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The ABCs of ERP

History of ERP

Enterprise resource planning (ERP) systems were developed as an extension of materials requirementsplanning (MRP) systems. MRP, in turn, was originally developed (late 70s and early 80s) to integrateplanning and scheduling elements to the manufacturing process. Subsequently "MRP II" was introduced toincorporate the planning elements of distribution and forecast requirements to the central manufacturinglocation.ERP was introduced in the late 80s as a means to integrate other enterprise functionality. One examplewould be when a software system can provide at least two other functions (as is the case if anorganization has the means to integrate the requirements of both a human resources module and afinancial system).In modern ERP systems, usage is not confined to manufacturing organizations. It is typically designed tointegrate applications that traditionally would have been separate "stand alone" activities, such as productconfiguration control, bill of materials and sales, or order entry.

Modern ERP Systems

In current ERP systems one would expect to have the ability to manage the following applications (amongothers) through a single database:

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manufacturing

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supply chain

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financials

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customer relationship management

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warehouse management

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business intelligenceDetermining which ERP solution best meets your needs depends to a great extent on your industry verticalspace, as well as the application requirements of your organization.If your organization lacks the resources to integrate a complete ERP system package, then only portionsof the system need be implemented, with the other applications introduced gradually over a period of time.In other instances an organization may already have a very robust accounting system, with other applications in place, and may simply be looking to extend the capabilities of current systems by addingadditional applications.One example might be a retail company that has a point of sale (POS) system and a financial applicationfrom different software vendors. However, additional specialized applications such as warehousemanagement systems (WMS) and transportation management systems (TMS) and demand planning arenot in place and are required to optimize the supply chain capabilities.Integration to other functionality is large part a measure of the capabilities of the company's existing legacysystems. In systems using modern relational database management systems (RDBMS), integrating other applications as a "best of breed" solution is fairly commonplace.The alternative is to explore other options in light of the total cost of ownership (TCO) of supporting andmaintaining the existing legacy system. In many instances it may make sense to purchase a new solutionwhere all required applications are available as a standard part of the software solution.It should also be noted that there has never been a better time for prospective ERP system buyers, asthere are so many choices that can support the best practices of whatever industry vertical or businessmodel your organization has in place.

Low-cost ERP Options

If your organization has limited IT resources and budget constraints, one option to consider is software asa service (SaaS), whereby your organization can access an externally hosted solution with a set of pre-configured modules that can provide the functionality of a completely integrated ERP system (for amonthly fee). This can address the need to have a solution in place, without incurring the costs for supportand maintenance of an ERP system.Another alternative is to explore the growing number of open source ERP vendors, which can addressmany application requirements for little or no up-front costs. Other costs are applied at the back end for support and for features which may not be available within the standard open source offering.

Definition of ERP (Enterprise Resource Planning)

Enterprise resource planning (ERP) is the industry term used to describe a broadset of activities supported by multi-module application software that helps amanufacturer or other business manage the important parts of its business. These parts can include product planning, parts purchasing, maintaining inventories,interacting with suppliers, providing customer service, and tracking orders. ERPcan also include application modules for the finance and human resourcesaspects of a business.Some of the bigger players in the ERP outsourcing market are SAP, Peoplesoft,and J. D. Edwards. New comers include Oracle, IBM, and Microsoft.ERP stands for Enterprise Resource Planning. ERP is a way to integrate the dataand processes of an organization into one single system. Usually ERP systemswill have many components including hardware and software, in order toachieve integration, most ERP systems use a unified database to store data for various functions found throughout the organization.The term ERP originally referred to how a large organization planned to useorganizational wide resources. In the past, ERP systems were used in larger more industrial types of companies. However, the use of ERP has changed andis extremely comprehensive, today the term can refer to any type of company, nomatter what industry it falls in. In fact, ERP systems are used in almost any typeof organization - large or small.In order for a software system to be considered ERP, it must provide anorganization with functionality for two or more systems. While some ERP packages exist that only cover two functions for an organization (QuickBooks:Payroll & Accounting), most ERP systems cover several functions.Today's ERP systems can cover a wide range of functions and integrate theminto one unified database. For instance, functions such as Human Resources,

Supply Chain Management, Customer Relations Management, Financials,Manufacturing functions and Warehouse Management functions were all oncestand alone software applications, usually housed with their own database andnetwork, today, they can all fit under one umbrella - the ERP system.

Integration is Key to ERP

Integration is an extremely important part to ERP's. ERP's main goal is tointegrate data and processes from all areas of an organization and unify it for easy access and work flow. ERP's usually accomplish integration by creatingone single database that employs multiple software modules providing differentareas of an organization with various business functions.Although the ideal configuration would be one ERP system for an entireorganization, many larger organizations usually create and ERP system and then build upon the system and external interface for other stand alone systems whichmight be more powerful and perform better in fulfilling an organizations needs.Usually this type of configuration can be time consuming and does require lotsof labor hours.

The Ideal ERP System

An ideal ERP system is when a single database is utilized and contains all datafor various software modules. These software modules can include:

Manufacturing:

Some of the functions include; engineering, capacity,workflow management, quality control, bills of material, manufacturing process,etc.

Financials:

Accounts payable, accounts receivable, fixed assets, general ledger and cash management, etc.

Human Resources:

Benefits, training, payroll, time and attendance, etc

Supply Chain Management:

Inventory, supply chain planning, supplier scheduling, claim processing, order entry, purchasing, etc.

Projects:

Costing, billing, activity management, time and expense, etc.