Effect of ERP on the Company:
Implementing an ERP offers several advantages, direct and indirect, to the company:
The time lag between the date of placing an order for a particular product and the date of receiving the product is known as the lead-time. The lead-time is an important factor that is considered by managers in purchasing and inventory control. The managers in various departments generally attempt to anticipate demand ahead of receiving actual orders. The inventory managers take safety measures like maintaining large buffer stocks and high re-order levels to avoid a situation where the required material runs out of stock. If a particular item required for manufacturing a product is not immediately available, the production gets delayed and the company will miss its delivery schedules. It will reduce the company's market share as dissatisfied customers will switch to competitors.
However, maintaining high inventories to avoid out-of-stock situation means locking a lot of capital in inventories. Therefore, the company should search for ways to bring down lead-times. The company should find out the lowest lead-time in the industry for each material or component it uses in its processes. It is impossible to manually track the lead-times for all the materials in a company where thousands of raw materials and components are used in production processes. Moreover, tracking requires an efficient inventory management system in the organization that is well integrated with all the departments in the organization like production, marketing, purchasing and sales.
An ERP system automates the task of tracking and hence makes it easy to track the lead-times for all the materials used in the company. Since the ERP system integrates all the departments in an organization with the materials management system, it is easy to determine all the components to be procured and activities to be carried out in each department, as soon as the order is placed.
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