Enterprise Resource Planning (ERP):

ERP is an integrated computer-based system used to manage internal and external

resources, including tangible assets, financial resources, materials, and human resources.
Its purpose is to facilitate the flow of information between all business functions inside
the boundaries of the organization and manage the connections to outside stakeholders.
Built on a centralized database and normally utilizing a common computing platform,
ERP systems consolidate all business operations into a uniform and enterprise-wide
system environment.

An ERP system can either reside on a centralized server or be distributed across modular
hardware and software units that provide "services" and communicate on a local area
network. The distributed design allows a business to assemble modules from different
vendors without the need for the placement of multiple copies of complex and expensive
computer systems in areas which will not use their full capacity.

ORIGIN OF THE TERM:

The initialism ERP was first employed by research and analysis firm Gartner Group in
1990 [3] as an extension of MRP (Material Requirements Planning; later manufacturing
resource planning) and CIM (Computer Integrated Manufacturing), and while not
supplanting these terms, it has come to represent a larger whole. It came into use as
makers of MRP software started to develop software applications beyond the
manufacturing arena.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.

To be considered an ERP system, a software package should have the following

traits:

• Should be integrated and operate in real time with no periodic batch updates.
• All applications should access one database to prevent redundant data and multiple data
definitions.
 • All modules should have the same look and feel.
• Users should be able to access any information in the system without needing
integration work on the part of the IS department.

Components / Modules:

1. Transactional Backbone

 Financials
 Distribution
 Human Resources
 Product lifecycle management

2. Advanced Applications

 Customer Relationship Management (CRM)

 Supply chain management software
 Purchasing
 Manufacturing
 Distribution (business)Distribution
 Warehouse Management System

3. Management Portal/Dashboard

 Decision Support System

These modules can exist in a system or utilized in an ad-hoc fashion.

History:

The term "Enterprise resource planning" originally derived from manufacturing resource
planning (MRP II) that followed material requirements planning (MRP). 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. 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.

ERP systems saw a large boost in sales in the 1990s as companies faced
the Y2K problem 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.

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 Business systems such as ecommerce, eGovernment,
eTelecom, and eFinance, or supplier relationship management (SRM) systems.

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.

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.

Though traditionally ERP packages have been on-premise installations, ERP systems are
now also available as Software as a Service.

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.
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.A study
conducted by Ludwigshafen 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.

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.

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. 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. 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. 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. The length of the implementations is closely tied
to the amount of customization desired.
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.
Data Migration

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:

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

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, and then adjust the system using configuration tables to achieve the best possible
fit in working with your company’s processes.

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.

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.

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.
"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:

• 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..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.

• 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 -

consolidation of finance, marketing and sales, human resource, and manufacturing
applications
• Permits control of business processes that cross functional boundaries
• Provides top-down view of the enterprise (no "islands of information"), real time
information is available to management anywhere, anytime to make proper
decisions.
• Reduces the risk of loss of sensitive data by consolidating multiple permissions
and security models into a single structure.
• Shorten production lead time and delivery time
• Facilitating business learning, empowering, and building common visions

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:
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.

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.