Enterprise Resource Planning

Unit-5
Earlier, in large organizations, different information systems were used to serve different
business functions like sales, marketing, production, manufacturing, etc., separately. The
business processes in each business function were disparate and not capable of sharing
information with each other. It was difficult for the managers to assemble the data fragmented
into separate systems in order to present an overall picture of the organization’s operations and
take firm-wide decisions.
At the time a customer places an order, for example, the sales personnel might not be able to tell
him whether the desired items are in inventory or are to be produced. To overcome such
difficulties, in recent years, many organizations have opted to replace the several distinct
information systems with a single integrated system that can support the business activities for
different business functions. Such systems are called enterprise systems.
An enterprise system, also known as enterprise resource planning (ERP) system, is a cross-
functional information system that provides organization-wide coordination and integration of
the key business processes and helps in planning the resources of an organization. With the help
of enterprise resource planning systems, information can flow seamlessly across the firm. Also,
different business processes from sales, production, manufacturing, logistics, and human
resources, can be integrated into organization-wide business processes.

Enterprise resource planning, or ERP, is a set of integrated programs to manage critical

operations for an entire organization. At the center of the ERP system is a database that is
shared by all users. This makes it possible for all units in the organization to have access to
current data to support operations and planning.
An ERP system is driven by the ERP software suite-a set of integrated software modules–and a
common centralized database. The software modules support the basic business processes under
different functional areas, and the database stores data from and feeds the data to various
applications supporting the internal business activities.

ERP has emerged as an important tool in controlling costs and product flows through a complex
enterprise. One of the defining characteristics of ERP is that it integrates real-time information
from across the entire enterprise.

Some examples of business processes supported by ERP software include accounts payable,
general ledger, cash management and forecasting, personnel administration, payroll, time
management, inventory management, product pricing, billing,etc. 
For e.g:
Let's say you are the CEO of a major airline. Your company has about 100 planes that fly to
more than 50 different cities all over the world. You have approximately 10,000 employees in 12
different countries and more than 20 million customers every year. Just think for a moment about
what it takes to run a company like that. Are you up for the job?
The latest quarterly financial reports are in, and the news is not good. Costs are up, and profits
are down, and this has been a trend for the past two years. How are you going to turn things
around and make your company more profitable? Just fixing one thing is not going to be enough.
You're going to need to make improvements across the entire company, from plane maintenance
and safety to marketing and customer loyalty. What you need is an enterprise resource planning
system.

Enterprise resource planning (ERP) is a process by which a company (often a

manufacturer) manages and integrates the important parts of its business. An ERP management
information system integrates areas such as planning, purchasing, inventory, sales, marketing,
finance and human resources.

ERP is most frequently used in the context of software. As the methodology has become more
popular, large software applications have been developed to help companies implement ERP.

Think of ERP as the glue that binds the different computer systems for a large organization.
Typically, each department would have its own system optimized for that division's particular
tasks. With ERP, each department still has its own system, but it can communicate and share
information easier with the rest of the company.

The ERP software functions like some a central nervous system for a business. It collects
information about the activity and state of different divisions of the body corporate and makes
this information available to other parts where it can be used productively. Information on the
ERP is added in real time by users. Any authorized user with a valid password and access to the
network can access the system any time.

ERP resembles the human central nervous system. Its capacity transcends the collective ability of
the individual parts to form what is known as consciousness. It helps a corporation become more
self-aware by linking information about production, finance, distribution and human resources.
ERP connects different technologies used by each individual part of a business, eliminating
duplicate and incompatible technology that is costly to the corporation. This involves
integrating accounts payable, stock-control systems, order-monitoring systems and customer
databases into one system.

The first ERP system to be developed was SAP, a software firm that was established in 1972 by
three software engineers based in Mannheim, Germany. SAP's goal was to link different parts of
a business by sharing information gathered from those parts to help the company operate more
efficiently.
Advantages
ERP has a number of advantages. These include:
1. Improved access to data to support decision making
ERP systems use an integrated database to support all business functions. This facilitates
operational decision making across the enterprise, resulting in seamless integration of various
units.
2. Elimination of legacy systems
Legacy systems are those computer-based systems that have been in place for many years but are
no longer supported and don't interface reliably with newer systems. ERP replaces multiple
systems on different platforms into a single set of integrated software applications.
3. Improvement of work processes
ERP systems are designed to implement best practices, which are the most efficient and effective
ways to carry out a particular workflow or process.
4. Upgrade of technology infrastructure
The implementation of ERP presents an opportunity to bring all information technology in an
organization up to speed in an organized manner rather than gradually upgrading individual
components when they need fixing.

Disadvantage
Implementing an ERP system can be very challenging. Not only does it require substantial
resources, it also requires strong support from management as well as the effective collaboration
of many units across the entire enterprise. Some of the specific challenges of ERP systems are:
1. Cost
Implementation of an ERP system can be very costly, with a typical system for a large
organization running in the millions of dollars.
2. Disruption of upgrades
An ERP system needs to be integrated with existing systems, and this may temporarily disrupt
regular operations.
3. Long implementation time
Implementation of an ERP for a large organization can take several months to over a year.
4. Difficulty in managing change
An ERP system often requires an organization to do certain things differently in order to
integrate processes and become more efficient. This may not always be received well by long-
term employees.
5. Software customization
Out-of-the-box ERP software is typically not sufficient to meet the needs of complex
organizations. Time and money may need to be invested in customizing software.
6. User frustration
Many employees have become familiar with a certain way of doing business, and an ERP may
challenge how they go about doing their job. Training may be necessary for new users to adapt to
the new system.

Benefits of Enterprise Resource Planning

 Communicate the critical firm-wide information on the business performance to
managers all across the organization quickly, so as to enable them to make better
decisions and at the right time.
 Reduce the cost involved in transaction processing, hardware, software, and IT support
staff in a significant manner.
 Improve the quality and efficiency of customer service, production and distribution by
integrating the company’s internal business processes in sales, finance, production,
custom logistics,etc.1
 Help to create a more uniform organizational culture where everyone uses similar type of
processes and information to do business.