Enterprise Resource Planning can truly be understood when you read the initials in reverse. ‘Planning & managing Resources for an Enterprise’. ERP is software which binds the business processes of an organization and shares a common database across all departments.
Why ERP?
To understand this concept better we start with an example. Consider a hawker selling take away food. Currently the owner is the whole and sole of the business that he makes. All he has to do is buy raw material from the market. Make food. Sell it. Make profit out of it. All that he does at the end of the day is take out his note book and write the amount of money spent on the items he bought from the market. Amount he got after selling the food. He calculates his profit daily.
Few years down the line when he starts earning a lot of profit. He expands his business by getting more raw materials making more food. His expansion of the business then finds no limits. He hires people to work under him. Then his business turns to a chain of restaurants not only in the city but across the country.
The only problem here is he now cannot have a note book writing amounts spent on raw material and calculating the profits after selling it. But he has to take care of the vast property he owns, salary of employees, managing his assets, inventory for raw material, calculating tax and profitability etc. So all we can do is understand his business process, roles of people and create a system which will have a common database but would keep a track of all documents, will enforce business rules right from hiring employee to his/her retirement, or buying a raw material to dispatching the final product.
Without ERP all an organization would do is have separate department and separate system for each department. Coupling between them was so loose that keeping track of various data was a cumbersome activity. Typical difficulties involved integration of data from potentially different computer manufacturers and systems. For example, the inventory system would typically manage inventory. It will not have any connection with the Accounts department but just a set of data which would flow across. Each system would have to integrate using a predefined set of common data which would be transferred between each computer system. Any deviation from the data format or the integration schedule often resulted in problems.
Hence ERP is software which has a common database across the organization. It enforces business process to be followed without which it doesn’t budge. It can create significant efficiencies in your business, resulting in timely business information, better customer relationships, a more cost-effective supply chain, improved internal process and, ultimately, increased profitability.
History
ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements Planning (MRP) II. From business perspective, ERP has expanded from coordination of manufacturing processes to the integration of enterprise-wide backend processes. From technological aspect, ERP has evolved from legacy implementation to more flexible tiered client-server architecture.
The following table summarizes the evolution of ERP from 1960s to 1990s.
| 1960s | Inventory Management & Control |
| 1970s | Material Requirement Planning (MRP) |
| 1980s | Manufacturing Requirements Planning (MRP II) |
| 1990s | Enterprise Resource Planning (ERP) |
Implementation
ERP vendors have created ERP using standard business processes in the market. Most vendors have kept ERP so modular in nature so that it becomes easy to customize according to the business needs. It is generally implemented by a third party vendor since ERP is so complex that to develop in house skills become an expensive affair. For implementing we need to analyze if we have desired hardware. Analyze existing processes. These processes might have to be fine tuned to get inline with ERP. Here there is a glitch. Generally organizations are enforced to use business processes provided by ERP and bend the current rules. This is one of the reasons of failure of ERP implementation. Once a set of things are analyzed we have to go ahead with the implementation.
ERP Involves
- Project Planning
- Business and Operational Analysis, including Gap Analysis
- Business Process Re-engineering
- Installation & Configuration
- Project Team Training
- Business Requirement Mapping to Software
- Module Configuration
- Data Conversions
- Custom Documentation
- End User Training
- Acceptance Testing
- Production
- Post Implementation Audit
Advantages of ERP
- Ready made projects needs only customization
- Documentation is a part of the system.
- Integration of all functions are already exisit
- Dependancy on Human Resources is eliminated.
- Suppliers and customers can be communicated online.
- Increases Business profitability
- Clean and Open transaction of business.
- Managing independence of Complex Bill of Material
Disadvantages of ERP
While advantages usually outweigh disadvantages for most organizations implementing an ERP system, here are some of the most common obstacles experienced:
- Customization in many situations is limited
- The need to reengineer business processes
- ERP systems can be cost prohibitive to install and run
- Technical support can be shoddy
- ERP's may be too rigid for specific organizations that are either new or want to move in a new direction in the near future.
- 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 customer.
