A beginner’s guide on Enterprise Resource Planning

Introduction

An Enterprise Resource Planning (ERP) is an integrated system which supports various modules such as sales and marketing, production and inventory control, human resources, finance and accounting, distribution, quality, procurement etc. It is stressed that the various modules are integrated to each other without any duplication of information. The key motivation behind this integration of various sub systems is to provide the real time updated information to the organization so that a consequence of change of decision in one sub system of the organization is immediately reflected to other parts as well so that they can plan their actions effectively.

Evolution of ERP

The evolution of today’s ERP is a result of development of Materials Requirements Planning (MRP) system which became popular in 1970s. Although the logic and planning system behind MRP was already in place, the availability of computer power to support basic planning and control gave it a boost. Another technological shift in 1980s with support of local and wide area networks resulted in Manufacturing Resource Planning (MRP II) systems.

Figure 1: Evolution of ERP

The beginning of 1990s resulted in the introduction of ERP systems. The ERP was much more sophisticated in nature than its predecessors. It was able to collaborate, integrate the information from various parts of the organization and also handle the “what-if” kind of conditions to alert the stake holders if a situation arises. With introduction and popularity of web 2.0 in early 2000, the ERP has evolved from traditional desktop to web enabled or ‘collaborative commerce’ system. With more and more employees and executives mobile devices for professional purposes, major ERP vendors such as SAP and Oracle and pushing hard to provide mobile apps for sub systems of ERP. Web enabled ERP systems are often complex and need periodic maintenance. This can mean that every time the ERP system is taken offline for routine maintenance or other changes, the web site also goes offline.

What ERP entails?

Although integration of various source of databases and information is the core of an ERP system, the installation and configuration of these system is complex and expensive task. Lot of organisations continue to use old database and information systems (often called legacy), which sometime creates challenges while implementing the ERP system in an organisation because of lack of support for information retrieval in the legacy system. The new and latest ERP systems ensure the smooth transfer of data between different parts of the organization. As implementation of ERP changes the way people work, top management has to be proactive in explaining the reasons for, and how the organization as a whole will benefit from the implementation. A proper change management initiative can lower the potential risk of an ERP implementation, through a comprehensive communication and training process.

ERP’s effect on an organisation

ERP changes the way organisation functions. One of the major challenges in many an organisations decision to buy an off-the-shelf ERP system is that of its compatibility with the company’s current business processes and practices. It is very important that the ERP fits the current policies and process or the organisation sees benefit in changing them to adapt based on the offering of ERP. There have been many examples where the wring ERP implementation has caused major loss to organisations. One such example is US Levi Strauss when company’s net income suddenly dropped by 98% to 1 million USD. Alternatively, they could modify the software within the ERP package to fit their processes. Both of these options involve costs and risks.

At a practical level, the implementation of ERP in an organisation brings a lot of challenges in often cumbersome. Most often it has been noted that the major issue in implementation in not proper planning, underestimating the time, effort, resources and cost which would be spent on the installation and configuration of ERP system.

Benefits of ERP

ERP systems have the potential of improving the performance of organizations in various sectors. The introduction of ERP in an organisation also makes sure that all best practices in processes are followed and not one disturbance in one part of the organisation would affect the other parts. ERP helps to create the visibility and transparency of processes within the organisation. Major ERP vendor solutions come with discipline of forcing business process changes. This helps the organisations to adapt the best practices and review their existing processes to make any necessary improvements. It helps to have more sophisticated communication with suppliers, partners and customers to provide more timely and accurate information. Automating business processes such as invoicing and sales and purchase orders within one systems improves forecasting accuracy and reduces inefficiencies. At the same time, using a single base of information for billing and other customer interactions improves service levels and increases customer retention.

Critical Success Factors

From a strategic perspective, the following factors are required in an organisation to have a successful rollout of an ERP system:

  1. Top management commitment and support – strong and committed leadership at the top management level is essential to the success of an ERP implementation
  2. Visioning and planning – articulating a business vision to the organization, identifying clear goals and objectives, and providing a clear link between business goals and systems strategy
  3. Project champion – the individual should possess strong leadership skills as well as business, technical and personal managerial competencies
  4. Implementation strategy and time frame – implement the ERP under a time-phased approach
  5. Project management – the ongoing management of the implementation plan

Popular ERP choices

These are some of the popular ERP systems available in the the market:

Interesting fact is that although Microsoft is one of the top ERP supplier, it uses SAP for their own organisation. Although this has been driven due to various factors such as the capabilities offered by Microsoft Dynamics, the business alliance between SAP and Microsoft.

Conclusion

We live in a completive world which is moving fast with technological advances. Organizations today are not only just focusing on producing goods or offering services but are involved in marketing their products and services, gaining insight on new opportunities etc. To help processing the huge amounts of information and data generated in different parts of organisation, they need a system in place which could present a consolidated and real time information. ERP helps the organizations to run their operations smoother and in a co-ordinated way so that parts of organisations are not left behind. The importance of ERP would increase in future as organisations are more and more investing in big data related technology and infrastructure.

Recommend Reading

Levi Strauss: SAP rollout ‘substantially’ hurt quarter

2013 ERP Market Share Update: SAP Solidifies Market Leadership

What is Big Data?

Why Does Microsoft HQ Use SAP Instead of Microsoft Dynamics ERP?

SAP and Microsoft: Frenemies with Benefits, But What’s in It for Customers?