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Investment Dictionary: Enterprise Resource Planning - ERP
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A process 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.

Investopedia Says:
ERP is most frequently used in the context of software. As the methodology has become more popular, large software applications have been developed to help companies implement ERP in their organization.

Think of ERP as the glue that binds the different computer systems for a large organization. Typically each department would have their own system optimized for that division's particular tasks. With ERP, each department still has their own system, but they can communicate and share information easier with the rest of the company.


Accounting Dictionary: Enterprise Resource Planning (ERP)
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Latest phase in the development of computerized systems for managing organizational resources. ERP is intended to integrate enterprise-wide information systems. ERP connects all organizational operations (personnel, the financial accounting system, production, marketing, distribution, etc.) and also connects the organization with its suppliers and customers.

Small Business Encyclopedia: Enterprise Resource Planning (ERP)
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Enterprise resource planning (ERP) is a method of using computer technology to link various functions—such as accounting, inventory control, and human resources—across an entire company. ERP is intended to facilitate information sharing, business planning, and decision making on an enterprise-wide basis. ERP enjoyed a great deal of popularity among large manufacturers in the mid-to late-1990s. Most early ERP systems consisted of mainframe computers and software programs that integrated the various smaller systems used in different parts of a company. Since the early ERP systems could cost up to $2 million and take as long as four years to implement, the main market for the systems was Fortune 1000 companies.

"Throughout the 1990s, most large industrial companies installed enterprise resource planning systems—that is, massive computer applications allowing a business to manage all of its operations (finance, requirements planning, human resources, and order fulfillment) on the basis of a single, integrated set of corporate data," Dorien James and Malcolm L. Wolf wrote in The McKinsey Quarterly. "ERP promised huge improvements in efficiency—for example, shorter intervals between orders and payments, lower back-office staff requirements, reduced inventory, and improved customer service. Encouraged by these possibilities, businesses around the world invested some $300 billion in ERP during the decade."

By the late 1990s, however, sales of ERP systems began to slow. Some large manufacturers encountered problems implementing the systems, and others felt that ERP did not live up to its billing as a planning tool. Larger economic factors also influenced sales of ERP systems. For example, many companies developed close relationships with customers and suppliers and began conducting business over the World Wide Web. In addition, a growing number of companies came to value the speed and flexibility of smaller, interconnected computer systems and no longer wanted to rely on a mainframe to run ERP software. In response to these issues, the vendors of ERP systems have evolved to focus on smaller companies, develop Web-enabled systems, and expand their offerings up and down the supply chain.

Benefits and Drawbacks of Erp

When the idea was first introduced, ERP was an attractive solution for many large companies because it offered so many potential uses. For example, the same system could be used to forecast demand for a product, order the necessary raw materials, establish production schedules, track inventory, allocate costs, and project key financial measures. ERP "acts as a planning backbone for a company's core business processes," Gary Forger wrote in Modern Materials Handling. "In addition to directing many of them, the system also ties together these varied processes using data from across the company. For instance, a typical ERP system manages functions and activities as different as the bills of materials, order entry, purchasing, accounts payable, human resources, and inventory control, to name just a few of the 60 modules available. As needed, ERP is also able to share the data from these processes with other corporate software systems." Another important benefit of ERP systems was that they allowed companies to replace a tangle of complex computer applications with a single, integrated system.

Despite these potential benefits, however, traditional ERP systems also had a number of drawbacks. For instance, the early systems tended to be large, complicated, and expensive. Implementation required an enormous time commitment from a company's information technology department or outside professionals. In addition, because ERP systems affected most major departments in a company, they tended to create changes in many business processes. Putting ERP in place thus required new procedures, employee training, and both managerial and technical support. As a result, many companies found the changeover to ERP a slow and painful process. Once the implementation phase was complete, some businesses had trouble quantifying the benefits they gained from ERP.

Finally, as technology began shifting toward speedy Internet connections, Web-based business-to-business (B2B) relationships, and electronic commerce, some companies worried that their mainframe-based ERP systems were too slow and outdated. As it turned out, though, many companies found that their ERP systems provided a solid technological foundation for future growth by standardizing business procedures, facilitating information sharing across the company, and creating an organization accustomed to change. "ERP systems may feel like an albatross to companies that have expensively and painfully installed them," James and Wolf stated. "Nonetheless, they constitute a valuable foundation for a wide range of new value-enhancing applications. …In hindsightit appears that much of the value of these large systems lay in the infrastructure foundation they created for future growth based on information technology."

Erp Solutions for Small Businesses

As sales of ERP systems to large manufacturing companies began to slow, some vendors changed their focus to smaller companies. According to a survey by AMR research reported in Modern Materials Handling, the overall market for ERP systems grew 21 percent in 1998, despite the fact that sales to companies with greater than $1 billion in revenues declined 14 percent during the same period. "ERP applications are no longer just the stuff of huge corporations," Constance Loizos noted in Industry Week. "While billion-dollar manufacturing companies are now completing their ERP implementations, mid-size customers—witness to the improved business processes of manufacturing market leaders—are beginning to refine their own operations…. Invariably the mostsubstantial reason for companies to implement ERP is that without it, staying competitive is a practical impossibility. The business world is moving ever closer toward a completely collaborative model, and that means companies must increasingly share with their suppliers, distributors, and customers the in-house information that they once so vigorously protected."

Of course, small and medium-sized companies—as well as those involved in service rather than manufacturing industries—have different resources, infrastructure, and needs than the large industrial corporations who provided the original market for ERP systems. Vendors had to create a new generation of ERP software that was easier to install, more manageable, required less implementation time, and entailed lower startup costs. Many of these new systems were more modular, which allowed installation to proceed in smaller increments with less support from information technology professionals. Other small businesses elected to outsource their ERP needs to vendors. For a fixed amount of money, the vendor would supply the technology and the support staff needed to implement and maintain it. This option often proved easier and cheaper than buying and implementing a whole system, particularly when the software and technology seemed likely to become outdated within a few years.

Erp and the Internet

Another trend in ERP development and use involves vendors making the software available to client companies on the Internet. Known as hosted ERP or Web-deployed ERP, this trend has also contributed to making ERP systems available to smaller businesses. When a company chooses to run its ERP systems through a Web-based host, the software is not purchased by or installed at the client company. Instead, it resides on the vendor's host computer, where clients access it through an Internet connection. "Rather than dispersing ERP to multiple corporate sites and incurring the costs of many servers needed to run the software, Web-deployed ERP centralizes the system," Forger noted. "Using the Web to access a single ERP system at a central location, companies can reduce their IT investment on two fronts—hardware and personnel."

Running ERP systems on a host computer relieves small businesses from the need to purchase a mainframe computer or hire information technology specialists to support the system. In addition, this arrangement allows client companies to save money by paying only for the ERP applications they use rather than having to buy a certain number of modules. In effect, ERP vendors act as application service providers (ASPs) for several client firms. "Systems supplied by ASPs are particularly attractive to start-up companies that can't reliably predict their future business volumes, can't afford to pay for first-tier ERP systems, and don't want to be continually replacing cheaper, less capable systems as their businesses grow," James and Wolf explained.

Erp Expands Along the Supply Chain

Traditional ERP systems were concerned with automating processes and connecting disparate information systems within a business enterprise. But during the late 1990s, an increasing number of businesses turned their focus outward, toward collaboration and forging technological links to other companies in the supply chain. "Increasingly, manufacturers in developed countries are becoming part of the design and production line of their customers," Richard Adhikari wrote in Industry Week. "Tight scheduling requires automating the supply chain and enterprise resource planning functions and implementing electronic communications links." ERP vendors have responded to this trend by integrating ERP systems with other types of applications, such as e-commerce, and even with the computer networks of suppliers and customers. These interconnected ERP systems are known as extended enterprise solutions.

Sales of extensions to traditional ERP systems increased by 92 percent in 1999, and were expected to continue growing by over 50 percent annually through 2004, according to a survey by AMR Research reported in Manufacturing Systems. In the meantime, sales of core ERP systems were expected to stagnate. These core systems, which accounted for 90 percent of ERP vendors' revenues in 1999, were expected to make up only 57 percent of the market by 2004. "In today's business climate, manufacturers realize that true value comes from collaboration rather than trying to further streamline business processes," analyst Simon Bragg told Jim Fulcher in Manufacturing Systems. "For example, to get MRP [material requirements planning] to really work, a manufacturer needs decent forecast information. The best way to improve forecast accuracy is to work closely with customers and suppliers."

ERP systems have expanded to include several new functions. For example, application integration functions link ERP to other software systems that affect the supply chain. Visibility functions give companies an overview of inventory and its status as it moves through the supply chain. Supply chain planning software helps create optimal plans for producing and delivering goods. Similarly, customer relationship management software customizes the way that a supplier deals with each customer individually. ERP has also been adapted to support e-commerce by facilitating order fulfillment and distribution, simplifying the process of electronic procurement, and tracking information about customers and their orders.

Choosing an Erp Vendor

As of 1998, according to Loizos, there were five leading ERP vendors that accounted for 62 percent of the market: SAP of Germany; Oracle; J.D. Edwards; People Soft; and Baan of the Netherlands. For the most part, these vendors focused on large business clients and concentrated on automating manufacturing, distribution, human resources, and financial systems. The remaining 38 percent of the ERP applications market was comprised of numerous smaller vendors which served smaller business clients and focused on niche applications.

Loizos outlined a series of factors for small businesses to consider in choosing an ERP vendor. For example, she emphasized that implementing an ERP system is a major information technology decision which requires time and resources, so companies should avoid choosing a vendor too quickly. Instead, she recommended that small businesses evaluate their needs carefully and come up with a list of business issues they expect the ERP system to help them address. Loizos also suggested that companies research potential ERP vendors thoroughly, looking at their reputations in the industry but also checking references and interviewing previous clients. She recommended avoiding multiple vendors if possible, and ensuring that the vendor chosen is appropriate for the small business's future growth and expansion plans. Finally, she noted that companies should ensure that project funding is in place before a contract is signed.

Factors in a Successful Erp Implementation

Once a small business has decided to install an ERP system and selected a vendor, there are a number of steps the company can take to ensure a successful implementation. In his article, Forger noted that the ERP implementation is more likely to succeed if the company positions it as a strategic business issue and integrates it with a process redesign effort. Of course, the ERP system should fit the company's overall strategy and help it serve its customers. It may also be helpful to find a passionate leader for the project and select a dedicated, cross-functional project team. The small business owner should make certain that these individuals have the power to make decisions about the ERP implementation process.

Forger recommends that companies attack the implementation project in short, focused stages, working backward from targeted deadlines to create a sense of urgency. It may be helpful to begin with the most basic systems and then expand to other functional areas. Forger also suggests using change management techniques to manage the human dimension of the project, since ERP requires a great deal of support from affected areas of the company. Finally, he emphasizes that once the ERP system is in place, companies need to interpret the data collected carefully and accurately if the system is to contribute to business planning.

Although ERP systems may seem complex and costly, even small businesses are increasingly finding it necessary to invest in such technology in order to remain competitive. "ERP systems are being implemented today to provide a stable foundation for a growing number of businesses across all segments, from dot-coms to major automotive manufacturers," Dave Morrison wrote in CMA Management. "The number of implementations down the supply chain and into small and medium-sized companies is steadily growing as the initial costs are reduced along with the overall cost of ownership. Pre-configured and pretested versions are now effectively slashing the implementation costs while reducing the project complexity and risks. These new systems are providing a clean head start in development and delivering a stable and fully tested product to production. The methodology is continually evolving and the results are very positive."

Further Reading:

Adhikari, Richard. "ERP Meets the Middle Market." Industry Week. March 1, 1999.

Forger, Gary. "ERP Goes Mid-Market." Modern Materials Handling. January 31, 2000.

Fulcher, Jim. "Extended Enterprise Systems." Manufacturing Systems. December 2000.

James, Dorien, and Malcolm L. Wolf. "A Second Wind for ERP." McKinsey Quarterly. Spring 2000.

Johnson, Dexter. "Enterprise Resource Planning." Advanced Manufacturing Technology. December 15, 2000.

Krumwiede, Kip R., and Win G. Jordan. "Reaping the Promise of Enterprise Resource Systems." Strategic Finance. October 2000.

Loizos, Constance. "ERP: Is It the Ultimate Software Solution?" Industry Week. September 7, 1998.

Morrison, Dave. "Full Speed Ahead." CMA Management. November 2000.

Pender, Lee. "The Missing Link." CIO. June 15, 2000.

Peterson, Scot. "What's Behind the ERP Blues?" eWeek. June 12, 2000.

Wah, Louisa. "Give ERP a Chance: Many Businesses Have Declared ERP a Waste or a Burden, but Experts Urge Companies Not to Dismiss This Technology." Management Review. March 2000.

See also: Inventory Control Systems; Material Requirements Planning

Wikipedia: Enterprise resource planning
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Enterprise Resource Planning (ERP) is a term usually used in conjunction with ERP software or an ERP system which is intended to manage all the information and functions of a business or company from shared data stores.[1]

An ERP system typically has modular hardware and software units and "services" that communicate on a local area network. The modular design allows a business to add or reconfigure modules (perhaps from different vendors) while preserving data integrity in one shared database that may be centralized or distributed.[citation needed]

Contents

Origin of the term

MRP vs. ERP — Manufacturing management systems have evolved in stages over the past 30 years from a simple means of calculating materials requirements to the automation of an entire enterprise. Around 1980, over-frequent changes in sales forecasts, entailing continual readjustments in production, as well as inflexible fixed system parameters, led MRP (Material Requirement Planning) to evolve into a new concept : Manufacturing Resource Planning (or MRP2) and finally the generic concept Enterprise Resource Planning (ERP)[2]

The initials ERP originated as an extension of MRP (Material Requirements Planning; later manufacturing resource planning[3]) and CIM (Computer Integrated Manufacturing). It was introduced by research and analysis firm Gartner in 1990. ERP systems now attempt to cover all core functions of an enterprise, regardless of the organization's business or charter. These systems can now be found in non-manufacturing businesses, non-profit organizations and governments.[4]

To be considered an ERP system, a software package must provide the function of at least two systems. For example, a software package that provides both payroll and accounting functions could technically be considered an ERP software package.[citation needed]

Examples of modules in an ERP which formerly would have been stand-alone applications include: Product lifecycle management, Supply chain management (e.g. Purchasing, Manufacturing and Distribution), Warehouse Management, Customer Relationship Management (CRM), Sales Order Processing, Online Sales, Financials, Human Resources, and Decision Support System.[citation needed]


This is common to retailers[citation needed], where even a mid-sized retailer will have a discrete Point-of-Sale (POS) product and financials application, then a series of specialized applications to handle business requirements such as warehouse management, staff rostering, merchandising and logistics.[citation needed]

Ideally, ERP delivers a single database that contains all data for the various software modules that typically address areas such as:[citation needed]

Manufacturing 
Engineering, bills of material, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow
Supply chain management 
Order to cash, inventory, order entry, purchasing, product configurator, supply chain planning, supplier scheduling, inspection of goods, claim processing, commission calculation
Financials 
General ledger, cash management, accounts payable, accounts receivable, fixed assets
Project management 
Costing, billing, time and expense, performance units, activity management
Human resources 
Human resources, payroll, training, time and attendance, rostering, benefits
Customer relationship management 
Sales and marketing, commissions, service, customer contact and call center support
Data services 
various "self-service" interfaces for customers, suppliers, and/or employees
Access control 
management of user privileges for various processes


The term "Enterprise resource planning" originally derived from manufacturing resource planning (MRP II) that followed material requirements planning (MRP).[5] MRP evolved into ERP when "routings" became a major part of the software architecture and a company's capacity planning activity also became a part of the standard software activity.[citation needed] ERP systems typically handle the manufacturing, logistics, distribution, inventory, shipping, invoicing, and accounting for a company. ERP software can aid in the control of many business activities, including sales, marketing, delivery, billing, production, inventory management, quality management, and human resource management.[citation needed]

ERP systems saw a large boost in sales in the 1990s as companies faced the Y2K problem (real or imagined) in their "legacy" systems. Many companies took this opportunity to replace such information systems with ERP systems. This rapid growth in sales was followed by a slump in 1999, at which time most companies had already implemented their Y2K solution.[6]

ERP systems are often incorrectly called back office systems indicating that customers and the general public are not directly involved. This is contrasted with front office systems like customer relationship management (CRM) systems that deal directly with the customers, or the eBusiness systems such as eCommerce, eGovernment, eTelecom, and eFinance, or supplier relationship management (SRM) systems.[citation needed]

ERP systems are cross-functional and enterprise-wide. All functional departments that are involved in operations or production are integrated in one system. In addition to areas such as manufacturing, warehousing, logistics, and information technology, this typically includes accounting, human resources, marketing and strategic management.[citation needed]

ERP II, a term coined in the early 2000s, is often used to describe what would be the next generation of ERP software. This new generation of software is web-based and allows both employees and external resources (such as suppliers and customers) real-time access to the system's data.

EAS — Enterprise Application Suite is a new name for formerly developed ERP systems which include (almost) all segments of business using ordinary Internet browsers as thin clients.[citation needed]

Best practices are incorporated into most ERP vendor's software packages. When implementing an ERP system, organizations can choose between customizing the software or modifying their business processes to the "best practice" function delivered in the "out-of-the-box" version of the software.[citation needed]

Prior to ERP, software was developed to fit individual processes of an individual business. Due to the complexities of most ERP systems and the negative consequences of a failed ERP implementation, most vendors have included "Best Practices" into their software. These "Best Practices" are what the Vendor deems as the most efficient way to carry out a particular business process in an Integrated Enterprise-Wide system.[7] A study conducted by Lugwigshafen University of Applied Science surveyed 192 companies and concluded that companies which implemented industry best practices decreased mission-critical project tasks such as configuration, documentation, testing and training. In addition, the use of best practices reduced over risk by 71% when compared to other software implementations.[8]

The use of best practices can make complying with requirements such as IFRS, Sarbanes-Oxley, or Basel II easier. They can also help where the process is a commodity such as electronic funds transfer. This is because the procedure of capturing and reporting legislative or commodity content can be readily codified within the ERP software, and then replicated with confidence across multiple businesses who have the same business requirement.[citation needed]

Implementation

Businesses have a wide scope of applications and processes throughout their functional units; producing ERP software systems that are typically complex and usually impose significant changes on staff work practices.[9] Implementing ERP software is typically too complex for "in-house" skill, so it is desirable and highly advised to hire outside consultants who are professionally trained to implement these systems. This is typically the most cost effective way. There are three types of services that may be employed for - Consulting, Customization, Support.[9] The length of time to implement an ERP system depends on the size of the business, the number of modules, the extent of customization, the scope of the change and the willingness of the customer to take ownership for the project. ERP systems are modular, so they don't all need be implemented at once. It can be divided into various stages, or phase-ins. The typical project is about 14 months and requires around 150 consultants.[10] A small project (e.g., a company of less than 100 staff) can be planned and delivered within 3–9 months; however, a large, multi-site or multi-country implementation can take years.[citation needed] The length of the implementations is closely tied to the amount of customization desired.[10]

To implement ERP systems, companies often seek the help of an ERP vendor or of third-party consulting companies. These firms typically provide three areas of professional services: consulting; customization; and support. The client organization can also employ independent program management, business analysis, change management, and UAT specialists to ensure their business requirements remain a priority during implementation.[citation needed]

Data migration is one of the most important activities in determining the success of an ERP implementation. Since many decisions must be made before migration, a significant amount of planning must occur. Unfortunately, data migration is the last activity before the production phase of an ERP implementation, and therefore receives minimal attention due to time constraints. The following are steps of a data migration strategy that can help with the success of an ERP implementation:[11]

  1. Identifying the data to be migrated
  2. Determining the timing of data migration
  3. Generating the data templates
  4. Freezing the tools for data migration
  5. Deciding on migration related setups
  6. Deciding on data archiving

Process preparation

ERP vendors have designed their systems around standard business processes, based upon best business practices. Different vendor(s) have different types of processes but they are all of a standard, modular nature. Firms that want to implement ERP systems are consequently forced to adapt their organizations to standardized processes as opposed to adapting the ERP package to the existing processes.[12] Neglecting to map current business processes prior to starting ERP implementation is a main reason for failure of ERP projects.[13] It is therefore crucial that organizations perform a thorough business process analysis before selecting an ERP vendor and setting off on the implementation track. This analysis should map out all present operational processes, enabling selection of an ERP vendor whose standard modules are most closely aligned with the established organization. Redesign can then be implemented to achieve further process congruence. Research indicates that the risk of business process mismatch is decreased by:

  • linking each current organizational process to the organization's strategy;
  • analyzing the effectiveness of each process in light of its current related business capability;
  • understanding the automated solutions currently implemented.[14][15]

ERP implementation is considerably more difficult (and politically charged) in organizations structured into nearly independent business units, each responsible for their own profit and loss, because they will each have different processes, business rules, data semantics, authorization hierarchies and decision centers.[16] Solutions include requirements coordination negotiated by local change management professionals or, if this is not possible, federated implementation using loosely integrated instances (e.g. linked via Master Data Management) specifically configured and/or customized to meet local needs.[citation needed]

A disadvantage usually attributed to ERP is that business process redesign to fit the standardized ERP modules can lead to a loss of competitive advantage. While documented cases exist where this has indeed materialized, other cases show that following thorough process preparation ERP systems can actually increase sustainable competitive advantage.[17][18]

Configuration

Configuring an ERP system is largely a matter of balancing the way you want the system to work with the way the system lets you work. Begin by deciding which modules to install, then adjust the system using configuration tables to achieve the best possible fit in working with your company’s processes.[citation needed]

Modules — Most systems are modular simply for the flexibility of implementing some functions but not others. Some common modules, such as finance and accounting are adopted by nearly all companies implementing enterprise systems; others however such as human resource management are not needed by some companies and therefore not adopted. A service company for example will not likely need a module for manufacturing. Other times companies will not adopt a module because they already have their own proprietary system they believe to be superior. Generally speaking the greater number of modules selected, the greater the integration benefits, but also the increase in costs, risks and changes involved.[citation needed]

Configuration Tables – A configuration table enables a company to tailor a particular aspect of the system to the way it chooses to do business. For example, an organization can select the type of inventory accounting – FIFO or LIFO – it will employ or whether it wants to recognize revenue by geographical unit, product line, or distribution channel.[citation needed]

So what happens when the options the system allows just aren't good enough? At this point a company has two choices, both of which are not ideal. It can re-write some of the enterprise system’s code, or it can continue to use an existing system and build interfaces between it and the new enterprise system. Both options will add time and cost to the implementation process. Additionally they can dilute the system’s integration benefits. The more customized the system becomes the less possible seamless communication between suppliers and customers.[citation needed]

Consulting services

Many organizations do not have sufficient internal skills to implement an ERP project. This results in many organizations offering consulting services for ERP implementation. Typically, a consulting team is responsible for the entire ERP implementation including selecting, planning, training, testing, implementation, and delivery of any customized modules. Examples of customization includes creating processes and reports for compliance, additional product training; creation of process triggers and workflow; specialist advice to improve how the ERP is used in the business; system optimization; and assistance writing reports, complex data extracts or implementing Business Intelligence.[citation needed]

For most mid-sized companies, the cost of the implementation will range from around the list price of the ERP user licenses to up to twice this amount (depending on the level of customization required). Large companies, and especially those with multiple sites or countries, will often spend considerably more on the implementation than the cost of the user licenses—three to five times more is not uncommon for a multi-site implementation.[citation needed]

Unlike most single-purpose applications, ERP packages have historically included full source code and shipped with vendor-supported team IDEs for customizing and extending the delivered code. During the early years of ERP the guarantee of mature tools and support for extensive customization was an important sales argument when a potential customer was considering developing their own unique solution in-house, or assembling a cross-functional solution by integrating multiple "best of breed" applications.[citation needed]

"Core system" customization vs configuration

Increasingly, ERP vendors have tried to reduce the need for customization by providing built-in "configuration" tools to address most customers' needs for changing how the out-of-the-box core system works. Key differences between customization and configuration include:[citation needed]

  • Customization is always optional, whereas some degree of configuration (e.g., setting up cost/profit centre structures, organisational trees, purchase approval rules, etc.) may be needed before the software will work at all.
  • Configuration is available to all customers, whereas customization allows individual customer to implement proprietary "market-beating" processes.
  • Configuration changes tend to be recorded as entries in vendor-supplied data tables, whereas customization usually requires some element of programming and/or changes to table structures or views.
  • The effect of configuration changes on the performance of the system is relatively predictable and is largely the responsibility of the ERP vendor. The effect of customization is unpredictable and may require time-consuming stress testing by the implementation team.
  • Configuration changes are almost always guaranteed to survive upgrades to new software versions. Some customizations (e.g. code that uses pre-defined "hooks" that are called before/after displaying data screens) will survive upgrades, though they will still need to be re-tested. More extensive customizations (e.g. those involving changes to fundamental data structures) will be overwritten during upgrades and must be re-implemented manually.

By this analysis, customizing an ERP package can be unexpectedly expensive and complicated, and tends to delay delivery of the obvious benefits of an integrated system. Nevertheless, customizing an ERP suite gives the scope to implement secret recipes for excellence in specific areas while ensuring that industry best practices are achieved in less sensitive areas.

Extensions

In this context, "Extensions" refers to ways that an ERP environment can be "extended" (supplemented) with third-party programs. It is technically easy to expose most ERP transactions to outside programs that do other things, e.g.:[citation needed]

  • archiving, reporting and republishing (these are easiest to achieve, because they mainly address static data);
  • performing transactional data captures, e.g. using scanners, tills or RFIDs (also relatively easy because they touch existing data);

However, because ERP applications typically contain sophisticated rules that control how data can be created or changed, some such functions can be very difficult to implement.

Advantages

In the absence of an ERP system, a large manufacturer may find itself with many software applications that cannot communicate or interface effectively with one another. Tasks that need to interface with one another may involve:[citation needed]

  • ERP systems connect the necessary software in order for accurate forecasting to be done. This allows inventory levels to be kept at maximum efficiency and the company to be more profitable.
  • 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. Benefits of this include:

  • Eliminates the problem of synchronizing changes between multiple systems
  • Permits control of business processes that cross functional boundaries
  • Provides top-down view of the enterprise (no "islands of information")
  • Reduces 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.[19]

Disadvantages

Problems with ERP systems are mainly due to inadequate investment in ongoing training for the involved IT personnel - including those implementing and testing changes - as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and the ways in which it is used.[citation needed]

Disadvantages

  • 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.


See also

References

  1. ^ Esteves, J., and Pastor, J., Enterprise Resource Planning Systems Research: An Annotated Bibliography, Communications of AIS, 7(8) pp. 2-54.
  2. ^ Waldner, Jean-Baptiste (1992). CIM: Principles of Computer Manufacturing. Chichester: John Wiley & Sons Ltd. pp. p47. ISBN 047193450X. 
  3. ^ "ERP". http://www.erp.com/component/content/article/324-erp-archive/4407-erp.html. Retrieved 2009-10-07. 
  4. ^ Template:Cite research publication
  5. ^ Anderegg, Travis, MRP/MRPII/ERP/ERM — Confusting Terms and Definitions for a Murkey Alphabet Soup, http://www.wlug.org.nz/EnterpriseSpeak, retrieved 2007-10-25 
  6. ^ Monk, Ellen; Wagner, Bret (2006), Concepts in Enterprise Resource Planning (Second ed.), Boston: Thomson Course Technology, ISBN 0-619-21663-8 
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