May 05, 2013

Managing Risk using ERP

Can implementation of enterprise resource planning (ERP) ever be acknowledged as the ultimate risk managing strategy with in a business? There are numerous literatures surrounding the challenges of ERP implementation. However it must be recognised by CEO’s or senior management that ERP has the potential of performing beyond their expectation levels. ERP can enable business to manage risk in a collective perspective. There is interconnectedness amongst risks and the joined-up risks requires to be mitigated or managed considering the consequence on others. ERP can support businesses to managed risk in holistic manners, where the most crucial information of the business processes is held.

Lack of control due to consistent outsourcing is seen as a major risk to supply chains, ERP can help companies integrated in a modern manner. Where information can flow through numerous different levels between the customer and the outsourced party. ‘Information is power’ which means more information makes one competitive. However the increase in information sharing across supply chain make the supply chains even stronger (Christopher & Lee 2004).

ERP will further help reduce risk such as information distortion, which is caused because of exaggerated figures due to numerous reasons such as, promotional schemes causing forward buying from customers (Sunil & Sodhi 2004).

Supply risk and demand risks are managed using strategies such as, increase integration, building relationships amongst supplier and customers. Customer relationship management (CRM) has been included in the workings of ERP; it would be beneficial to investigate what results are achieved in terms of handling risk by managing the customer.

ERP systems are situated centrally with the elements of functional integration to improve business performance. One can argue that the challenges of implementing and operating ERP, undermines the benefits one can achieve from the system.

ERP has the potential of being used as an initial, essential tool for supporting the adopted risk managing strategies. If looked closely ERP is constantly managing risk for the business, by streamlining and automating the processes to make it less vulnerable to uncertainties, ERP constantly reduces mistakes and fraudulent activities, however one must understand the complete use of such systems in terms of handling risk.

Sources

Chopra, S. & Sodhi, M.S., 2004. Managing Risk To Avoid Supply-Chain Breakdown. MIT Sloan Management Review, 46(1), pp.53-62.

Christopher, M. & Lee, H., 2004. Mitigating Supply Chain Risk Through Improved Confidence. International Journal of Physical Distribution & Logistics Management, 34(5), pp.388-96.


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