Why your ERP system needs AI

The implementation of ERP systems is becoming standard practice for medium and large enterprises, while also growing in adoption among small businesses. As ERP adoption saturates the market, businesses are now looking at intelligent AI-enabled ERP as the new technological benchmark.

Rooted in the materials requirement planning (MRP) systems that were exclusive to manufacturing units of the late twentieth century, the modern day ERP systems have evolved beyond recognition. Not only have ERP systems gained breadth in their functionality but have also, as a result, pervaded industries beyond manufacturing. Now, every industry, be it financial services, healthcare, or food and agriculture, functions around some form of a centralized ERP system. While ERP technology has undergone several waves of changes in the last couple of decades, the digital revolution has given it an unprecedentedly massive boost both in terms of capability and importance. The rapid digitization of industries and consequently, their growing reliance on data has made ERP systems indispensable, especially for large enterprises. ERP systems have also grown to incorporate a wide range of functions, from accounting to customer relationship management and marketing. Having assimilated all the core business functions, the next step in the evolution of this technology is the development and adoption of AI-enabled ERP.

To understand how AI-enabled ERP can impact enterprise operations, let us first understand the capabilities of and the need for existing ERP systems.

The need for and ubiquity of ERP systems

Regardless of the economy, sector, and industry they operate in, businesses have been quick to adopt different ERP applications to improve their business processes. Even the smallest of businesses use ERP modules to automate some of their back-end business processes, such as accounting and inventory management. However, it is the large corporations that comprise multi-unit supply chains scattered across the globe who have been the major adopters of ERP systems. And it makes sense, considering the fact that ERP primarily offers the integration of the different functions for synchronized, coordinated operation of the otherwise siloed units.

Integrating business functions

A unified ERP system enables the different divisions of a business separated by function or location, to exchange vital information that enables them to work as a single unit. For example, an ERP system allows seamless communication between the sequential units of a manufacturing supply chain, such as a parts vendor’s facility, a parts warehouse owned by the manufacturer, and the manufacturing and assembly unit. The ERP system enables timely information transfer between these units to ensure that the manufacturing unit stays adequately supplied with the necessary parts to ensure uninterrupted operations due to a shortage of supply while also avoiding overstocking of parts.

Maximizing process efficiency

Using ERP systems essentially helps in automating most back office process by minimizing the need for manual data entry. It also eliminates the need for people to perform computational tasks, thereby nearly nullifying the possibility of erroneous calculations and their undesirable consequences. ERP systems help businesses minimize the need for their human resources to handle routine tasks, resulting in significant time savings.

Ensuring greater agility

Since business processes become more streamlined with the implementation of ERP systems, organizations become more agile. They become adept at sensing changes in the market and reacting to those changes in time. Doing so enables them to minimize risk and exploit opportunities, ensuring that they stay sustainable and successful. Having an integrated ERP system allows businesses to quickly analyze trends and make informed decisions quickly, enabling the business to adapt to the changing market, such as changes in product demand, preferences for different product features, and emerging competition. However, most ERP systems of today, despite being able to handle a variety of functions, still need a lot of manual input and intervention. People still need to perform data entry and calculations while using the ERP, which leads to inefficiencies. Sometimes, data entry takes up a significant portion of employees’ time. Manual data entry and computation also increases the likelihood of error in input, potentially leading to significantly skewed outputs and results. Thus, the routine task of data entry has been a major limitation that has been holding back ERP from delivering truly remarkable results. Additionally, although ERP systems purport to make business processes ‘smarter’, they haven’t been able to do so, mainly because of their inability to perform complicated information processing. Limitations like these and more can be overcome by integrating artificial intelligence modules into enterprise information systems.

The potential of AI-enabled ERP systems

Both the business world and the mainstream public are more than familiar with the capabilities of modern AI systems. Most businesses have adopted variably complex and functional AI applications to automate their routine operations. AI technology has already taken over factory floors and is automating manufacturing processes. It is becoming commonplace in the modern workplace, where it is enhancing the customer experience as chatbots and improving decision-making through AI-based big data analytics.

As an extension of these applications, AI can also be used in conjunction with ERP systems. These AI-enabled ERP systems don’t just add the benefits of the individual applications alone but create an impact far greater than the sum of the individual parts. There are numerous benefits to using AI-enabled ERP systems, all arising from the following three features:

Minimal data entry

Although ERP systems reduced the need for manual data entry, their operation still required repetitively keying in some data. This led to the inefficient utilization of the available man-hours, as most of those were used in automatable, routine activities. This meant a lesser amount of time being spent on creative tasks and activities requiring focus. With the introduction of AI-enabled ERP, businesses can automate almost every interaction that requires manual data entry, allowing employees to focus their efforts and commit their time towards tasks that can make a greater impact on the organization. These AI-enabled ERP systems can parse data using natural language processing (NLP) from different sources such as online invoices and order forms without requiring employees to type in data from different sources. This also eliminates the possibility of erroneous entries which are always likely when manual entry is required.

Intelligent data processing

While ERP systems are ‘smart’ to a certain extent and can perform minor calculations. They are nowhere near capable of processing the totality of information that is stored and used by these systems. AI-enabled ERP systems can autonomously use the data acquired from one module (or function) to make a decision in another module whenever applicable. This means there is minimal need for humans to perform repetitive calculations or frequent references to different modules of the ERP system.

Integrated data analytics

We are all aware of applications using big data and AI that are being used by organizations to perform data analytics. This analytics can now become a part of ERP-based decision-making. While most ERP could only provide reports generated by analyzing historic data, AI-enabled ERP can also perform predictive analytics to add more certainty to the decision-making processes, both on a strategic and an operational level. This significantly adds to the agility of businesses and enables them to solve problems based on accurate insights.

ERP systems are becoming increasingly inseparable from the modern enterprise architecture. In fact, it is almost a given that any business operating in any sphere has a multi-functional ERP system underpinning its operations. As AI is poised to become cheaper and more accessible to enterprises, AI-enabled ERP systems will become the norm across the globe. We will then see a new generation of ERP systems that will be unparalleled in functionality and capacity, pushing businesses towards higher standards of efficiency and competitiveness. With further upgrades to AI and the addition of autonomous technologies like the IoT, who knows, the term ERP as we know it may eventually cease to exist.