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ERP Basics

ERP Basics

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Published by abhijitangul
This document provides basic knowledge on Enterprize Resource Planning for biggneers.
This document provides basic knowledge on Enterprize Resource Planning for biggneers.

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Published by: abhijitangul on Jun 10, 2009
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ERP (Enterprise Resource Planning)
Enterprise Resource Planning (ERP) is a computerized inventory control and production planning systemthat was born from Material Requirements Planning (MRP) systems. ERP is a system that organizesfunctions of an institution; supporting, for example, accounting, finance, human resources and e-commerce applications through the creation of relational databases and graphical user interfaces thatunify the tasks of institutions like corporations, government agencies, non-profit organizations, powerfulinstitutions and industries and businesses establishments.
Introduction to ERP
ERP stands for Enterprise Resource Planning. ERP is a way to integrate the data and processes of anorganization into one single system. Usually ERP systems will have many components includinghardware and software, in order to achieve integration, most ERP systems use a unified database tostore data for various functions found throughout the organization. Enterprise resource planning (ERP) isa company-wide computer software system used to manage and coordinate all the resources,information, and functions of a business from shared data stores.An ERP system has a service-oriented architecture with modular hardware and software units or"services" that communicate on a local area network. The modular design allows a business to add orreconfigure modules (perhaps from different vendors) while preserving data integrity in one shareddatabase that may be centralized or distributed.The term ERP originally referred to how a large organization planned to use organizational wideresources. In the past, ERP systems were used in larger more industrial types of companies. However,the use of ERP has changed and is extremely comprehensive, today the term can refer to any type of company, no matter what industry it falls in. In fact, ERP systems are used in almost any type of organization - large or small.In order for a software system to be considered ERP, it must provide an organization with functionalityfor two or more systems. While some ERP packages exist that only cover two functions for anorganization (QuickBooks: Payroll & Accounting), most ERP systems cover several functions.Today's ERP systems can cover a wide range of functions and integrate them into one unified database.For instance, functions such as Human Resources, Supply Chain Management, Customer RelationsManagement, Financials, Manufacturing functions and Warehouse Management functions were all oncestand alone software applications, usually housed with their own database and network, today, they canall fit under one umbrella - the ERP system.
 
 ERP Benefits: Myth or Reality
Many industry leaders have believed on the evasive nature of ERP benefits. But how real is the issue of ERP benefits realization? To find out, it helps to look into some key statistics from our ongoing ERPbenchmark study. The study, which focuses on companies across the globe that have implemented orare in the process of implementing various ERP packages, reveals some interesting points:
 
30% of those surveyed did not realize any sort of staff reductions after go-live
 
18% did not measure benefits after go-live
 
28% had some type of problem or operational stoppage after go-liveSurprisingly, only 18% of companies did not measure post-go-live benefits (in other words, 82% didindeed measure). Besides almost 100% of the companies that have implemented ERP, does not measurepost-implementation benefits.Second, the fact that 28% experienced stoppages seems somewhat alarming. It does highlight that atleast 1 in 4 companies have operational problems and/or stoppages because of the disruptions causedby ERP.So what does this all mean? First, the results show that ERP benefits are by no means guaranteed.Second, the risk of ERP disrupting an organization's core operations is a significant business risk. Thesefactors are clearly areas that will affect the ROI of the investment in ERP and should be carefullymanaged as part of an overall ERP Benefits Realization plan.
The Advantages and Disadvantages of ERP
There are a number of powerful advantages to Enterprise Resource Planning. It has been used to solve anumber of problems that have plagued large organizations in the past. At the same time, it is notwithout a number of disadvantages. Being able to weigh the two will allow a company to decide if thissolution will properly meet their needs.
 Advantages of ERP:
 
In the absence of an ERP system, a large manufacturer may find itself with many software applicationsthat do not talk to each other and do not effectively interface. Tasks that need to interface with oneanother may involve:
 
design engineering (how to best make the product)
 
order tracking from acceptance through fulfillment
 
the revenue cycle from invoice through cash receipt
 
managing interdependencies of complex Bill of Materials
 
tracking the 3-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 on a granularlevel.Change how a product is made, in the engineering details, and that is how it will now be made. Effectivedates can be used to control when the switch over will occur from an old version to the next one, boththe date that some ingredients go into effect, and date that some are discontinued. Part of the changecan include labeling to identify version numbers.Computer security is included within an ERP to protect against both outsider crime, such as industrialespionage, and insider crime, such as embezzlement. A data tampering scenario might involve a terroristaltering a Bill of Materials so as to put poison in food products, or other sabotage. ERP security helps toprevent abuse as well.
Disadvantages of ERP:
 
Many problems organizations have with ERP systems are due to inadequate investment in ongoingtraining for involved 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 how it is used.
Limitations of ERP include:
 
Personnel turnover; companies can employ new managers lacking education in thecompany's ERP system, proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP.
 
Customization of the ERP software is limited. Some customization may involve changing of the ERP software structure which is usually not allowed.
 
Re-engineering of business processes to fit the "industry standard" prescribed by the ERPsystem may lead to a loss of competitive advantage.
 
ERP systems can be very expensive to install often ranging from 30,000 to 500,000,000 formultinational companies.
 
ERP vendors can charge sums of money for annual license renewal that is unrelated to thesize of the company using the ERP or its profitability.
 
Technical support personnel often give replies to callers that are inappropriate for thecaller's corporate structure. Computer security concerns arise, for example when telling anon-programmer how to change a database on the fly, at a company that requires an audittrail of changes so as to meet some regulatory standards.
 
ERPs are often seen as too rigid and too difficult to adapt to the specific workflow andbusiness process of some companies
this is cited as one of the main causes of their failure.
 
Systems can be difficult to use.
 
Systems are too restrictive and do not allow much flexibility in implementation and usage.
 
The system can suffer from the "weakest link" problem
inefficiency in one department orat one of the partners may affect other participants.
 
Many of the integrated links need high accuracy in other applications to work effectively. Acompany can achieve minimum standards, and then over time "dirty data" will reduce thereliability 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).

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