ASSIGNMENT

(PRINCIPLE OF
MANAGEMENT)

SALMAN SALEEM

SUBMITTED TO
Dr. SHAMEEL AHMED ZUBERI

1
Contents
....................................................................................................................................1
CONTROLLING:.......................................................................................................2
The balanced scorecard:.............................................................................................3
CUSTOMER PERSPECTIVE.........................................................................................3
Internal Business Perspective..................................................................................4
Innovation and Learning Perspective.......................................................................4
FINANCIAL PERSPECTIVE..........................................................................................4
FEEDBACK:..............................................................................................................5
4 Steps of feedback Control Process.........................................................................5
1. Establishing Standards and Methods for Measuring Performance...................6
2. Measuring the Performance............................................................................6
3. Determining whether Performance Matches the Standard..............................6
4. Taking Corrective Action..................................................................................7
FINANCIAL CONTROLS:.........................................................................................7
The Balance Sheet...................................................................................................7
The Income Profit and Loss Statement (P&L)...........................................................8
THE CASH FLOW STATEMENT..................................................................................8
HIERARCHICAL CONTROL....................................................................................8
DECENTRALIZED CONTROL.................................................................................8
OPEN-BOOK MANAGEMENT (OBM).....................................................................9
TOTAL QUALITY MANAGEMENT..........................................................................9
 Customer-focused:...........................................................................................9
 Total employee involvement:..........................................................................9
 Process-centered:............................................................................................9
 Integrated system:........................................................................................10

2
  Strategic and systematic approach:...............................................................10
 Continual improvement:................................................................................10
Tools and Techniques for Total Quality Management (TQM).................................11
 Right First Time:............................................................................................11
 Benchmarking:..............................................................................................11
 Outsourcing:..................................................................................................11
 ISO 9000:.......................................................................................................11
 Statistical Quality Control:.............................................................................11
 Just-in-Time Inventory Management (JIT):....................................................11
 Speed:...........................................................................................................11
 Training:........................................................................................................11
THE ORGANIZATION AS A VALUE CHAIN:.......................................................12
Explaining Supply Chain Management (SCM)....................................................13
Flexible Manufacturing System................................................................................15
Inventory Management.............................................................................................15
Management Information Systems (MIS).................................................................18
Central Information System...................................................................................18

3
CONTROLLING:
Controlling is one of the managerial functions and it is an important element of the
management process. After the planning, organizing, staffing, and directing have
been carried out, the final managerial function of controlling assures that the
activities planned are being accomplished or not.
So, the function of controlling helps to achieve the desired goals by planning. Management
must, therefore, compare actual results with pre-determined standards and take corrective action
of necessary.

Control can be defined as the process of analyzing whether actions are being taken as
planned and taking corrective actions to make these to confirm planning.

According to E.F.L. Brech:

“controlling is checking performance against predetermined standards contained in the plans with
a view to ensuring adequate progress and satisfactory performance.”

Ernest. Dale defines as

“the modern concept of control envisages system that not only provides a historical record of what
has happened and provides data that enable the chief executive or the departmental head to take
corrective steps “

The managerial function of controlling is defined by Koontz and O’Donnell,

” as the measurement and correction to the performance of activities of subordinates in order to

make sure that enterprise objectives and the plans devised to attain them are being accomplished.”

Management control is the process by which managers assure that resources are obtained
and used effectively and efficiently in the accomplishment of the organization’s objectives. Further,
it is defined as the process by which managers in the organization assure that activities and efforts
are producing the desired objectives in the organization. These definitions imply three main points
about management control.

First, management control is a process of some inter-related and sequential steps, secondly,
management control in the organization aims at effectiveness and efficiency in the acquisition and
utilization of resources such as money, materials, machinery, and manpower. Thirdly, management
control in the organization is designed to further objectives of the organization.

What you measure is what you get, senior executives understand that their organization’s
measurement system strongly affects the behavior of managers and employees.

Executives also understand that traditional financial accounting measures like return-on-
investment and earnings-per-share can give misleading signals for continuous improvement and
innovation activities today’s competitive environment demands.

4
The balanced scorecard:
The balanced scorecard analyzes a business from four perspectives customer, internal
business processes, innovation and learning and financial. To develop these perspectives,
management asks four key questions:

• Customer Perspective: How do customers see us?

• Internal Business Perspective: What must we excel at?

• Innovation and Learning Perspective:

• [How] can we continue to improve and create value?

• Financial Perspective: How do we look to shareholders?

To implement a balanced scorecard, organizations articulate goals for each perspective and
translate them into specific measures.

However, this is not done in the abstract. Adoption of a balanced scorecard approach to
strategic and performance management starts with an analysis of an organization’s current internal
and external environments. This analysis is conducted with reference to the organization’s mission,
vision and values and other strategic planning elements.

CUSTOMER PERSPECTIVE
To remain practical businesses, organizations need to deliver value to their customers.
Indeed, a recent article noted that “customer experience is now Job #1 for CEOs.

To develop the customer perspective component of a BSC, managers must translate their
general statement of commitment i.e., Ford’s Quality is Job 1 into specific measures that reflect
what matters to their customers.

According to Kaplan and Norton “customers’ concerns tend to fall into four categories: time,
quality, performance and service, and cost.” Measures of time might be the elapsed time between
placing and delivery of an order. For new products, time might be the number of weeks or months
it takes to go from concept to market availability. Measures of quality include the number of
defects as judged by the customer.

It’s worth noting that customers often define factors such as “on time delivery” differently.
Compiling the data for major customers will allow the organization to decide on what the target
should be.

5
Internal Business Perspective
As stated above, the prompt to identify a company’s internal business goals is “what must
we excel at?” That is, what does the company need to do to meet customer and stakeholder
(financial) expectations? This view focuses on internal processes, human resource capabilities and
productivity and product and service quality. In detailing this component, Kaplan and Norton
advise managers to identify and leverage the company’s core competencies and to focus on
processes and competencies that differentiate the company from its competitors.

Examples of internal business measures include product, service or functional efficiency or

expertise. Think Nordstrom’s for service, Apple for design capabilities and Proctor & Gamble’s
marketing and distribution expertise.

To achieve internal business measures, managers must ensure that the goals are clearly
communicated and understood by the employees who are responsible for the processes, projects,
or initiatives.

The importance of communication of employees internalizing and focusing on specific goals

is the point that the CEO’s Dr. Kaplan spoke to emphasize in the video above. Effective operational
information systems collecting and reporting relevant data are critical to be able to identify and
trouble-shoot variances from target in this view.

Innovation and Learning Perspective

The Customer and Internal Processes perspectives discussed above identify what an
organization needs to accomplish from a competitive standpoint based on the current situation.
However, the larger operating environment is dynamic, and businesses need to continuously adapt
or risk obsolescence.

The innovation and learning perspective (also referred to as learning and growth or
organizational capacity) is the future view, seeking to answer the question “How can we continue
to improve and create value?” According to Kaplan and Norton, “A company’s ability to innovate,
improve, and learn ties directly to the company’s value.”

An example of the latter is industrial manufacturing company Milliken & Co.’s “ten-four”
continuous improvement program, a challenge to reduce quality issues process issues, product
defects, late deliveries and waste by a factor of ten over the next four years.

6
FINANCIAL PERSPECTIVE
The financial perspective is the classic numbers some would say the “bottom line” view.
Ultimately, this view shows whether the company’s strategy and execution are successful. Typical
financial goals include profit, operating costs, target market revenue and sales growth.

Kaplan and Norton cite a company that stated its financial goals in terms we can all understand: to
survive, measured by cash flow, to succeed, measured by quarterly sales growth, and to prosper,
measured by an increase in market share and return on equity. The authors note that although
there is significant criticism of financial measures due to their focus on past performance and
inability to account for value-creating initiatives, “the hard truth is that if improved performance
fails to be reflected in the bottom line, executives should reexamine the basic assumptions of their
strategy and mission.”

FEEDBACK:
Occurs after an activity or process is completed. It is reactive. For example, feedback control
would involve evaluating a team’s progress by comparing the production standard to the actual
production output. If the standard or goal is met, production continues. If not, adjustments can be
made to the process or to the standard.

An example of feedback control is when a sales goal is set, the sales team works to reach
that goal for three months, and at the end of the three-month period, managers review the results
and determine whether the sales goal was achieved. As part of the process, managers may also
implement changes if the goal is not achieved. Three months after the changes are implemented,
managers will review the new results to see whether the goal was achieved.

The disadvantage of feedback control is that modifications can be made only after a process
has already been completed or an action has taken place. A situation may have ended before
managers are aware of any issues. Therefore, feedback control is more suited for processes,
behaviors, or events that are repeated over time, rather than those that are not repeated.

4 Steps of feedback Control Process

1. Establishing standards and methods for measuring performance.

2. Measuring performance.

3. Determining whether performance matches the standard.

4. Taking corrective action.

7
These steps are described below.

1. Establishing Standards and Methods for Measuring Performance

Standards are, by definition, simply the criteria of performance.

They are the selected points in an entire planning program at which performance is
measured so that managers can receive signals about how things are going and thus do not have to
watch every step in the execution of plans.

In service industries, on the other hand, standards might include several time customers
have to wait in the queue at a bank or the number of new clients attracted by a revamped
advertising campaign.

2. Measuring the Performance

The measurement of performance against standards should be done on a forward-looking

basis so that deviations may be detected in advance of their occurrence and avoided by
appropriate actions. Several methods are used for measuring the performance of the organization.
If standards are appropriately drawn and if means are available for determining exactly what
subordinates are doing, appraisal of actual or expected performance is easy.

For example, controlling the work of the industrial relations manager is not easy because
definite standards cannot be easily developed.

3. Determining whether Performance Matches the Standard

Determining whether performance matches the standard is an easy but important step in
the control process. It involves comparing the measured results with the standards already set.

8
4. Taking Corrective Action

This step becomes essential if performance falls short of standards and the analysis
indicates that corrective action is required. The corrective action could involve a change in one or
more activities of the organization’s operations.

For example, the branch manager of a bank might discover that more counter clerks are
needed to meet the five-minute customer-waiting standard set earlier.

Control can also reveal inappropriate standards and in that case, the corrective action could
involve a change in the original standards rather than a change in performance. It needs to be
mentioned that, unless managers see the control process through to its conclusion, they are merely
monitoring performance rather than exercising control.

FINANCIAL CONTROLS:

Financial controls are a key element of organizational success and survival. There are three
basic financial reports that all managers need to understand and interpret to manage their
businesses successfully:

1. The balance sheet.

2. The income/profit and loss (P&L) statement.

3. The cash flow statement.

These three reports are often referred to collectively as “the financials.” Banks often require
a projection of these statements to obtain financing.

The Balance Sheet

The balance sheet is a snapshot of the business’s financial position at a certain point in time.
This can be any day of the year, but balance sheets are usually done at the end of each month.

9
The Income Profit and Loss Statement (P&L)
The profit and loss statement (P&L) shows the relation of income and expenses for a specific
time interval. The income/P&L statement is expressed in a 1-month format, January 1 through
January 31, or a quarterly year-to-date format, January 1 through March 31. This financial
statement is cumulative for a 12-month fiscal period, at which time it is closed out. A new
cumulative record is started at the beginning of the new 12-month fiscal period.

The P&L statement is divided into five major categories:

(1) Sales or revenue,

(2) Cost of goods sold/cost of sales,

(3) Gross profit,

(4) Operating expenses, and

(5) Net income

THE CASH FLOW STATEMENT

Cash flow is probably the most immediate indicator of an impending problem since negative
cash flow will bankrupt the company if it continues for a long enough period.

If company’s projections show a negative cash flow, managers might need to revisit the
business plan and solve this problem.

HIERARCHICAL CONTROL
The use of rules, policies, hierarchy of authority, reward systems, and other formal devices
to influence employee behavior and assess performance.

DECENTRALIZED CONTROL
The use of organizational culture, group norms, and a focus on goals, rather than rules and
procedures, to foster compliance with organizational goals.

10
OPEN-BOOK MANAGEMENT (OBM)

The business practice of creating transparency by sharing financial information with

employees. This includes financial education for your employees and showing them how their
production influences the finances. It is an easy-to-learn and fun management system intended to
be a discipline that is developed over time, rather than being a one-time fix.

TOTAL QUALITY MANAGEMENT

A core definition of total quality management (TQM) describes a management approach to
long-term success through customer satisfaction. In a TQM effort, all members of an organization
participate in improving processes, products, services, and the culture in which they work.

PRIMARY ELEMENTS OF TQM

TQM can be summarized as a management system for a customer-focused organization that
involves all employees in continual improvement. It uses strategy, data, and effective
communications to integrate the quality discipline into the culture and activities of the
organization. Many of these concepts are present in modern quality management systems, the
successor to TQM. Here are the 8 principles of total quality management:

 Customer-focused:
The customer ultimately determines the level of quality. No matter what an organization does
to foster quality improvement training employees, integrating quality into the design process, or
upgrading computers or software the customer determines whether the efforts were worthwhile.

 Total employee involvement:

All employees participate in working toward common goals. Total employee commitment can
only be obtained after fear has been driven from the workplace, when empowerment has
occurred, and when management has provided the proper environment. High-performance work
systems integrate continuous improvement efforts with normal business operations. Self-managed
work teams are one form of empowerment.

 Process-centered:
A fundamental part of TQM is a focus on process thinking. A process is a series of steps that
take inputs from suppliers (internal or external) and transforms them into outputs that are
delivered to customers (internal or external). The steps required to carry out the process are
defined, and performance measures are continuously monitored in order to detect unexpected
variation.

11
  Integrated system:
Although an organization may consist of many different functional specialties often organized into
vertically structured departments, it is the horizontal processes interconnecting these functions
that are the focus of TQM.

o Micro-processes add up to larger processes, and all processes aggregate into the business
processes required for defining and implementing strategy. Everyone must understand the
vision, mission, and guiding principles as well as the quality policies, objectives, and critical
processes of the organization. Business performance must be monitored and communicated
continuously.
o An integrated business system may be modeled after the Baldrige Award criteria and/or
incorporate the ISO 9000 standards. Every organization has a unique work culture, and it is
virtually impossible to achieve excellence in its products and services unless a good quality
culture has been fostered. Thus, an integrated system connects business improvement
elements in an attempt to continually improve and exceed the expectations of customers,
employees, and other stakeholders.

 Strategic and systematic approach:

A critical part of the management of quality is the strategic and systematic approach to
achieving an organization’s vision, mission, and goals. This process, called strategic planning or
strategic management, includes the formulation of a strategic plan that integrates quality as a core
component.

 Continual improvement:
A large aspect of TQM is continual process improvement. Continual improvement drives an
organization to be both analytical and creative in finding ways to become more competitive and
more effective at meeting stakeholder expectations.

 Fact-based decision making:

To know how well an organization is performing, data on performance measures are necessary.
TQM requires that an organization continually collect and analyze data in order to improve decision
making accuracy, achieve consensus, and allow prediction based on past history.

 Communications:
During times of organizational change, as well as part of day-to-day operation, effective
communications plays a large part in maintaining morale and in motivating employees at all levels.
Communications involve strategies, method, and timeliness.

12
Tools and Techniques for Total Quality Management (TQM)
Project Managers rely on several tools and techniques for total quality management. They are:

 Right First Time:

Employees ensure quality while they work. They do the right things first time. They aim for zero
defect.

 Benchmarking:
It is the process of learning from best practices of other projects that produce superior
performance. They do exceptionally high-quality things.

 Outsourcing:
It is subcontracting services and operations to outside firms who can do them cheaper and better.

 ISO 9000:
They are set of quality standards created by International Organization for Standardization (ISO).
Organizations obtain certification form ISO for product testing, employee training, record keeping,
supplier relations and repair policies and procedures.

 Statistical Quality Control:

It includes a set of specific statistical tools that can be used to monitor quality. It is based on
sampling.

 Just-in-Time Inventory Management (JIT):

Inventories are received just-in-time to be used up by production. They are not stored.

 Speed:
Speed is the time needed to get the activities accomplished. TQM increases speed. Speed becomes
a part of project culture.

 Training:
Employees are provided continuous training in quality matters. Quality circles also serve as training
grounds for TQM

13
THE ORGANIZATION AS A VALUE CHAIN:

A value chain is a business model that describes the full range of activities needed to create
a product or service. For companies that produce goods, a value chain comprises the steps that
involve bringing a product from conception to distribution, and everything in between—such as
procuring raw materials, manufacturing functions, and marketing activities

Operations management
Operations management is the administration of business practices to create the highest
level of efficiency possible within an organization. It is concerned with converting materials and
labor into goods and services as efficiently as possible to maximize the profit of an organization.
Operations management teams attempt to balance costs with revenue to achieve the highest net
operating profit possible

Operations management involves utilizing resources from staff, materials, equipment, and
technology. Operations managers acquire, develop, and deliver goods to clients based on client
needs and the abilities of the company.

Manufacturing organizations
Manufacturing organizations are those that produce physical goods, such as cars, video
games, television sets, or golf balls.

In contrast, service organizations produce nonphysical outputs, such as medical,

educational, communication, or transportation services for customers. Doctors, consultants, online
auction companies, and the local barber all provide services.

Supply Chain Management

Supply chain management is the management of the flow of goods and services and
includes all processes that transform raw materials into final products. It involves the active
streamlining of a business's supply-side activities to maximize customer value and gain a
competitive advantage in the marketplace.

14
Explaining Supply Chain Management (SCM)
Typically, SCM attempts to centrally control or link the production, shipment, and
distribution of a product. By managing the supply chain, companies are able to cut excess costs and
deliver products to the consumer faster. This is done by keeping tighter control of internal
inventories, internal production, distribution, sales, and the inventories of company vendors.

SCM is based on the idea that nearly every product that comes to market results from the
efforts of various organizations that make up a supply chain. Although supply chains have existed
for ages, most companies have only recently paid attention to them as a value-add to their
operations.

In SCM, the supply chain manager coordinates the logistics of all aspects of the supply chain
which consists of five parts:

• The plan or strategy

• The source (of raw materials or services)

• Manufacturing (focused on productivity and efficiency)

• Delivery and logistics

• The return system (for defective or unwanted products)

The supply chain manager tries to minimize shortages and keep costs down. The job is not
only about logistics and purchasing inventory. According to Salary.com, supply chain managers,
“make recommendations to improve productivity, quality, and efficiency of operations.”

Improvements in productivity and efficiency go straight to the bottom line of a company

and have a real and lasting impact. Good supply chain management keeps companies out of the
headlines and away from expensive recalls and lawsuits

After the site location decision has been made, the next focus in production planning is the
facility’s layout. The goal is to determine the most efficient and effective design for the particular
production process. A manufacturer might opt for a U-shaped production line, for example, rather
than a long, straight one, to allow products and workers to move more quickly from one area to
another.

Service organizations must also consider layout, but they are more concerned with how it
affects customer behavior. It may be more convenient for a hospital to place its freight elevators in
the center of the building, for example, but doing so may block the flow of patients, visitors, and
medical personnel between floors and departments.

15
There are four main types of facility layouts:

1. Process,

2. Product,

3. Fixed position,

4. Cellular.

The process layout arranges workflow around the production process. All workers
performing similar tasks are grouped together.

For example, a manufacturer of custom machinery would use a process layout.

Products that require a continuous or repetitive production process use the product (or
assembly-line) layout. When large quantities of a product must be processed on an ongoing basis,
the workstations or departments are arranged in a line with products moving along the line.
Automobile and appliance manufacturers, as well as food-processing plants, usually use a product
layout. Service companies may also use a product layout for routine processing operations.

A fixed-position layout lets the product stay in one place while workers and machinery
move to it as needed. Products that are impossible to move—ships, airplanes, and construction
projects—are typically produced using a fixed-position layout. Limited space at the project site
often means that parts of the product must be assembled at other sites, transported to the fixed
site, and then assembled. The fixed-position layout is also common for on-site services such as
housecleaning services, pest control, and landscaping.

Cellular layouts combine some aspects of both product and fixed-position layouts. Work
cells are small, self-contained production units that include several machines and workers arranged
in a compact, sequential order. Each work cell performs all or most of the tasks necessary to
complete a manufacturing order.

16
Flexible Manufacturing System

A flexible manufacturing system (FMS) is a production method that is designed to easily

adapt to changes in the type and quantity of the product being manufactured. Machines and
computerized systems can be configured to manufacture a variety of parts and handle changing
levels of production. A flexible manufacturing system (FMS) can improve efficiency and thus lower
a company's production cost. Lean manufacturing is a methodology that focuses on minimizing
waste within manufacturing systems while simultaneously maximizing productivity. Waste is seen
as anything that customers do not believe adds value and are not willing to pay for. Some of the
benefits of lean manufacturing can include reduced lead times, reduced operating costs and
improved product quality.

Lean manufacturing, also known as lean production, or lean, is a practice that organizations
from numerous fields can enable. Some well-known companies that use lean include Toyota, Intel,
John Deere, and Nike.

Inventory Management

A company's inventory is one of its most valuable assets. In retail, manufacturing, food
service and other inventory-intensive sectors, a company's inputs and finished products are the
core of its business. A shortage of inventory when and where it's needed can be extremely
detrimental.

At the same time, inventory can be thought of as a liability (if not in an accounting sense). A
large inventory carries the risk of spoilage, theft, damage or shifts in demand. Inventory must be
insured, and if it is not sold in time it may have to be disposed of at clearance prices—or simply
destroyed.

For these reasons, inventory management is important for businesses of any size. Knowing
when to restock inventory, what amounts to purchase or produce, what price to pay—as well as
when to sell and at what price—can easily become complex decisions. Small businesses will often
keep track of stock manually and determine the reorder points and quantities using Excel formulas.
Larger businesses will use specialized enterprise resource planning (ERP) software. The largest
corporations use highly customized software as a service (SaaS) application.

17
Inventory Accounting:

Inventory represents a current asset since a company typically intends to sell its finished
goods within a short amount of time, typically a year. Inventory has to be physically counted or
measured before it can be put on a balance sheet. Companies typically maintain sophisticated
inventory management systems capable of tracking real-time inventory levels.

Inventory is accounted for using one of three methods: first-in-first-out (FIFO) costing; last-
in-first-out (LIFO) costing; or weighted-average costing.

An inventory account typically consists of four separate categories:

• Raw materials

• Work in process

• Finished goods

• Merchandise

Raw materials represent various materials a company purchases for its production process.
Works-in-process represent raw materials in the process of being transformed into a finished
product.

Inventory Management Methods

Depending on the type of business or product being analyzed, a company will use various
inventory management methods. Some of these management methods include just-in-time (JIT)
manufacturing, materials requirement planning (MRP), economic order quantity (EOQ), and days
sales of inventory (DSI).

Just-in-Time Management
Just-in-time (JIT) manufacturing originated in Japan in the 1960s and 1970s. Toyota Motor
(TM) contributed the most to its development. The method allows companies to save significant
amounts of money and reduce waste by keeping only the inventory they need to produce and sell
products. This approach reduces storage and insurance costs, as well as the cost of liquidating or
discarding excess inventory.

IT management refers to the monitoring and administration of an organization’s

information technology systems: hardware, software and networks. IT management focuses on
how to make information systems operate efficiently. Just as important, it’s about helping people
work better.

18
Knowledge Management

The organization, capture, use, and analysis of the impact of a group's collective knowledge. In the
business world, the definition of knowledge management also includes the maintenance of a
knowledge base or portal where specific knowledge related to the company is housed. Only a few
initiatives can truly transform how an organization operates, and knowledge management is one of
them.

Management Information Systems (MIS)

A management information system (MIS) is a computer system consisting of hardware and
software that serves as the backbone of an organization’s operations. An MIS gathers data from
multiple online systems, analyzes the information, and reports data to aid in management
decision-making.

MIS is also the study of how such systems work

The purpose of an MIS is improved decision-making, by providing up-to-date, accurate data on a

variety of organizational assets, including:

• Financials

• Inventory

• Personnel

• Project timelines

• Manufacturing

• Real estate

• Marketing

• Raw materials

• R&D

The MIS collects the data, stores it, and makes it accessible to managers who want to analyze the
data by running reports.

19
Central Information System
The goal of an MIS is to be able to correlate multiple data points to strategize ways to improve
operations. For example, being able to compare sales this month to sales a year ago by looking at
staffing levels may point to ways to boost revenue. Or being able to compare marketing
expenditures by geographic location and link them to sales can also improve decision-making. But
the only way this level of analysis is possible is due to data that is compiled through an MIS.

Running reports that pull together disparate data points is an MIS’ key contribution. That feature,
however, comes with a significant cost. MIS implementation is an expensive investment that
includes the hardware and software purchases, as well as the integration with existing systems and
training of all employees.

Enterprise resource planning (ERP)

Enterprise resource planning (ERP) is a system of integrated software applications that
standardizes, streamlines, and integrates business processes across finance, human resources,
procurement, distribution, and other departments. Typically, ERP systems operate on an integrated
software platform using common data definitions operating on a single database.

The benefits of an ERP system

ERP systems improve enterprise efficiency and effectiveness in a number of ways. By integrating
financial information in a single system, ERP systems unify an organization’s financial reporting.
They also integrate order management, making order taking, manufacturing, inventory,
accounting, and distribution a much simpler and less error-prone process. Most ERPs also include
customer relationship management (CRM) tools to track customer interactions, thereby providing
deeper insights about customer behavior and needs. They can also standardize and automate
manufacturing and supporting processes, and unifying procurement across an organization’s
disparate business units. An ERP system can also provide a standardized HR platform for time
reporting, expense tracking, training, skills matching, and the like, and greatly enhance an
organization's ability to file the necessary reporting for government regulations, across finance, HR
and the supply chain.

4 key features of ERP systems

20
The scale, scope, and functionality of ERP systems vary widely. However, most ERP software
features the following characteristics:

Enterprise-wide integration. Business processes are integrated end to end across departments and
business units. For example, a new order automatically initiates a credit check, queries product
availability, and updates the distribution schedule. Once the order is shipped, the invoice is sent.

Real-time (or near real-time) operations. Since the processes in the example above occur within a
few seconds of order receipt, problems are identified quickly, giving the seller more time to correct
the situation.

A common database. A common database enables data to be defined once for the enterprise with
every department using the same definition. Some ERP systems split the physical database to
improve performance.

Consistent look and feel. Early ERP vendors realized that software with a consistent user interface
reduces training costs and appears more professional. When other software is acquired by an ERP
vendor, common look and feel is sometimes abandoned in favor of speed to market. As new
releases enter the market, most ERP vendors restore the consistent user interface.

21