Question

What does enterprise resource planning (ERP) allow an organization to do?

Answer 1

ERP (enterprise resource planning) is the software which helps in managing and connecting different department, processes or operations both internally and externally into a single computer which can give advantage to all the departments in a long run. The ERP system work efficiently by removing the errors made by human, eliminate the unnecessary cost etc.

There are three tiers that describes the ERP market. They are: -

• Tier 1 ERP
• Tier 2 ERP
• Tier 3 ERP

The differences between tier 1, tier 2 and tier 3 that describes the ERP market are: -

• Tier 1 ERP are designed for large global enterprise, tier 2 for mid-market business and tier 3 for smaller-than-medium businesses.
• Tier 1 ERP has better scalability as compared to tier 2 and tier 3.
• In terms of functionality, tier 1 is superior as compared to tier 2 and tier 3.
• Tier 1 software are more costly than tier 2 and tier 2 is more costly than tier 3.
• The vendor of tier 1 solution provides global service, the vendors of tier 2 solution provide national or regional service and vendors of tier 3 solution provide local service within one country.
• Tier 1 solutions are more complex than tier 2 and tier 2 solutions are more complex than tier 3 solutions.

The primary users of ERP system are: -

• Accounting - ERP helps the account department to find out who needs to pay how much.
• Finance - ERP provide information to finance department about how they can use finance activities of their company.
• Logistics - ERP helps in providing information about the location of goods
• Production - ERP helps in providing information to all the department about the quantity of goods produced and the cost.

EDI (electronic data interchange) is the technology which helps in transferring information electronically both internally and externally. Therefore maintaining a hard copy files for information is not necessary with the development and installation of this technology in the organizations. The combined use of EDI and ERP facilitate the development of an integrated value chain by: -

• Streamlining the business processes which resulted in the development of integrated value chain.
• With the installation of EDI technology, the quality information interchange takes place in less time.
• Communication- ERP system use EDI technology to provide effective communication with business or between businesses.
• Reduction in administrative cost- As EDI is the technology which has replaced the communication done by telephone and fax to electronically transferring information which has resulted in the reduction of administrative cost. Hence integration of EDI technology into the ERP system helps the company to eliminate the unnecessary cost.
• Information gathering is done directly from the source rather than one department taking information from other department.
• This will help in eliminating the files and invoice of all the administrative work.
• Suppliers can keep a track of all the parameters related to order for the buyers.
• Orders are processed faster.
• Ordered placed and received are captured automatically.

Due to development of integrated value chain, it helped the organization to provide good customer service efficiently and effectively.