equipment that can be optimized to complete its work.

With the ERP system, the data contained in the computers of each section/division are combined or integrated into one database, so that all sections/divisions can share information and communicate with each other more easily.

Why do organizations need to implement an ERP System?

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Importance of Implementing ERP

Why do organizations need to invest heavily in ERP systems?

The following will describe some of the reasons it is important to implement an ERP system in an organization.

Integrating Financial Information

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Without an ERP system, it causes staff dependence on separate systems in each section/division. In addition, staff also spend time reconciling financial data. Staff will never think of ways to improve the company. With an integrated system, of course, it will make it easier for financial staff to present financial data and information needed by all sections/divisions and management.

Managing Orders and Inventory

With the ERP system, employees will find it easier and faster to reconcile financial data. So that employees not only focus and spend time on reconciling financial data, but can contribute their ideas and ideas on how to improve the company.

Manage and Analyze Customers

The majority of ERP systems provide modules for managing and analyzing customers that function to track all customer activities and are able to provide information about orders, deliveries, returns, distributions, service requests and so on. With the ERP system, organizations are able to analyze customer behavior and needs.

Standardize and Accelerate Production Process

ERP systems are able to standardize and automate production processes in a manufacturing company. With this standardization, it can save time, increase productivity and reduce costs.

Managing Human Resources

ERP system, able to present detailed information about employees, manage salaries, monitor attendance, and so on. There are still some organizations that have difficulty managing their staffing needs, distributing salaries and incentives, or finding out the track record of staff working hours. Such cases usually occur in organizations that have many sections/divisions.

Handling Procurement

ERP systems handle procurement for organizations to automate purchases, control the cost of purchasing goods and so on. Without an integrated system, organizations will experience difficulties in managing purchases of goods and communicating with vendors.

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With the ERP system, you are able to make various types of financial reports, taxes, sales and others in a faster time. The ERP system is also capable of producing accurate and complete financial reports to assist stakeholders and management in making business decisions.

ERP Evolution

The evolution of ERP started in 1960 and 1970, most organizations designed Silo systems for their parts/divisions. Where the Silo system is a method used by organizations to form groups or divide functions into smaller units by assigning a group of staff to experts in a particular field. This was done because organizations became larger and more complex in order to make it easier for organizations to meet their information needs. The evolution of ERP in detail can be seen in the following table:

1960Inventory Management and ControlThird generation of Mainframe Legacy (example: Cobol, Fortran)ERP is designed to manage and track raw materials and manage control plans on purchase orders, alerts and targets. At this time, ERP focused on efficiency. The system is able to make inventory reports
1970Material Requirements Planning (MRP)Third generation of Mainframe Legacy (example: Cobol, Fortran)Focus on sales and marketing. This system is designed to help the company’s scheduling process. MRP manages schedules for production planning, operations control and inventory management.
1980Manufacturing Requirements Planning (MRP II)Fourth generation database software from Mainframe Legacy and Manufacturing ApplicationIn this era, SRP focuses on manufacturing strategy and quality control. This system is designed and developed to assist the production supply chain process, starting from product planning, parts purchasing, inventory control and overhead cost management.
1990Enterprise Resource Planning (ERP)The fourth generation of database software from Mainframe or Client Server and Application Software to support organizational functionsFocusing on application integration and customer service. This system is designed and developed to improve the performance of internal business processes in the supply chain in an organization. This system is able to integrate business in primary processes such as product planning, purchasing, logistics control, distribution, fulfillment and sales. ERP is also able to integrate secondary activities within the organization, such as marketing, finance, accounting and human resources.
2000Extended ERP or ERP IIClient Server using a Web Platform, open source and integrated with fifth generation applications from SCM, CRM, SFA. Available on Software as a Service (Saas)Focusing on agility and customer centric global environment. This system is a development of the first generation ERP. The system in this generation integrates with external business modules, such as Supply Chain Management (SCM), Customer Relationship Management (CRM), Sales Force Automation (SFA), Advanced Planning and Scheduling (APS).