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Do we need an ERP system?

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Last weekend we did an unplanned discussion with some of our partners. During the discussion, one of the partners expressed the desire from the company where he works to replace existing information systems with the ERP system. Throughout the discussion regarding the benefits of ERP system we have spent all weekend afternoon of, he often argued that the current system’s benefit are comparable to those of the ERP systems.


Feeling rather exasperated, I retorted at the partner. If you understand the benefits of the ERP system and you feel those benefits already exists in the current system, then why do you think to replace it?

This conundrum that he brings to the discussion is one we think it’s appropriate to share. Currently he works in an industry that is shifting to use ERP system; in addition to that is the fact that their closest competitors have also starts replacing their old systems with ERP systems. Therefore, he was compelled to follow the lead of others in order not to fall behind. Moreover, the current system has been in place for 20 years, from an era when a lot of companies starting to use Personal Computer.

So does every company need an ERP system? Or in the case of my partner, whether the company was in need of a new ERP system to replace the old one? Not an easy question to answer, but perhaps there are some points to consider, things that usually make a company decides to replace the existing system with the new ERP system.

1. The existing system is inadequate to support the daily operations of the company; in these conditions we would see a lot of difficulty in the operations. Usually the system has not integrated fully to each section of the operational processes; there are still a lot of manual processes that will hamper the company’s operations. Obstruction may take place internally in the form of processing inventory, causing the delay in report and ultimately leading the management to delay decision making. Externally, it could have resulted in a decrease of service level to customers because the system may not provide information quickly and accurately enough when the customer enquires their orders.

2. Plan for the future development of the company could not be supported by the existing system. For example, the current system may only support the business volume up to 1 manufacturing plant, while the company has plans to open two more factories in the next 2 years. Sometimes the expansion of the company into other fields also makes the existing system unable to support operations. For example, a garment company expands into retail businesses.

3. Changes in operational standardization of the industry may also render existing system obsolete. For example, not too long ago the use of barcode system for the retail industry forced many retailers to replace their existing systems.

4. Regulations could also be a factor whether we need a system that could comply. For example in banking industry, the company would have to have a system that supports the standard reporting for each country.

Reflecting on the points above, it is very important that we look at the business side of the needs before deciding to replace a system. So when we have decided to replace the existing system, we understand the expectation from the new system.

Without clear reasons in investing a new ERP system, it is not uncommon to hear the customer says “Ah the new ERP system is the same as the old system”. Here’s to hoping that won’t happen…

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