Monday, 17 February 2014

The historical review and ideology of ERP (Part 1)

Authored by Junaid Khan
Before industrial revolution, very few companies were doing business in a well-organized or systematized way. The companies used to have small operations and in most cases, a single person was managing all the operational strategies. The decisions were in the light of overall company objectives and available resources. By the time, manufacturing cycle of the companies increased, the management of entire operation became impossible for a single person and formation of departments with specific objectives contributing towards overall organizational goals was introduced.
As the departmental working concept emerged, it was an essential requirement of different organizations to redesign their organizational structure and introduce departmental teams with specific job descriptions. Thus, the accounts department was made responsible for all the financial matters of the operation, whereas the purchase department was made responsible for the procurement of goods and services only. In the beginning of this evolution, size of accounts and purchase teams was large as organizations were hiring people as per their departmental objectives to meet KPIs. Within these departments, employees at different levels were just collecting and passing on information directly to their departmental heads only and in the result information was not shared with senior management.

During the initial phase of this era, good results were secured by automating the existing business functions and discrete procedures by deploying various IT Solutions. Most of this transformation executed by implementing range of softwares in various departments without their integration with the corporate strategy which had resulted into the functioning of many softwares in various departments without any interlinking between them. The major problem faced by users in such systems was effective information collection, summarizing and refining huge amount of data and make it useful for other departments, which is a daunting task.

Hence, today we observe that departments generate huge amount of data such as Financial Data, Customer Data, Purchase and Supplier Data through modern technology tools to provide true visibility of operations to stakeholders. The organizations that are making best use of this data have achieved excellence in their operations and will succeed in not only retaining but also increasing the existing market share. This is the exact reason behind huge investments made by all reputed companies of the world to develop robust technological tools as they want to capitalize on this opportunity, this phenomenon was started in the early 1970s and today it has resulted in the availability of sophisticated IT solutions in the market. 

In order to manage the processing of data in terms of delivering high end support to the right decision makers at the right time, one must automate the process of data collection, refine the data and give proper information to the organization. To achieve this, organizations must make information technology an ally and should harness its full potential and use it in the best possible way. 

To draw real benefits from technology, one should have a total view of operational information of enterprise and such system has to work around the core activities of organization to facilitate the flow of information across various departments. This concept was later named as Enterprise Resource Planning (ERP) System.

Stay tuned for the second part on "What is an ERP".

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