Enterprise Resource Planning and Organizational Decision Making

Introduction

The main philosophy behind the Enterprise Resource Planning (ERP) is that an employee or an executive could access all the enterprisewide information for making better decision in any business processes (Wilmington University, 2015). In a brief, it can be said that an ERP system integrates all the data from every department that are important to operate and manage an enterprise and the information integration provides seamless process automation across entire organizational functions. ERP has been widely adopted in the premise that most companies believe information integration would provide competitive advantage to them (Stratman, 2007). This belief is somewhat controversial where competitive advantage is derived from market power or monopoly. However, it is true that ERP boosts competitive advantage when it is derived from internal resources or competitive capabilities that are built through organizational practices (Stratman, 2007). Nonetheless, ERP system is considered as a powerful organization tool. There are many reasons behind ERP’s wide acceptance. One of them is its capacity to gather a mess of information in an omni-channel that is much effective to read and understand. The next reason of ERP’s adoption is that it addresses the need of global information sharing and reporting. Another reason is that it can fix the legacy system in an enterprise at a minimum cost (Wilmington University, 2015).

Adopting ERP is proved to add many benefits to an enterprise. For instance, an ERP gives integrative financial information that helps executives to understand the overall organizational performance and helps to formulate streamlined financial view (Wilmington University, 2015). Similarly, assisting in monitoring inventories, streamlining deliveries, unified HR information, effective and efficient manufacturing process are some of the major advantages of ERP system (Wilmington University, 2015). If we observe well, all the advantages are linked to business process decision making. For example, an ERP system composed of several software modules that assist in planning, purchasing, inventory control, sales, financial activities, and human resources within a single and shared database. Using this information, a manager can determine how much inventory is required for a year, how the sales activities are ongoing, and many more (Farzaneh, Vanani, and Sohrabi, 2013).

This paper is oriented to illuminate ERP’s roles in organizational decision making. Furthermore, the risks associated with traditional decision-making system will be viewed, analyzed, and compared with ERP integrated organizational decision-making system.

Risks on Organizational Decision Making without ERP

Organizational decision making includes three major dimensions namely operational, managerial, and strategic decisions (Wilmington University, 2015). All these three dimensions require analytics or facts or data as an important parameter for making an effective decision. In operational level of decision making, it requires massive information about employees, inventory, accounting, weekly production schedule and so on. In managerial decision-making process, business intelligence plays a key role where raw data are presented in meaningful information. For instance, best customer of the month, best seller of the year, sales forecast for upcoming year, sales growth, project and campaign results, and so on. For strategic decision making, knowledge of political, economic, and competitive business environment is essential (Wilmington University, 2015). Regardless the level of decision making, information is crucial component. Insufficient or inadequate information may lead to inappropriate decision making that may result in business failure (Wilmington University, 2015).

The traditional approach of decision making is deprived of the enough use of information from various departments. Such independent decisions without adequate communication between all departments and stakeholders may or may not be fruitful always. Moreover, enterprises today face several challenges of increased competition, rapidly expanding market size, and high consumer expectations (Farzaneh et. al., 2013). This requires companies to make the entire supply chain much efficient and effective by reducing inventories, expanding product choice, better customer service, and effective coordination of global demand, supply, and production (Farzaneh et. al., 2013). In such a complex environment, the traditional decision-making system seems incapable to make competitive decisions. Instead, companies require multi-dimensional solution suits, such as ERP system, to sustain their competitive advantage (Farzaneh et. al., 2013).

Assisting Organizational Decision Making with ERP

ERP is an information system tool that integrates internal and external business critical functions into a single system through a common database to create value through product or services (Esendemirli, Turker, and Altuntas, 2015). This supports and speeds up the entire business process. By implementing ERP system, an organization can monitor three vital resources viz. materials, facilities, and employees (Lecic and Kupusinac, 2013). These three resources are the backbone of any enterprise and they are used in financial management, production, and distribution. Eventually, the three resource elements form the basis for decision support system (Lecic and Kupusinac, 2013).

The decision support system includes three layers namely operational decision system, managerial decision system, and strategic decision system (Wilmington University, 2015). Massive amount of information generated in centralized database of ERP is used in all three levels of decision making. ERP, thus, benefits managers to overcome challenges related to information gap originated from non-coordination of every departments (Lecic and Kupusinac, 2013). ERP’s centralized database is the single point where the decision makers and analysts dive in and get what they need. Therefore, ERP is an efficient and effective means to find information, process that information on various levels, and use that information to draw a decision.

ERP, Decision Making, and Operational Efficiency

There are several modules of ERP that are applied in operations system. For instance, production planning module is there to optimize the manufacturing capacity, production, and forecasting. Purchasing module is there to streamline procurement of raw materials. Similarly, inventory control module facilitates the maintenance of stock in warehouse and balancing the inventory. Sales and marketing module streamline sales and marketing processes more efficiently and effectively. Financial ERP module is the core one that collects financial information from various departments and generate financial reports. Human resource module is responsible for maintaining employee data which is also a key to optimize the utilization of expertise of all employees (Madanhire and Mbohwa, 2016). These modules are the basis for operational requirements in any enterprise and using these modules, an organization can achieve its operations goal to best meet the market requirement and customer expectations (Madanhire and Mbohwa, 2016).

Moreover, an ERP system integrates all departmental data in a shared common database. With extended portal capability, an ERP system can be extended to concerned suppliers and customers to participate in the workflow process. This enables the ERP to penetrate the entire value chain and helps organization to achieve operational efficiency (Wilmington University, 2015, p. 275).

Conclusion

ERP eliminates the risks associated with traditional practice where distribution of information between all the departments used to be inadequate and decision making was challenging. Since ERP centralizes all the departmental information in a central database, the problems of incoordination between the departments due to various reasons are reduced greatly (Madanhire and Mbohwa, 2016). This ensures all three levels of decision making is effective due to streamlined information flow throughout the enterprise. Moreover, implementation of various ERP modules enhances the operation efficiency by reducing inventory, reducing delivery time, reducing redundancy of information, and enhancing coordination within the organization as well as the external parties and customers.