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Enterprise resource planning

From Wikipedia, the free encyclopedia

Enterprise resource planning (ERP) systems integrate internal and external management information across
an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship
management, etc. ERP systems automate this activity with an integrated software application. The purpose of
ERP is to facilitate the flow of information between all business functions inside the boundaries of the
organization and manage the connections to outside stakeholders.[1]
ERP systems can run on a variety of computer hardware and network configurations, typically employing a
database as a repository for information.[2]

Contents
1 History
1.1 Origin of "ERP"
1.2 Expansion
1.3 Two-tier Enterprise Resource Planning
2 Characteristics
3 Functional Areas
4 Components
5 Best practices
6 Modularity
7 Connectivity to plant floor information
8 Implementation
8.1 Process preparation
8.2 Configuration
8.3 Customization
8.4 Extensions
8.5 Data migration
9 Comparison to specialpurpose applications
9.1 Advantages
9.2 Benefits
9.3 Disadvantages
10 See also
11 References
12 Further reading

History
Origin of "ERP"
In 1990 Gartner Group first employed the acronym ERP[3] as an extension of material requirements planning
(MRP), later manufacturing resource planning[4][5] and computer-integrated manufacturing. Without supplanting
these terms, ERP came to represent a larger whole, reflecting the evolution of application integration beyond
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manufacturing.[6] Not all ERP packages were developed from a manufacturing core. Vendors variously began
with accounting, maintenance and human resources. By the mid1990s ERP systems addressed all core
functions of an enterprise. Beyond corporations, governments and nonprofit organizations also began to
employ ERP systems.[7]

Expansion
ERP systems experienced rapid growth in the 1990s because the year 2000 problem and introduction of the
Euro disrupted legacy systems. Many companies took this opportunity to replace such systems with ERP.[8]
ERP systems initially focused on automating back office functions that did not directly affect customers and the
general public. Front office functions such as customer relationship management (CRM) dealt directly with
customers, or ebusiness systems such as ecommerce, egovernment, etelecom, and efinance, or supplier
relationship management (SRM) became integrated later, when the Internet simplified communicating with
external parties.[citation needed]
"ERP II" was coined in the early 2000s. It describes webbased software that allows both employees and
partners (such as suppliers and customers) realtime access to the systems. The role of ERP II expands from
the resource optimization and transaction processing of traditional ERP to leveraging the information involving
those resources in the enterprises efforts to collaborate with other enterprises, not just to conduct e-commerce
buying and selling.[9] Compared to the first generation ERP, ERP II is said to be more flexible rather than
confining the capabilities of the ERP system within the organization, it is designed to go beyond the corporate
walls and interact with other systems. "Enterprise application suite" is an alternate name for such systems.

Two-tier Enterprise Resource Planning

Two-tier ERP comprises software and hardware that allows these companies to run the equivalent of two ERP
systems at once: one at the corporate level and one at the division or subsidiary level. For example, a
manufacturing company uses an ERP system to manage the company across the organization. This company
uses global or regional suppliers, production centers, and service providers to support the manufacturing
companys customers.
These suppliers, production centers, and service providers are independent companies that maintain their own
brand and business model. These companies also have their own workflows and processes. Given the realities
of globalization, enterprises continuously evaluate how to optimize their regional, divisional and product-based
manufacturing strategies to support strategic goals and reduce time-to-market while increasing profitability and
delivering value.[10] With two-tier ERP, these companies continue operating under their own business model
separate from the manufacturing company. Since these companies' processes and workflows are not tied to
manufacturing company's processes and workflows, they can respond to local business requirements in multiple
locations.[11]
Factors affecting enterprises adopting two-tier ERP systems are the globalization of manufacturing or the
economics of sourcing in emerging economies.[12] Two-tier ERP strategies give enterprises agility in responding
to market demands and in aligning IT systems at a corporate level.[13]

Characteristics
ERP (Enterprise Resource Planning) systems typically include the following characteristics:
An integrated system that operates in real time (or next to real time), without relying on periodic
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updates.[citation needed]
A common database, which supports all applications.
A consistent look and feel throughout each module.
Installation of the system without elaborate application/data integration by the Information Technology
(IT) department.[14]

Functional Areas
The following are common functional areas covered in an ERP System. In many ERP Systems these are called
and grouped together as ERP Modules:
Financial Accounting
General Ledger, Fixed Asset, Payables, Receivables, Cash Management, Financial Consolidation
Management Accounting
Budgeting, Costing, Cost Management, Activity Based Costing
Human Resources
Recruiting, Training, Payroll, Benefits, 401K, Diversity Management, Retirement, Separation
Manufacturing
Engineering, Bill of Materials, Work Orders, Scheduling, Capacity, Workflow Management, Quality
Control, Manufacturing Process, Manufacturing Projects, Manufacturing Flow, Product Life Cycle
Management
Supply Chain Management
Supply Chain Planning, Supplier Scheduling, Order to Cash, Purchasing, Inventory, Product
Configurator, Claim Processing
Project Management
Project Planning, Resource Planning, Project Costing, Work Break Down Structure, Billing, Time and
Expense, Performance Units, Activity Management
Customer Relationship Management
Sales and Marketing, Commissions, Service, Customer Contact, Call Center Support - CRM systems
are not always considered part of ERP systems but rather BSS systems . Specifically in Telecom scenario
Data Services
Various "selfservice" interfaces for customers, suppliers and/or employees
Access Control
Management of user privileges for various processes

Components
Transactional database
Management portal/dashboard
Business intelligence system
Customizable reporting
External access via technology such as web services
Search
Document management
Messaging/chat/wiki
Workflow management

Best practices
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Best practices are incorporated into most ERP systems. This means that the software reflects the vendor's
interpretation of the most effective way to perform each business process. Systems vary in the convenience with
which the customer can modify these practices.[15] Companies that implemented industry best practices reduced
timeconsuming project tasks such as configuration, documentation, testing and training. In addition, best
practices reduced risk by 71% when compared to other software implementations.[16]
The use of best practices eases compliance with requirements such as IFRS, Sarbanes-Oxley, or Basel II. They
can also help comply with de facto industry standards, such as electronic funds transfer. This is because the
procedure can be readily codified within the ERP software and replicated with confidence across multiple
businesses who share that business requirement.[citation needed]

Modularity
Most systems are modular to permit automating some functions but not others. Some common modules, such as
finance and accounting, are adopted by nearly all users; others such as human resource management are not.
For example, a service company probably has no need for a manufacturing module. Other companies already
have a system that they believe to be adequate. Generally speaking, the greater the number of modules selected,
the greater the integration benefits, but also the greater the costs, risks and changes involved.[citation needed]

Connectivity to plant floor information

ERP systems connect to realtime data and transaction data in a variety of ways. These systems are typically
configured by systems integrators, who bring unique knowledge on process, equipment, and vendor solutions.
Direct integrationERP systems have connectivity (communications to plant floor equipment) as part of their
product offering. This requires the vendors to offer specific support for the plant floor equipment that their
customers operate. ERP vendors must be expert in their own products, and connectivity to other vendor
products, including competitors.
Database integrationERP systems connect to plant floor data sources through staging tables in a database.
Plant floor systems deposit the necessary information into the database. The ERP system reads the information
in the table. The benefit of staging is that ERP vendors do not need to master the complexities of equipment
integration. Connectivity becomes the responsibility of the systems integrator.
Enterprise appliance transaction modules (EATM)These devices communicate directly with plant floor
equipment and with the ERP system via methods supported by the ERP system. EATM can employ a staging
table, Web Services, or systemspecific program interfaces (APIs). The benefit of an EATM is that it offers an
offtheshelf solution.
Customintegration solutionsMany system integrators offer custom solutions. These systems tend to have
the highest level of initial integration cost, and can have a higher long term maintenance and reliability costs. Long
term costs can be minimized through careful system testing and thorough documentation. Customintegrated
solutions typically run on workstation or server class computers.

Implementation
ERP's scope usually implies significant changes to staff work processes and practices.[17] Generally, three types
of services are available to help implement such changesconsulting, customization, and support.[17]
Implementation time depends on business size, number of modules, customization, the scope of process
changes, and the readiness of the customer to take ownership for the project. Modular ERP systems can be
implemented in stages. The typical project for a large enterprise consumes about 14 months and requires around
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implemented in stages. The typical project for a large enterprise consumes about 14 months and requires around
150 consultants.[18] Small projects can require months; multinational and other large implementations can take
years.[citation needed] Customization can substantially increase implementation times.[18]

Process preparation
Implementing ERP typically requires changes in existing business processes.[19] Poor understanding of needed
process changes prior to starting implementation is a main reason for project failure.[20] It is therefore crucial
that organizations thoroughly analyze business processes before implementation. This analysis can identify
opportunities for process modernization. It also enables an assessment of the alignment of current processes
with those provided by the ERP system. Research indicates that the risk of business process mismatch is
decreased by:
linking current processes to the organization's strategy;
analyzing the effectiveness of each process;
understanding existing automated solutions.[21][22]
ERP implementation is considerably more difficult (and politically charged) in decentralized organizations,
because they often have different processes, business rules, data semantics, authorization hierarchies and
decision centers.[23] This may require migrating some business units before others, delaying implementation to
work through the necessary changes for each unit, possibly reducing integration (e.g. linking via Master data
management) or customizing the system to meet specific needs.[24]
A potential disadvantage is that adopting "standard" processes can lead to a loss of competitive advantage.
While this has happened, losses in one area are often offset by gains in other areas, increasing overall
competitive advantage.[25][26]

Configuration
Configuring an ERP system is largely a matter of balancing the way the customer wants the system to work with
the way it was designed to work. ERP systems typically build many changeable parameters that modify system
operation. For example, an organization can select the type of inventory accountingFIFO or LIFOto
employ, whether to recognize revenue by geographical unit, product line, or distribution channel and whether to
pay for shipping costs when a customer returns a purchase.[24]

Customization
ERP systems are theoretically based on industry best practices and are intended to be deployed "as is".[27][28]
ERP vendors do offer customers configuration options that allow organizations to incorporate their own business
rules but there are often functionality gaps remaining even after the configuration is complete. ERP customers
have several options to reconcile functionality gaps, each with their own pros/cons. Technical solutions include
rewriting part of the delivered functionality, writing a homegrown bolt-on/add-on module within the ERP system,
or interfacing to an external system. All three of these options are varying degrees of system customization, with
the first being the most invasive and costly to maintain.[29] Alternatively, there are non-technical options such as
changing business practices and/or organizational policies to better match the delivered ERP functionality.
Key differences between customization and configuration include:
Customization is always optional, whereas the software must always be configured before use (e.g.,
setting up cost/profit center structures, organisational trees, purchase approval rules, etc.)
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The software was designed to handle various configurations, and behaves predictably in any allowed
configuration.
The effect of configuration changes on system behavior and performance is predictable and is the
responsibility of the ERP vendor. The effect of customization is less predictable, is the customer's
responsibility and increases testing activities.
Configuration changes survive upgrades to new software versions. Some customizations (e.g. code that
uses predefined "hooks" that are called before/after displaying data screens) survive upgrades, though
they require retesting. Other customizations (e.g. those involving changes to fundamental data structures)
are overwritten during upgrades and must be reimplemented.[30]
Customization Advantages:
Improves user acceptance[31]
Offers the potential to obtain competitive advantage vis--vis companies using only standard features.
Customization Disadvantages:
Increases time and resources required to both implement and maintain.[29]
Inhibits seamless communication between suppliers and customers who use the same ERP system
uncustomized.[citation needed]
Over reliance on customization undermines the principles of ERP as a standardizing software platform

Extensions
ERP systems can be extended with thirdparty software. ERP vendors typically provide access to data and
functionality through published interfaces. Extensions offer features such as:[citation needed]
archiving, reporting and republishing;
capturing transactional data, e.g. using scanners, tills or RFID
access to specialized data/capabilities, such as syndicated marketing data and associated trend analytics.
advanced planning and scheduling (APS)
managing resources, facilities and transmission in real-time

Data migration
Data migration is the process of moving/copying and restructuring data from an existing system to the ERP
system. Migration is critical to implementation success and requires significant planning. Unfortunately, since
migration is one of the final activities before the production phase, it often receives insufficient attention. The
following steps can structure migration planning:[32]
Identify the data to be migrated
Determine migration timing
Generate the data templates
Freeze the toolset
Decide on migration-related setups
Define data archiving policies and procedures.

Comparison to specialpurpose applications

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Advantages
The fundamental advantage of ERP is that integrating the myriad processes by which businesses operate saves
time and expense. Decisions can be made more quickly and with fewer errors. Data becomes visible across the
organization. Tasks that benefit from this integration include:[citation needed]
Sales forecasting, which allows inventory optimization
Chronological history of every transaction through relevant data compilation in every area of operation.
Order tracking, from acceptance through fulfillment
Revenue tracking, from invoice through cash receipt
Matching purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the
vendor invoiced)
ERP systems centralize business data, bringing the following benefits:
They eliminate the need to synchronize changes between multiple systemsconsolidation of finance,
marketing and sales, human resource, and manufacturing applications
They bring legitimacy and transparency in each bit of statistical data.
They enable standard product naming/coding.
They provide a comprehensive enterprise view (no "islands of information"). They make realtime
information available to management anywhere, any time to make proper decisions.
They protect sensitive data by consolidating multiple security systems into a single structure.[33]

Benefits
ERP can greatly improve the quality and efficiency of a business. By keeping a company's internal
business process running smoothly, ERP can lead to better outputs that will benefit the company such as
customer service, and manufacturing.
ERP provides support to upper level management to provide them with critical decision making
information. This decision support will allow the upper level management to make managerial choices that
will enhance the business down the road.
ERP also creates a more agile company that can better adapt to situations and changes. ERP makes the
company more flexible and less rigidly structured in an effort to allow the different parts of an organization
to become more cohesive, in turn, enhancing the business both internally and externally.[34]

Disadvantages
Customization is problematic.
Reengineering business processes to fit the ERP system may damage competitiveness and/or divert
focus from other critical activities
ERP can cost more than less integrated and/or less comprehensive solutions.
High switching costs associated with ERP can increase the ERP vendor's negotiating power which can
result in higher support, maintenance, and upgrade expenses.
Overcoming resistance to sharing sensitive information between departments can divert management
attention.
Integration of truly independent businesses can create unnecessary dependencies.
Extensive training requirements take resources from daily operations.
Due to ERP's architecture (OLTP, On-Line Transaction Processing) ERP systems are not well suited for
production planning and supply chain management (SCM)
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Harmonization of ERP systems can be a mammoth task (especially for big companies) and requires a lot
of time, planning and money.[35]
The limitations of ERP have been recognized sparking new trends in ERP application development, the four
significant developments being made in ERP are, creating a more flexible ERP, Web-Enable ERP,
Interenterprise ERP and e-Business Suites, each of which will potentially address the failings of the current ERP.

See also
List of ERP software packages
Accounting software
Business process management
Document automation
Data migration
Enterprise feedback management (EFM)
Enterprise planning systems
Enterprise system
ERP modeling
ERP for IT
ERP system selection methodology
Information technology management
List of project management software
Management information system
Manufacturing operations management
Service management
Software as a service
Supply chain management
Cost Accounting

References
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2. ^ KhosrowPuor, Mehdi. (2006). Emerging Trends and Challenges in Information Technology Management.
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3. ^ "A Vision of Next Generation MRP II", Scenario S-300-339, Gartner Group, April 12, 1990
4. ^ Anderegg, Travis. "MRP/MRPII/ERP/ERM Confusting Terms and Definitions for a Murkey Alphabet
Soup" (http://www.wlug.org.nz/EnterpriseSpeak) . http://www.wlug.org.nz/EnterpriseSpeak. Retrieved 200710-25
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6. ^ Sheilds, Mureell G., EBusiness and ERP: Rapid Implementation and Project Planning. (2001) John Wiley and
Sons, Inc. p. 9.
7. ^ Chang, SI; Guy Gable; Errol Smythe; Greg Timbrell (2000). "A Delphi examination of public sector ERP
implementation issues" (http://portal.acm.org/citation.cfm?id=359640.359793) . International Conference on
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^ Ferdows, K. (1997). "Making the most of foreign factories," Harvard Business Review, 75(2), 73-88.
^ Gill, R. (2011). "The rise of two-tier ERP." Strategic Finance, 93(5), 35-40, 1.
^ Montgomery, Nigel (2010)."Two-Tier ERP Suite Strategy: Considering Your Options."
(http://www.gartner.com/id=1412121) Gartner Group. July 28, 2010. Retrieved September 20, 2012.
^ Kovacs, G. L., & Paganelli, P. (2003). "A planning and management infrastructure for large, complex,
distributed projects - beyond ERP and SCM." Computers in Industry, 51(2), 165-165.
^ Sheilds, Mureell G., E-Business and ERP: Rapid Implementation and Project Planning. (2001) John Wiley and
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^ Monk, Ellen and Wagner, Brett."Concepts in Enterprise Resource Planning" 3rd.ed.Course Technology
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^ "Enhanced Project Success Through SAP Best Practices International Benchmarking Study". ISBN 159229-031-0.
^ a b What is ERP?, http://www.tech-faq.com/erp.shtml
^ a b http://carl.sandiego.edu/gba573/critical_issues_affecting_an_erp.htm CRITICAL ISSUES AFFECTING
AN ERP IMPLEMENTATION
^ Turban et al. (2008). Information Technology for Management, Transforming Organizations in the Digital
Economy. Massachusetts: John Wiley & Sons, Inc., pp. 300343. ISBN 978-0-471-78712-9
^ Brown, C., and I. Vessey, "Managing the Next Wave of Enterprise Systems: Leveraging Lessons from ERP,"
MIS Quarterly Executive, 2(1), 2003.
^ King. W., "Ensuring ERP implementation success," Information Systems Management, Summer 2005.
^ Yusuf, Y., A. Gunasekaran, and M. Abthorpe, "Enterprise Information Systems Project Implementation: A
Case Study of ERP in Rolls-Royce," International Journal of Production Economics, 87(3), February 2004.
^ "Requirements Engineering for Cross-organizational ERP Implementation: Undocumented Assumptions and
Potential Mismatches" (http://www.vital-project.org/papers/Daneva-Wieringa-Camera-Ready-RE-Paper.pdf)
(PDF). University of Twente. http://www.vital-project.org/papers/Daneva-Wieringa-Camera-Ready-REPaper.pdf. Retrieved 2008-07-12.
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JulyAugust 1998.
^ Turban et al. (2008). Information Technology for Management, Transforming Organizations in the Digital
Economy. Massachusetts: John Wiley & Sons, Inc., p. 320. ISBN 978-0-471-78712-9
^ Dehning,B. and T.Stratopoulos, 'Determinants of a Sustainable Competitive Advantage Due to an IT-enabled
Strategy,' Journal of Strategic Information Systems, Vol. 12, 2003
^ Kraemmerand, P.; et al. (2003). "ERP implementation: an integrated process of radical change and continuous
learning". Production Planning & Control 14 (4): 228248.
^ Vilpola, Inka Heidi (2008). "A method for improving ERP implementation success by the principles and
process of user-centred design". Enterprise Information Systems 2 (1): 4776.
^ a b Fryling, Meg (2010). "Estimating the impact of enterprise resource planning project management decisions
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^ Fryling, Meg (2010). Total Cost of Ownership, System Acceptance and Perceived Success of Enterprise
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Environment. ProQuest Dissertations and Theses database. p. 403. ISBN 978-1-109-74428-6.
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(http://research.ittoolbox.com/white-papers/backoffice/erp/data-migration-strategies-in-erp-4620/) .
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Further reading
Grant, David; Richard Hall, Nick Wailes, Christopher Wright (March 2006). "The false promise of
technological determinism: the case of enterprise resource planning systems". New Technology, Work &
Employment 21 (1): 215. doi:10.1111/j.1468-005X.2006.00159.x
(http://dx.doi.org/10.1111%2Fj.1468-005X.2006.00159.x) .
Loh, Tee Chiat; Lenny Koh Siau Ching (September 2004). "Critical elements for a successful ERP
implementation in SMEs". International Journal of Production Research 42 (17): 34333455.
doi:10.1080/00207540410001671679 (http://dx.doi.org/10.1080%2F00207540410001671679) .
Shaul, Levi; Tauber Doron (September 2010). "Hierarchical examination of success factors across ERP
life cycle" (http://aisel.aisnet.org/mcis2010/79/) . MCIS 2010 Proceedings.: 79.
http://aisel.aisnet.org/mcis2010/79/.
Head, Simon (2005). The New Ruthless Economy. Work and Power in the Digital Age. Oxford UP.
ISBN 0-19-517983-8.
Waldner, Jean-Baptiste (1992). Principles of Computer Integrated Manufacturing. Chichester: John
Wiley & Sons Ltd. ISBN 0-471-93450-X.
Waldner, Jean-Baptiste (1990). Les nouvelles perspectives de la production. Paris: DUNOD
BORDAS. ISBN 978-2-04-019820-6.
Lequeux, Jean-Louis (2008). Manager avec les ERP, Architecture Oriente Services (SOA). Paris:
EDITIONS D'ORGANISATION. ISBN 978-2-212-54094-9.
CIO Magazine's ABCs of ERP (http://www.cio.com/article/40323)
History Of ERP (http://opensourceerpguru.com/2009/02/25/erp-history/)
Clemons, E.K.; Kimborough (1986). "IS for Sustainable Competitive Advantage". Information &
Management 11 (3): 131136. doi:10.1016/0378-7206(86)90010-8
(http://dx.doi.org/10.1016%2F0378-7206%2886%2990010-8) .
Henderson, Ian ERP From the Frontline MBE ISBN 978-1-898822-05-9 Making ERP Work
(http://www.mlg.uk.com/html/erpfrontline.htm)
Software Advice's 4-Part Series on the History of Enterprise Software
(http://blog.softwareadvice.com/articles/enterprise/software-history-pt1-1082411/)
MRP versus ERP (http://sheetmetalworld.com/sheet-metal-news/17-it-for-manufacturing-managementand-production/11086-mrp-versus-erp)
ERP Customization (http://www.erpfocus.com/erp-implementation-customizing-590.html)
The History of Double Accounting: How Italian Merchants Led the Way to ERP
(http://www.softwarethinktank.com/articles/how-a-bunch-of-italian-merchants-led-the-way-to-erp/)
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