Improving Business through Technology: A Management Perspective
Through the years technology has been observed to affect business positively. The era of Industrial Revolution introduced technology in the form of mechanized tools and machines for production of goods, transforming the aspects of production in a business. The advent of telephones, telegraphy, fax machines, satellite and wireless communication and the internet have over the course of time enabled increasing speed of communication thus improving the efficiency of business transactions. The Information Age has greatly contributed to the overall enhancement of business practices. An example of how technology has helped improve the working of a business organization is discussed in this essay.
The business organization under discussion is an international company that deals with product development and sales. The business needs to focus on management and interaction with suppliers for the materials needed the process of producing goods and management of vendors to ensure the sales. The important aspects of business management in this scenario are material management, inventory management, production management and vendor management. The efficiency of managing each of these aspects is critical to the profitability of the business. There are various issues that are involved in ensuring that each of these process contribute positively to the business environment.
From a production planning perspective, it is observed that the processes mentioned above are dependent on other processes. The need for materials and their purchase is dependant on the demands of the vendors and prediction based on the sales. Any inaccuracy in forecasting the materials requirement can prove detrimental to production. Thus inventory management is dependent on vendor management. The management of materials is dependent on the production requirements of the day/week/month/year, as the case may be. Production management is in turn dependant on the sales and distribution of the products. The dependencies involved indicate that a cohesive management of the processes involved that will ensure a smooth flow of information from one process to another process will reduce the process management complexities in business.
A financial perspective of the processes helps in the realization that the determination of the cash flow in the business is dependent on how the processes are managed. Also the process management and the information derived from them are important for revenue forecasting. Revenue forecasting helps set sales targets for the business and acts as a measure of evaluating the performance. The information from the processes and sales is also required for management reporting. This involves reporting of consolidated financial data to the higher authorities and is an important factor in the decision making process.
Initially each of the processes, namely material, inventory, production and vendor management, were implemented as disparate systems. Though disparate systems seem to have the initial advantage of customizing the implementation to suit a process, they do not lend themselves to efficient process management. The use of disparate systems increases the procurement lead time which in turn affects production. Also the lack of consolidated sales and distribution data resulted in a large inventory of unsold products. This increased the costs of the company without an increase in the revenue to the company. Tracking the cash flow also becomes problematic and time consuming when using disparate systems. It also renders the task of management reporting at the granular level a tedious and difficult process.
Being an international business organization, the processes need to be managed in different regions around the world. This gave rise to the use of legacy systems for managing the processes. The advantage of using legacy systems lies in the familiarity of the workers in using the system and lower costs in the initial phase. The business communication between regions using legacy systems though becomes laborious. Also the costs of maintaining and updating legacy systems in each region are high. In keeping with the demands of business, a need was felt to restructure the process model that was being followed (Johnson et al., 2008). To overcome the disadvantages of using disparate and legacy systems and to ensure smooth transitions between processes, it was suggested that an enterprise resource planning (ERP) system be implemented.
An ERP system helps integrate and automate the various processes and tasks involved in the functioning of a business across the various departments involved in the organization. An ERP system that has been successfully implemented can not only serve the needs of the various processes and departments with ease but also show a tremendous return on investment. The USP of an ERP system is the seamless merging of the various processes which increases the efficiency of business operations (Trott, P & Hoecht, A, 2004). The factors that make implementation of an ERP system attractive are the ability to conduct transactions in real time, optimization of the business network, integrated value chain system and components that include supply chain planning and execution, manufacturing resource management, production monitoring and control, and supplier and customer relationship management among others. One of the most important steps involved before implementing an ERP system is business process reengineering (BPE). The BPE is a decisive factor in the success of ERP implementation. The costs involved in implementing an ERP system are utilized towards consulting, software, hardware, implementation team and training. There are various commercial ERP software available for implementation, some examples of which are SAP, Oracle, Baan and PeopleSoft. When implementing an ERP system, the hidden costs involved in integration and testing, data conversion and data analysis should also be taken into account. While ERP systems have many advantages, the initial costs involved in setting up an ERP system may be intimidating to some business scenarios.
The company chose to implement SAP as its ERP system. Developed in Germany, SAP stands for Systems, Applications and Products in Data Processing. SAP provides solutions for business management in the form of an application suite. The foremost factor that resulted in the choice of SAP was the high level of process integration and data consistency inherent in the SAP suite. Also the SAP system consists of three basic components – development, quality assurance and production – which are ideally suited for the business requirements under consideration. Also SAP allows flexibility in customizing the programs based on the needs of the business processes.
Though the implementation of the ERP system required sufficient time and increased initial costs, the return on investment has more than compensated for the initial obstacles faced by the organization. A smooth slow of information between processes has helped reduce the lead to delivery time significantly. It has also helped in better revenue forecasting, generating of higher quality management reports at granular levels and enhancing the positive cash flow. The ease of communication among different regions has improved, thus reflecting positively on the business. It has been observed that the implementation of a new technology, the ERP system, has greatly improved the aspects of business management, contributing to the profitability of the business.
Johnson, Mark W., Christensen, Clayton M., & Kagermann, Henning. (2008). Reinventing your business model. Harvard Business Review, 86(12), 50-59.
Trott, P & Hoecht, A. (2004). Enterprise resource planning (ERP) and its impact on the innovative capability of the firm. International Journal of Innovation Management, 8(4), 381-398.
Scribd.com. (2007). Introduction to SAP. Retrieved March 11, 2009 from http://www.scribd.com/doc/398168/Introduction-to-SAP.