5 Minute Guide to ERP

Information technology has transformed the way we live and the way we do business. ERP, or Enterprise Resource Planning, is one of most widely implemented business software systems in a wide variety of industries and organizations. In this short article, we’ll try to concisely explain the basic yet important concepts relevant to ERP.

What is ERP (Enterprise Resource Planning)?

What is ERP – ERP is the acronym of Enterprise Resource Planning. ERP definition refers to both ERP software and business strategies that implement ERP systems. ERP implementation utilizes various ERP software applications to improve the performance of organizations for 1) resource planning, 2) management control and 3) operational control erp. ERP software consists of multiple software modules that integrates activities across functional departments – from product planning, parts purchasing, inventory control, product distribution, to order tracking. Most ERP software systems include application modules to support common business activities – finance, accounting and human resources.

ERP Systems – ERP is much more than a piece of computer software. A ERP System includes ERP Software, Business Processes, Users and Hardware that run the ERP software. An ERP system is more than the sum of its parts or components. Those components interact together to achieve a common goal – streamline and improve organizations’ business processes.

History of ERP – Enterprise Resource Planning (ERP) is the evolution of Manufacturing Requirements Planning (MRP) II in 1980s, while MRP is the evolution of Inventory Management & Control conceived in 1960s. ERP has expanded from coordination of manufacturing processes to the integration of enterprise-wide backend processes. In terms of technology, ERP has evolved from legacy implementation to more flexible tiered client-server architecture.

Benefits of ERP – ERP software attempts to integrate business processes across departments onto a single enterprise-wide information system. The major benefits of ERP are improved coordination across functional departments and increased efficiencies of doing business. The implementation of ERP systems help facilitate day-to-day management as well. ERP software systems is originally and ambitiously designed to support resource planning portion of strategic planning. In reality, resource planning has been the weakest link in ERP practice due to the complexity of strategic planning and lack of adequate integration of ERP with Decision Support Systems (DSS).

ERP Failures – We couldn’t conclude our brief guide to ERP without mentioning ERP failures. The failure of multi-million dollar ERP projects are reported once in a while even after 20 years of ERP implementation. We have identified the four components of an ERP System – 1) ERP software, 2) Business Processes that ERP software supports, 3) Users of ERP systems, and 4) Hardware and Operating systems that run ERP applications. The failures in one or more of those four components could cause the failure of an ERP project. Enterprise Resource Planning (ERP) plays a critical role in business, requiring people to have a general understanding of the key components of ERP to function well in any organization. Businesses have been transitioning to computer technology at an increasing rate since the advent of the desktop computer in the early 80’s. The focus of computer technology in business has always been to increase productivity through information management. Since the introduction of the Internet and advances in networking technologies and software, businesses must implement some form of computer technology to automate common tasks like word processing, accounting, and Internet access by employees, to more advanced software applications covering all or most of an organization’s business processes. These advanced software applications, generally known as ERP, capitalize on computer technology and enable businesses to have detailed perspectives into a wide range of business operations, allowing them to share information quickly between organizations, departments and personnel for better management.

ERP is a loosely used term primarily describing software but encompasses hardware and software systems used by an enterprise to gather, store, retrieve, and use information flows through an enterprise. The term ERP, therefore, can apply to a single microcomputer using an accounting package (Quick Books for example) to track sales, inventory, billing and accounting, to more complex ERP systems that automate business processes across the supply chain from manufacturing, distribution, retail, service and, ultimately, the customer, who may be either downstream or upstream in the supply chain. These functional abilities of ERP are generally grouped into software categories known as Supply Chain Management (SCM) and Customer Relationship Management (CRM) and can be implemented in small, medium, or large businesses using various hardware and software configurations. Complex ERP systems can be designed (hardware and software architecture) to service large multi-national corporations using the internet, Intranets, and Extranets in their business operations. An Intranet functions like the Internet; however, it is limited to the organization and its users and denies access to the public. An Extranet, on the other hand, is a mechanism that allows authorized persons to access portions of an enterprise’s Intranet (over the Internet) with a username and password. For example, a manufacturer may allow dealers to access their Extranet to view product and pricing data, proprietary information limited to authorized dealers only.

ERP is an extremely complex subject best understood by looking at the major components of an ERP system including hardware, software, and primary areas of concern for business owners and managers. By looking at these major components from a conceptual viewpoint, we can side step technical jargon allowing for a greater understanding of the purpose of ERP and its importance in business and the workplace.

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