One of the common quick fix solutions I hear from business owners of small to medium sized entities is to get an ERP installed and it will fix their broken and in some cases, non-existing systems. Their expectation from the technology is that it will bring in the required discipline besides implementing readymade systems. Unfortunately a software is as disciplined as the humans who drive it. In real life, it is common to see people develop work arounds or defeat the systems. For example in one case, salesmen would put a dummy entries with negative value in sales orders when they were close to exhaustion instead of repeating the whole process of creating a new sales order. It is also equally common to see shared passwords, especially in accounts where access to certain data cannot be provided to temporary resources. The most interesting was a case where a person would only make summary entries in ERP and maintain elaborate segment wise books of accounts in Excel.
Enterprise Resource Planning (ERP) started as a material planning software that helped managers in getting real time information in different functional areas such as inventories of raw material, finished goods and work in progress in different stages of production etc. Soon ERPs went beyond database management and integrated key processes such as procurement to payment, order to cash and thereby reducing errors and improving efficiencies.
Different companies have different workflows and business rules depending on how they evolved and developed. A good ERP is flexible enough to accommodate different workflows and procedures. But unfortunately, it also makes such ERPs more complex and expensive. One risk of changing existing systems to suit ERP or utilize specified workflows in ERP is that it may result in loss of competitive advantage. There would also be additional cost of learning a new way of working. A corollary is that ERPs do not help in designing of systems, yes they can offer options that a company can choose provided the implementation agency has the patience to educate.
Before a company goes in for ERP, it would help if it documents its systems. That is, it should have defined workflows, practices, controls such as authorization levels for reviews and approvals. This would not only smoothen the process of implementation but also reduce the number of conversations that end in frustration for both the customer and for the ERP implementing agency. One of the biggest frustration for implementers is reconciling different versions of same process from different stakeholders and verifying that they got it correct.
The key thing that a company has to focus on is how to remove redundancies and avoid duplication of documentation in cross functional processes. For example, in most companies, invoices of vendors are still received in procurement. Procurement department reviews them and then forwards a copy to accounts for payment. Both departments end up storing a copy. A good control will be that invoices are received directly by accounts. Accounts conducts three way match, ideally four way if hard copies are also included, and raises queries, if any. Something similar happens on sales sides, where sales invoices are reviewed by Sales department and then forwarded to the customers. It also generates twice the amount of paper copies.
Business men may want to implement ERPs in their companies for the efficiencies and better controls the software would bring in while equally mindful of the risks of unauthorised practices. ERPs bring in its own set of discipline like respecting access roles and authorisations. It would work better for companies to formulate a cross functional team for implementation of ERPs. The team would document the existing systems, research and work with implementer in configuring so as to minimise customisation.
To recapitulate. Implementing ERP would standardise workflows, improve quality of data, quality of reports, efficiency and collaboration but not checks and balances.
If you are evaluating ERPs, Best of luck.