The ABCs of ERP

History of ERP
Enterprise resource planning (ERP) systems were developed as an extension of materials requirements
planning (MRP) systems. MRP, in turn, was originally developed (late 70s and early 80s) to integrate
planning and scheduling elements to the manufacturing process. Subsequently "MRP II" was introduced to
incorporate the planning elements of distribution and forecast requirements to the central manufacturing
location.

ERP was introduced in the late 80s as a means to integrate other enterprise functionality. One example
would be when a software system can provide at least two other functions (as is the case if an
organization has the means to integrate the requirements of both a human resources module and a
financial system).

In modern ERP systems, usage is not confined to manufacturing organizations. It is typically designed to
integrate applications that traditionally would have been separate "stand alone" activities, such as product
configuration control, bill of materials and sales, or order entry.

Modern ERP Systems

In current ERP systems one would expect to have the ability to manage the following applications (among
others) through a single database:

 manufacturing
 supply chain
 financials
 customer relationship management
 HR
 warehouse management
 business intelligence

Determining which ERP solution best meets your needs depends to a great extent on your industry vertical
space, as well as the application requirements of your organization.

If your organization lacks the resources to integrate a complete ERP system package, then only portions
of the system need be implemented, with the other applications introduced gradually over a period of time.
In other instances an organization may already have a very robust accounting system, with other
applications in place, and may simply be looking to extend the capabilities of current systems by adding
additional applications.

One example might be a retail company that has a point of sale (POS) system and a financial application
from different software vendors. However, additional specialized applications such as warehouse
management systems (WMS) and transportation management systems (TMS) and demand planning are
not in place and are required to optimize the supply chain capabilities.

Integration to other functionality is large part a measure of the capabilities of the company's existing legacy
systems. In systems using modern relational database management systems (RDBMS), integrating other
applications as a "best of breed" solution is fairly commonplace.

The alternative is to explore other options in light of the total cost of ownership (TCO) of supporting and
maintaining the existing legacy system. In many instances it may make sense to purchase a new solution
where all required applications are available as a standard part of the software solution.

It should also be noted that there has never been a better time for prospective ERP system buyers, as
there are so many choices that can support the best practices of whatever industry vertical or business
model your organization has in place.
Low-cost ERP Options
If your organization has limited IT resources and budget constraints, one option to consider is software as
a service (SaaS), whereby your organization can access an externally hosted solution with a set of pre-
configured modules that can provide the functionality of a completely integrated ERP system (for a
monthly fee). This can address the need to have a solution in place, without incurring the costs for support
and maintenance of an ERP system.

Another alternative is to explore the growing number of open source ERP vendors, which can address
many application requirements for little or no up-front costs. Other costs are applied at the back end for
support and for features which may not be available within the standard open source offering.

Definition of ERP (Enterprise Resource Planning)

Enterprise resource planning (ERP) is the industry term used to describe a broad
set of activities supported by multi-module application software that helps a
manufacturer or other business manage the important parts of its business. These
parts can include product planning, parts purchasing, maintaining inventories,
interacting with suppliers, providing customer service, and tracking orders. ERP
can also include application modules for the finance and human resources
aspects of a business.

Some of the bigger players in the ERP outsourcing market are SAP, Peoplesoft,
and J. D. Edwards. New comers include Oracle, IBM, and Microsoft.

ERP stands for Enterprise Resource Planning. ERP is a way to integrate the data
and processes of an organization into one single system. Usually ERP systems
will have many components including hardware and software, in order to
achieve integration, most ERP systems use a unified database to store data for
various functions found throughout the organization.

The term ERP originally referred to how a large organization planned to use
organizational wide resources. In the past, ERP systems were used in larger
more industrial types of companies. However, the use of ERP has changed and
is extremely comprehensive, today the term can refer to any type of company, no
matter what industry it falls in. In fact, ERP systems are used in almost any type
of organization - large or small.

In order for a software system to be considered ERP, it must provide an

organization with functionality for two or more systems. While some ERP
packages exist that only cover two functions for an organization (QuickBooks:
Payroll & Accounting), most ERP systems cover several functions.

Today's ERP systems can cover a wide range of functions and integrate them
into one unified database. For instance, functions such as Human Resources,
Supply Chain Management, Customer Relations Management, Financials,
Manufacturing functions and Warehouse Management functions were all once
stand alone software applications, usually housed with their own database and
network, today, they can all fit under one umbrella - the ERP system.

Integration is Key to ERP

Integration is an extremely important part to ERP's. ERP's main goal is to
integrate data and processes from all areas of an organization and unify it for
easy access and work flow. ERP's usually accomplish integration by creating
one single database that employs multiple software modules providing different
areas of an organization with various business functions.

Although the ideal configuration would be one ERP system for an entire
organization, many larger organizations usually create and ERP system and then
build upon the system and external interface for other stand alone systems which
might be more powerful and perform better in fulfilling an organizations needs.
Usually this type of configuration can be time consuming and does require lots
of labor hours.

The Ideal ERP System

An ideal ERP system is when a single database is utilized and contains all data
for various software modules. These software modules can include:

Manufacturing: Some of the functions include; engineering, capacity,

workflow management, quality control, bills of material, manufacturing process,
etc.

Financials: Accounts payable, accounts receivable, fixed assets, general ledger

and cash management, etc.

Human Resources: Benefits, training, payroll, time and attendance, etc

Supply Chain Management: Inventory, supply chain planning, supplier

scheduling, claim processing, order entry, purchasing, etc.

Projects: Costing, billing, activity management, time and expense, etc.

Customer Relationship Management: sales and marketing, service,

commissions, customer contact, calls center support, etc.

Data Warehouse: Usually this is a module that can be accessed by an

organizations customers, suppliers and employees.
ERP Improves Productivity
Before ERP systems, each department in an organization would most likely have
their own computer system, data and database. Unfortunately, many of these
systems would not be able to communicate with one another or need to store or
rewrite data to make it possible for cross computer system communication. For
instance, the financials of a company were on a separate computer system than
the HR system, making it more intensive and complicated to process certain
functions.

Once an ERP system is in place, usually all aspects of an organization can work
in harmony instead of every single system needing to be compatible with each
other. For large organizations, increased productivity and less types of software
are a result.

Implementation of an ERP System

Implementing an ERP system is not an easy task to achieve, in fact it takes lots
of planning, consulting and in most cases 3 months to 1 year +. ERP systems are
extraordinary wide in scope and for many larger organizations can be extremely
complex. Implementing an ERP system will ultimately require significant
changes on staff and work practices. While it may seem reasonable for an in
house IT staff to head the project, it is widely advised that ERP implementation
consultants be used, due to the fact that consultants are usually more cost
effective and are specifically trained in implementing these types of systems.

One of the most important traits that an organization should have when
implementing an ERP system is ownership of the project. Because so many
changes take place and its broad effect on almost every individual in the
organization, it is important to make sure that everyone is on board and will help
make the project and using the new ERP system a success.

Usually organizations use ERP vendors or consulting companies to implement

their customized ERP system. There are three types of professional services that
are provided when implementing an ERP system, they are Consulting,
Customization and Support.

Consulting Services - usually consulting services are responsible for the initial
stages of ERP implementation, they help an organization go live with their new
system, with product training, workflow, improve ERP's use in the specific
organization, etc.

Customization Services - Customization services work by extending the use of

the new ERP system or changing its use by creating customized interfaces
 and/or underlying application code. While ERP systems are made for many core
routines, there are still some needs that need to be built or customized for an
organization.

Support Services- Support services include both support and maintenance of

ERP systems. For instance, trouble shooting and assistance with ERP issues.

Advantages of ERP Systems

There are many advantages of implementing an EPR system; here are a few of
them:

 A totally integrated system

 The ability to streamline different processes and workflows
 The ability to easily share data across various departments in an organization
 Improved efficiency and productivity levels
 Better tracking and forecasting
 Lower costs
 Improved customer service

Disadvantages of ERP Systems

While advantages usually outweigh disadvantages for most organizations
implementing an ERP system, here are some of the most common obstacles
experienced:

Usually many obstacles can be prevented if adequate investment is made and

adequate training is involved, however, success does depend on skills and the
experience of the workforce to quickly adapt to the new system.

 Customization in many situations is limited

 The need to reengineer business processes
 ERP systems can be cost prohibitive to install and run
 Technical support can be shoddy
 ERP's may be too rigid for specific organizations that are either new or want to
move in a new direction in the near future.

What is Enterprise Resource Planning or ERP?

Enterprise Resource Planning or ERP is actually a process or approach which
attempts to consolidate all of a company's departments and functions into a
single computer system that services each department's specific needs. It is, in a
sense, a convergence of people, hardware and software into an efficient
production, service and delivery system that creates profit for the company