Enterprise Resource Planning (ERP) (Cambridge International A-Level Business)

Features of an Enterprise Resource Plan

• Enterprise Resource Planning (ERP) is a type of integrated software system that helps a business manage and coordinate its core activities — such as finance, production, supply chain, human resources, and customer relations — all in one place.

  • ERP solutions have evolved over the years, and many are now web-based applications that users can access remotely

• ERP can help a business plan resources by integrating:

  • planning
  • the purchasing of inventory
  • sales, marketing and finance
  • design and production and human resources

• It collects information about the activity and state of different production stages, allowing the different functional areas to communicate and share information easily

Common features of ERPs

Case Study IKEA's ERP system

• IKEA is a multinational furniture and homeware company based in Sweden, known for its flat-pack products and large warehouse-style stores

• With hundreds of stores in over 50 countries, managing operations efficiently is crucial
• Its ERP system has allowed IKEA to manage its complex, global operations efficiently, reducing costs and improving customer satisfaction

Why IKEA adopted ERP

• To improve supply chain visibility across its global operations
• To better manage inventory levels and avoid stock shortages or over-ordering
• To integrate various departments (finance, logistics, inventory) into one unified system
• To support rapid international expansion with consistent systems

The impact of ERP at IKEA

Area	Impact
Inventory management	- IKEA gained real-time insight into stock levels across stores and warehouses worldwide - This helped reduce waste and improve product availability
Supply chain efficiency	- The ERP system helped coordinate deliveries from suppliers to stores more smoothly and cost-effectively
Financial control	- Improved accuracy in tracking costs, sales and profitability across its international markets
Customer satisfaction	- More reliable stock availability and smoother logistics improved the overall shopping experience, increasing customer satisfaction

ERPs and efficiency

• Enterprise Resource Planning (ERP) systems improve efficiency by connecting all key business functions, such as finance, operations, and HR, into one integrated system
• This allows for real-time data sharing, quicker decision-making and the more effective use of resources

How do ERPs generate efficiency?

1. Inventory control

• ERP systems monitor inventory levels in real time, across all warehouses and stores

  • This prevents overstocking and stock shortages, as stock levels are always accurate
  • It helps reduce waste and storage costs by only reordering when necessary

2. Costing and pricing

• ERP brings together data on purchasing, production and sales to give accurate cost information

  • This allows businesses to set realistic and competitive prices based on true costs
  • It also helps managers identify where costs are increasing and make changes to protect profit margins

3. Capacity utilisation

• ERP systems track machine use, labour hours, and output across departments or locations

  • This ensures that production facilities are neither underused nor overloaded
  • It helps businesses plan production more efficiently and make the most of their resources

4. Response to change

• Because ERP updates data instantly, businesses can react quickly to unexpected changes, such as supplier delays or a sudden rise in demand

  • This improves communication across departments and avoids disruption
  • It allows for faster and more confident decision-making

5. Workforce flexibility

• ERP systems store information on staff availability, qualifications and current roles

  • This makes it easier to move staff to different tasks or locations when needed
  • It also improves shift planning during busy or quiet periods

6. Management information

• ERP systems provide managers with accurate, real-time reports

  • This helps leaders monitor sales, costs, cash flow, and productivity without delay
  • It reduces time spent on manual reporting and improves the quality of decision-making

Limitations of ERP Systems

• Bespoke ERP systems are **expensive to install and maintain **and involve short-term upheaval to a business's operations.
• ERP systems** do not always eliminate inefficiencies** within a business and rarely improve every aspect of production
• A company's reluctance to abandon old working processes limits the effectiveness of ERP systems
• ERP systems cannot be successfully implemented during a period of significant business change