What is SAP? Why do we need ERP? Beginner Tutorial

What is SAP? Why do we need ERP? Beginner Tutorial

September 1, 2019 100 By Stanley Isaacs


The very basic [question] is why Enterprise resource planning? Also called erp is required to answer let’s examine this typical business scenario A client approaches the sales Team to buy a particular product The sales team approaches the inventory Department to Check the availability of the product in this case the product is out of stock the sales team approaches the production planning Department to manufacture the product the production planning team checks with the inventory department for availability of raw material If raw material is not available within the inventory the production planning team buys the raw material from the vendors Then production planning forwards the raw materials to the shop floor execution for actual production Once ready the [shop] floor team forwards the goods to the sales team who in turn deliver it to the client the sales Team updates the finance Department with revenue generated [by] the sale of the product The production planning team updates the finance department with payments to be made to different vendors for raw materials All departments approach Hr. For any human resource related issue That is the typical business process of any manufacturing company some key inferences one could derive from the scenario would be a Typical Enterprise has many departments or business units These departments or business units continuously communicate and exchange data with each other the success of any organization lies in its effective communication and Data exchange Within these departments as well as associated third parties such as vendors outsources and customers Based on the Manners in Which communication and Data exchange is managed Enterprise software systems can be broadly classified as decentralized systems Or centralized systems which are also called [erp], let’s look at decentralized systems first in a company with a decentralized system of Data Management data Is maintained locally at the individual departments? Departments do not have access to information or data of other departments to identify the problems arising from Decentralized Enterprise management systems let’s look at the same business process again the customer approaches the sales team for a product But this time he needs the product on an urgent basis The sales team do not have real-time information access to the products inventory So they approach the inventory Department to check the availability [of] the product This process takes time and the customer chooses another vendor leading to loss of Revenue and customer dissatisfaction Now suppose the product is out of stock and the sales team approaches the production planning team to manufacture the product for future use The production planning team checks the availability of the raw materials required Raw Material information is separately stored by production planning as well as the inventory department Thus data maintenance cost goes up a particular raw material Required to manufacture the product is available in the inventory but according to the database of [the] production planning team the raw material is out of stock, so They go ahead and buy the raw material Thus material as well as inventory costs go up Once the raw material is available the shop floor department suddenly realizes. They are short of workers They approach the hr. Who in turn hire temporary employees and higher than market rates thus labor cost increases The production planning department fails to update the Finance Department on the materials they have purchased the Finance Department Defaults the payment deadline set by the vendor causing the company loss of its reputation and even inventing a possible legal action These are just a few of the many problems with decentralized systems Some major problems with the decentralized system are Numerous disparate information systems that are developed individually over time and are difficult to maintain Integrating the Data is time and money consuming inconsistencies and duplication of data lack of timely information leads to customer dissatisfaction loss of revenue and reputation High inventory Material and human resource costs These are just some of the major drawbacks [for] which we need a solution Well the solution lies in Centralized systems that is e rp in a company with a centralized system of information and Data Management data Is maintained at a central location and is shared with various departments? Departments have access to information or data of other departments Let’s look at the same business process again to understand how a centralized enterprise system helps overcome problems posed by a decentralized Enterprise system In this case all departments update a central information system When a customer approaches the sales team to buy a product on an urgent basis the sales team has real-time information access to the products in inventory Which is updated by the inventory department in the centralized system? The sales team responds on time leading to increased revenue and customer delight In case manufacturing is required the sales team updates the centralized database Production planning Department is auto updated by the centralized database for requirements The production planning team checks the availability of the raw materials required Via central database Which is updated by the inventory department? Thus data duplication is avoided and accurate Data is made available The shop floor team updates their manpower status regularly in the central database which can be accessed by the Hr. Department In case of a shortage of Workforce the Hr Team starts recruitment process with considerable lead time to hire a suitable candidate at market price thus labor costs go down Vendors can directly submit their invoices to the centralized Enterprise system Which can be accessed by the finance department? Thus payments are made on time and possible legal actions are avoided The key benefits of the centralized system are it eliminates the duplication? Discontinuity and Redundancy in Data it provides information across departments in real time it Provides control over various business processes it increases productivity provides better inventory Management promotes quality reduces material cost allows for effective human resources management and reduces overhead while boosting profits better customer interaction increased throughput and Improved customer service Hence a centralized Enterprise management system is required Si p is a centralized enterprise management system also known as Enterprise resource planning