Earlier than ERP, the software used was ERM ( Enterprise resource management). In the earlier software, only accounting, HR, and material management modules were covered. But, in ERP applications are combined with ERM software. Also, MRP ( Material Requirements Planning) was used earlier to keep the right inventories on track.
Let us know to understand why and how ERP replaced our traditional business processes.
In our traditional business processes, if a customer approaches the sales department to buy a product. If the sales department doesn’t have the product, then it will send that information to the inventory department. And if the inventory department doesn’t have the information, then the sales department sends information to the production department. The production department takes the details or raw materials information from inventory. If the production department does not have the raw material to make the product, it will share the information with the finance department for the money required to make the product. And the finance department then works with the supplier to get the raw material. The supplier sends the raw material; the production department starts manufacturing; the sales department sells it and sends the revenue details to the finance department.
So, the whole traditional process is very time-consuming as the information is not available at a single platform. Only when a shortage comes of a product, then the information is shared with other departments. Major problems with the traditional approach were:
1. Risk of duplication of data.
2. Time and money consuming process.
3. Reduced customer satisfaction.
4. High Inventory and material cost.
Fig. 2.1 Traditional Business Process
ERP software removed all these issues by centralizing the system. It is a modern business process in which all the departments, such as inventory, sales, finance, HR, shop floor execution, product planning, supplier, are centralized and share data with each other. If a customer wants to buy a product, then the sales department will have all the information about the production department and inventory department. In the mainframe computer, we will have all the processes linked to each other using ERP. Similarly, finance information has access to raw material and suppliers' information. In case there is any kind of shortage of raw material, then the finance department can take care of it, and if the shortage of employees is happening, the HR department can keep a check on it.
Fig. 2.2 Modern ERP Business Process
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