Enterprise Resource Planning (ERP)
The elobration of ERP is Enterprise Resource Planning. It 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, software , their combination 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. A few days ago 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.
Example: Aktel, Coco cola, Square in our country.
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 such as QuickBooks: Payroll & Accounting etc, most ERP systems cover several functions.
In present ERP systems can cover a wide range of functions and integrate them into one unified database. For example, 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.
Integration is requird Key to ERP
Integration is an most important part to ERP's. ERP's main objective 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 building one single database that employs multiple software modules providing different areas of an organization with various business functions.
However the expert 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 Expert ERP System
An expert 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.
How ERP Improves Productivity
Before ERP systems, each department in an organization would most likely have their own computer and network 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 with a 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.
The best 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 so 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 firm, it is important to make sure that everyone is on board and will help make the project and using the new Enterprise Resource Planning 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
1) Consulting,
2) Customization and
3) 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
In the absence of an ERP system, a large manufacturer may find itself with many software applications that neither talk to each other nor interface effectively. Tasks that need to interface with one another may involve:
• Integration among different functional areas to ensure proper communication, productivity and efficiency
• Design engineering (how to best make the product)
• Order tracking, from acceptance through fulfillment
• The revenue cycle, from invoice through cash receipt
• Managing inter-dependencies of complex processes bill of materials
• Tracking the three-way match between purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced)
• The accounting for all of these tasks: tracking the revenue, cost and profit at a granular level.
• ERP Systems centralize the data in one place. This eliminates the problem of synchronising changes and can reduce the risk of loss of sensitive data by consolidating multiple permissions and security models into a single structure.
Some security features are included within an ERP system to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A data-tampering scenario, for example, might involve a disgruntled employee intentionally modifying prices to below-the-breakeven point in order to attempt to interfere with the company's profit or other sabotage. ERP systems typically provide functionality for implementing internal controls to prevent actions of this kind. ERP vendors are also moving toward better integration with other kinds of information security tools.
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 of the ERP software is limited.
• Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage.
• ERP systems can be very expensive (This has led to a new category of "ERP light" solutions)
• ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure.
• Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications.
• Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level).
• The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.
• Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.
• Some large organizations may have multiple departments with separate, independent resources, missions, chains-of-command, etc, and consolidation into a single enterprise may yield limited benefits.
• The system may be too complex measured against the actual needs of the customers.
• ERP Systems centralize the data in one place. This can increase the risk of loss of sensitive information in the event of a security breach.
Source: http://en.wikipedia.org/wiki/File:Manufacturating
And: http://www.tech-faq.com/erp.shtml
