Importance of Centralized Enterprise Resource Planning

Enterprise Resource Planning (ERP) is essential for efficient communication, data exchange, and centralized information sharing across various business departments.

### Importance of Enterprise Resource Planning (ERP) Systems in Business
* 🔄 In a typical manufacturing business scenario, various departments need to **communicate and exchange data** for smooth operations.
* 🏢 Decentralized enterprise management systems lead to problems such as **lack of real-time data access**, **high costs**, and **customer dissatisfaction**.
* 🔍 "Numerous disparate information systems that are developed individually over time and are **difficult to maintain**."
* 🎯 Centralized ERP systems overcome these issues by **maintaining data at a central location** and **enabling inter-departmental access**.
* ✅ Benefits of ERP systems include **eliminating data duplication**, providing **real-time information**, **increasing productivity**, and **reducing costs**.
* 📈 "Provides better inventory management, promotes quality, reduces material cost, allows for effective human resources management, and **reduces overhead while boosting profits**."
* 👥 ERP systems also enhance customer interaction, **increase throughput**, and **improve customer service**.

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 inviting 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 the 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.

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.

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

At Guru99 you learn by Practical examples. We have unique videos for topics related to Software Engineering. We have Multilanguage videos, so everyone can learn! 
We have provided training to more than 100 million people. Helped our students to learn new skills, get better jobs, and get better pay!
We make tons of efforts to make education a fun experience. We are free educational channel.

Please Subscribe to start learning for FREE now!

Guru99

The Importance of Enterprise Resource Planning (ERP) in Business

Enterprise Resource Planning (ERP) is essential for streamlining communication and data exchange between departments in a company.

A centralized ERP system allows for real-time information access, enabling efficient business processes and quick decision-making.

In contrast, decentralized systems can lead to delays, lack of data access, and communication issues between departments, impacting overall organizational success.

The Impact of Centralized Systems on Enterprise Operations

Decentralized systems can lead to loss of revenue, customer dissatisfaction, and increased costs in inventory and labor.

Centralized systems, such as ERP, provide real-time information access, help overcome data inconsistencies, and reduce the risk of reputation damage and legal action.

The Impact of a Centralized System on Business Operations

The centralized system streamlines processes for the sales team, manufacturing, production planning, HR, and finance departments.

It allows for real-time data access across departments, reducing duplication and ensuring data accuracy.

The system also helps to optimize labor costs and enables timely payments to vendors, avoiding potential legal issues.

The Importance of a Centralized Enterprise Management System

A centralized Enterprise Management System, or Enterprise Resource Planning, is crucial for improving productivity and inventory management.

It also helps in reducing costs and overhead, while boosting profits.

Additionally, it enables better customer interaction, increased throughput, and improved customer service.