Definition of 'Enterprise Resource
Planning - ERP'
by which a company (often a manufacturer) manages and integrates the important parts of its business. An ERP management information
system integrates areas such as planning, purchasing, inventory, sales, marketing, finance, human resources, etc.
When you search for "ERP" on the web, the
sheer amount of information that comes up can be overwhelming—not to mention a little confusing. Every website seems
to have its own definition of ERP, and one ERP implementation can vary widely from the next.
These differences, however, underscore the flexibility that can make ERP such a powerful
To get a deeper understanding of how ERP
solutions can transform your business, it helps to get a better sense of what ERP actually is and how it works.
Here's a brief introduction to ERP and why it seems like everyone's
talking about it.
ERP is an acronym for Enterprise
Resource Planning, but even its full name doesn't shed much light on what ERP is or what it does.
that, you need to take a step back and think about all of the various processes that are essential to running a business,
including inventory and order management, accounting, human resources, customer relationship management (CRM), and beyond.
At its most basic level, ERP software integrates these various functions into one complete system to
streamline processes and information across the entire organization.
The central feature of all ERP systems is a shared database that supports multiple functions used by different business
units. In practice, this means that employees in different divisions—for example, accounting and sales—can rely
on the same information for their specific needs.
software also offers some degree of synchronized reporting and automation. Instead of forcing employees to maintain separate
databases and spreadsheets that have to be manually merged to generate reports, some ERP solutions allow staff to pull reports
from one system.
For instance, with sales orders
automatically flowing into the financial system without any manual re-keying, the order management department can process
orders more quickly and accurately, and the finance department can close the books faster. Other common ERP features include
a portal or dashboard to enable employees to quickly understand the business' performance on key metrics.
A Brief History of ERP
The term ERP was coined in 1990 by Gartner1, but its roots date to the 1960s. Back then, the concept applied to inventory
management and control in the manufacturing sector. Software engineers created programs to monitor inventory, reconcile balances,
and report on status. By the 1970s, this had evolved into Material Requirements Planning (MRP) systems for scheduling production
1980s, MRP grew to encompass more manufacturing processes, prompting many to call it MRP-II or Manufacturing Resource Planning.
By 1990, these systems had expanded beyond inventory control and other operational processes to other back-office functions
like accounting and human resources, setting the stage for ERP as we've come to know it.
Today, ERP has expanded to encompass business intelligence
(BI) while also handling "front-office" functions such as sales force automation (SFA), marketing automation and
ecommerce. With these product advancements and the success stories coming out of these systems, companies in a broad range
of industries—from wholesale distribution to ecommerce—use ERP solutions.
Moreover, even though the "e" in ERP stands for "enterprise,"
high-growth and mid-size companies are now rapidly adopting ERP systems. Software-as-a-Service (SaaS) solutions—also
referred to as "cloud computing"—have helped fuel this growth. Cloud-based solutions not only make ERP software
more affordable, they also make these systems easier to implement and manage. Perhaps even more importantly, cloud ERP enables
real-time reporting and BI, making them even valuable to executives and staff seeking visibility into the business.
As a result, companies
of all sizes and a wide range of industries are transitioning to cloud ERP systems. In fact, Forrester predicts that SaaS-based
ERP adoption will rise 21 percent annually through 2015.2 When you stop to consider the benefits of ERP, it's easy to see
why it's become so popular and why its use will continue to grow so rapidly.
The Business Value of ERP
At its core, ERP helps employees do their jobs more efficiently by breaking down
barriers between business units. More specifically, an ERP solution:
Gives a global, real-time view of data that can enable companies to address concerns
proactively and drive improvements
Improves financial compliance with regulatory standards and reduces risk
Automates core business operations such as lead-to-cash, order-to-fulfillment,
and procure-to-pay processes
customer service by providing one source for billing and relationship tracking.
When you add up these advantages, the value of ERP—particularly cloud ERP—is
With an ERP solution,
employees have access to accurate information that enables them to make better decisions faster. Not only that, but ERP software
helps to eliminate redundant processes and systems, dramatically lowering the cost of doing business overall.
Today's most successful companies
understand and practice enterprise application integration through innovative approaches and techniques.
A composite story, drawing from experiences applying Enterprise
Resource Planning (ERP) software with companies in the employment services sector, provides an example of how
such companies would apply integration models to ERP objectives.
The packaged software that is provided by ERP vendors such as PeopleSoft, SAP, JD Edwards, and Baan delivers improved
enterprise application integration by offering an integrated suite of applications to perform standard business functions.
Back-end functions such as accounting,
inventory, and shipping are supported, as well as front-end functions such as call-center and sales-force automation. ERP
packages are used in conjunction with business process reengineering techniques to upgrade big chunks of a company's supporting
Until recent years, packaged-software
vendors concentrated on one application or a suite of applications that they automated without regard to other applications
that a company might have in its systems portfolio. Consequently, large corporations that purchased and installed packaged
applications found themselves with islands of data and processing that must be bridged to other islands. As these bridges
grew, the maintenance of a system and its interfaces also grew to take up more and more resources.
In response to this dilemma, software vendors expanded their offerings
to include all or many of the related applications that a company would require, delivering them pre-integrated by the vendor.
Companies undertake ERP implementations when
they need to integrate multiple systems quickly. Sometimes business competition forces companies to undertake ERP initiatives
when competitors, because of tight integration of their own systems, can offer more desirable services and product features.
At other times, technological advances
require that a company upgrade all its systems to keep up with new opportunities. Yet another reason companies install ERP
systems is when outsourcing initiatives have failed and they want to reinstate their own information technology systems support.
When bringing this function back
inside a company is a good time to overhaul the systems and make sure they're integrated and maintainable.
The new Chief Information Officer's charter was to replace obsolete
computer systems with current packaged systems, providing a competitive advantage through technology. This meant using advanced
systems to bring more resources to market (that is, filling jobs more quickly with their temporary employees) while at the
same time slashing prices by reducing operating margins. The goal was to implement improved business processes by configuring
and installing packaged ERP systems according to the results of an enterprisewide reengineering effort.
The sales and service delivery team would be able to fill jobs more
quickly with temporary employees by using sales support applications that were configured based on best practices identified
and propagated throughout the organization's distribution network.
New business acquisition and retention of existing customers would be enhanced through customer
management software and customer information reporting.
The field offices would be able to reduce operating margins by using packaged applications that support field office
functions such as billing, payroll, time accounting, and collections.
The definition of core business processes, flow of activities and decision support needs
would ensure the proper configuration of the packaged software to take advantage of reengineered processes with the latest
nature of the ERP packaged software would provide a new baseline for all of the company's systems, including those that would
not be involved in the initial installation.
Those included isolated systems without integration requirements, systems that were not included in the available
ERP functions and unique in-house applications and customized applications. Systems would be converted into the new order
on a scheduled basis, and new development would target the standards established by the ERP implementation.
As all applications migrated into the new systems
environment, integration would increase and the company would begin to develop sophisticated knowledge management at the corporate
level to be used for decision-making.
CIO's main problem was the seemingly insurmountable gap between what he knew (the fragmented puzzle of the company's current
systems) and what he needed to know (business requirements for the new systems). He had very little information about how
the existing systems were actually being used to conduct business.
His technical managers, field managers, and the headquarters staff that supported them all
wanted the package installation to succeed.
All held a piece of the information needed to make it a success, but none could see the whole picture. Without the
crucial understanding of the use of current systems as a basis for defining future business requirements, the implementation
project risked missing the mark.
ERP is often a confusing
terminology but to put it in simple terms: ERP is an acronoym meaning Enterprise Resource Planning. It is a software package/solution
most often used within the manufacturing environment. ERP is a business tool that management uses to operate the business
day-in and day-out.
It is usually comprised
of several modules such as a financial module, a distribution module, or a production module.
Each of these modules share information that is housed within the database
structures on which the ERP system was coded. ERP helps to break down barriers between departments within a company.
For example, many times the sales department may be selling 25% more product
than the production department can produce. By utilizing an ERP system, the sales department, production department, operations
management, shipping, financial department, purchasing department all have access to the up-to-date information that is needed
to operate smoothly within any manufacturing environment.
2) Adapted from response by Devin on Thurs,
26 Sept 2008
In ERP (Enterprise Resource Planning) solution there is only one database that is used by all departments, such as
Sales, Production, Finance and Accounting, Maintenance and Engineering, Purchasing, etc. ERP applications contain several
modules such as production, finance and accounting, sales and distribution modules, etc. those modules are totally integrated
and need only one database (to ensure no duplicate data). Each module consists of the best business practice that can be implemented
for that company's industry, for example a manufacturing company. ERP software should only require some customization to fit
the requirements of the business process.
One main difference between non-packaged software and ERP, is the number
of databases. When you develop a program for each department with a unique database, then you must integrate each database.
In this situation, you must maintain several databases.
In one sentence, ERP is a combination of business management practice and technology,
where Information Technology integrates with your company's core business processes to enable the achievement of specific
Notice that there are 3-4 components to this definition:
practice - over the years, management practice has evolved into a set of generally accepted best practices specific to particular
businesses, e.g. if your company is in the textile business, there would be a set of documented best practices for your kind
of business. These are generally arrived at after a long process of benchmarking and evolution, and are not static but will
keep evolving into the future in response to changes in the business environment. A good ERP solution would be expected to
enable your company to implement these best practices in its core business processes.
- this constitutes the sum total of your company's IT resources including hardware, software, networking, telecom and associated
accessory equipment/material. Is it good enough to implement an ERP or will it require upgrading/replacement?
business objectives - Why do you wish to implement ERP? Is your company clear about this?
ERP is expected to enable the effective management of business processes, and as
any business person or company will agree, effectiveness can only be defi