Enterprise resource planning

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Enterprise resource planning (ERP) integrates internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, etc. ERP systems automate this activity with an integrated computer-based application. 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.[1] ERP systems can run on a variety of hardware and network configurations, typically employing a database to store its data.[2] ERP systems typically include the following characteristics:
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An integrated system that operates in (next to) real time, without relying on periodic updates.[citation needed] A common database, that 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.[3]

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1 Functional areas 2 History o 2.1 Origin of "ERP" o 2.2 Materials requirements planning o 2.3 Expansion 3 Components 4 Best practices 5 Modularity 6 Connectivity to plant floor information 7 Implementation o 7.1 Process preparation o 7.2 Configuration o 7.3 Customization o 7.4 Extensions o 7.5 Data migration

manufacturing flow. claim processing.6 Consultants 8 Comparison to special-purpose applications o 8. By the mid-1990s ERP systems addressed all core functions of an enterprise. quality control.y y y y o 7. capacity. supplier scheduling. suppliers and/or employees Access control Management of user privileges for various processes [edit] History [edit] Origin of "ERP" In 1990 Gartner Group first employed the acronym ERP[4] as an extension of (material requirements planning (MRP). Without supplanting these terms. customer contact. activity based costing. budgeting. performance units. scheduling. call center support Data services Various "self-service" interfaces for customers. commissions. ERP came to represent a larger whole. activity management Customer relationship management Sales and marketing. payables. order entry. later manufacturing resource planning[5][6]) and computerintegrated manufacturing.1 Advantages o 8. Vendors variously began with accounting. manufacturing projects. maintenance and human resources.cash management. commissions Project management Costing. governments and non-profit organizations also began to employ ERP systems.[8] . Product lifecycle management Supply chain management Order to cash.2 Disadvantages 9 See also 10 References 11 Further reading [edit] Functional areas Finance/Accounting General ledger.[7] Not all ERP packages were developed from a manufacturing core.training. diversity management Manufacturing Engineering. product configurator. receivables. recruiting. manufacturing process. billing. bill of materials. time and expense. benefits. workflow management. supply chain planning. consolidation Human resources payroll. fixed assets. reflecting the evolution of application integration beyond manufacturing. service. cost management. 401K. inventory. Beyond corporations. work orders. inspection of goods. purchasing.

"Enterprise application suite" is an alternate name such systems. Success with MRP projects led companies and vendors to consider expanding to other functional areas. e-telecom. This means that the software reflects the vendor's interpretation of the most effective way to perform each business process. when the Internet simplified communicating with external parties. Front office functions such as customer relationship management (CRM) dealt directly with customers.[citation needed] [edit] Components y y y y y y y y y 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 [edit] Best practices Best practices are incorporated into most ERP systems.[citation needed] [edit] Expansion ERP systems experienced rapid growth in the 1990s because the year 2000 and the Euro disrupted legacy systems. Many companies took this opportunity to replace such systems with ERP. This rapid growth in sales was followed by a slump in 1999 after these issues had been addressed. Large companies found great value in creating a common foundation for automating information management for their manufacturing processes. or e-business systems such as ecommerce. and e-finance. or supplier relationship management (SRM) became integrated later.[9] ERP systems initially focused on automating back office functions. e-government. indicating that customers and the general public were not directly involved.[citation needed] "ERP II" was coined in the early 2000s.[edit] Materials requirements planning MRP was the precursor to ERP. Systems vary in the convenience with which the customer can modify these practices.[10] Companies that implemented industry best practices decreased mission-critical project tasks such as . It describes web-based software that allows both employees and partners (such as suppliers and customers) real-time access to the systems.

These systems are typically configured by systems integrators. but also the increase in costs. and then replicated with confidence across multiple businesses who share that business requirement.[11] The use of best practices eases compliance with requirements such as IFRS. In addition. Connectivity becomes the responsibility of the systems integrator. The benefit of an EATM is that it offers an off±the±shelf solution. The ERP system takes the information from the table. the greater the number of modules selected. Long term costs can be minimized through careful system . documentation. often those offered by competitors. Database integration²ERP systems connect to plant floor data sources through a staging table in a database. Other times companies will not adopt a module because they already have a system they believe to be superior. They can also help industry standard functions such as electronic funds transfer. Enterprise appliance transaction modules (EATM)²These devices communicate directly with plant floor equipment and with the ERP system via methods supported by the ERP system. Generally speaking. A service company for example will not likely need a module for manufacturing.configuration. This requires the ERP system developers to offer specific support for the variety of plant floor equipment that they want to interface with. and vendor solutions. EATM can employ a staging table.[citation needed] [edit] Modularity Most systems are modular simply for the flexibility of implementing some functions but not others. Sarbanes-Oxley. Direct integration²ERP systems connectivity (communications to plant floor equipment) as part of their product offering. the greater the integration benefits. ERP Vendors must be expert in their own products.[citation needed] [edit] Connectivity to plant floor information ERP systems connect to real-time data and transaction data in a variety of ways. Web Services. This is because the procedure can be readily codified within the ERP software. testing and training. such as finance and accounting are adopted by nearly all companies implementing enterprise systems. and can have a higher long term cost in terms on maintenance and reliability. equipment. or Basel II. Some common modules. risks and changes involved. The benefit of staging is that ERP vendors do not need to master the complexities of equipment integration. others however such as human resource management are not needed by some companies and therefore not adopted. and connectivity to other vendor products. who are able to bring in their unique knowledge on process. or system±specific program interfaces (APIs). best practices reduced risk by 71% when compared to other software implementations. Plant floor systems deposit the necessary information into the database. Custom±integration solutions²Many system integrators offer custom solutions. These systems tend to have the highest level of initial integration cost.

[16][17] ERP implementation is considerably more difficult (and politically charged) in decentralized organizations. because they often have different processes.[citation needed] Consulting firms typically provide three areas of professional services: consulting. [edit] Implementation ERP's scope usually implies significant changes to staff work practices. understanding exising automated solutions. the extent of customization. three types of services are available²consulting. Standards exist within the industry to support interoperability between software products. and support. the number of modules. multinational and other large implementations can take years. ERP systems are modular. Research indicates that the risk of business process mismatch is decreased by: y y y linking current processes to the organization's strategy. and UAT specialists to ensure their business requirements remain a priority during implementation. As a result. customization. delaying implementation to work through the necessary changes . the scope of the changes to business processes. hiring professionally trained consultants to implement these systems is common. change management. and support. and the willingness of the customer to take ownership for the project. This analysis can identify opportunities for process modernization.[18] This may require that some business units remain outside the ERP system.[12] Implementation time depends on the size of the business. data semantics.[12] Generally. Custom-integrated solutions typically run on workstation or server class computers.[15] It is therefore crucial that organizations thoroughly analyze business processes before selecting a vendor.[citation needed] Extensive customization can substantially increase implementation times.testing and thorough documentation. It also enables an assessment of the alignment of current processes with those provided by the ERP system.[13] Small p can require months. The typical project consumes about 14 months and requires around 150 consultants. so they can be implemented in stages. customization.[13] Implementing ERP software can overwhelm technicians who lack explicit experience with it. managed by the OPC Foundation. analyzing the effectiveness of each process.[citation needed] [edit] Process preparation Implementing ERP can require changing existing business processes to the "best practice" approach that the software embodies. The client organization can also employ independent program management. the most widely known being OPC. business analysis. authorization hierarchies and decision centers. business rules. Standard protocols²Communications drivers are available for plant floor equipment and separate products have the ability to log data to relational database tables.[14] Neglecting to understand the needed process changes prior to starting implementation is a main reason for project failure.

or interface to an existing system. losses in one area often offset by gains in other areas. organisational trees. linking via Master data management) or customization to meet each unit's needs. and behaves predictably The effect of configuration changes on system behavior and performance is predictable and is the responsibility of the ERP vendor. whereas the software must always be configured before use (e.. For example. ERP systems typically build many changeable parameters that modify the operation of the system. [edit] Extensions ERP systems can be extended with third-party software. The effect of customization is the customer's responsibility and increases testing activities. Others (e. Nevertheless.g. the customer can re-write part of the code. setting up cost/profit center structures.[19][20] [edit] 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.for each unit. Both options add time and cost to the implementation process and can dilute system benefits. Customization inhibits seamless communication between suppliers and customers who use the same ERP system uncustomized.[citation needed] Key differences between customization and configuration include: y y y y Customization is always optional. reducing integration (e.) The software was designed to handle various configurations. Customization can be expensive and complicated. product line. While this has happened. customization offers the potential to obtain competitive advantage vis a vis companies using only standard features. or distribution channel and whether to pay for shipping costs when a customer returns a purchase. increasing overall competitive advantage.g. though they will still need to be retested. Some customizations (e. purchase approval rules. those involving changes to fundamental data structures) are overwritten during upgrades and must be reimplemented. code that uses pre-defined "hooks" that are called before/after displaying data screens) survive upgrades.[citation needed] [edit] Customization When the system doesn't offer a particular feature. Extensions offer features such as:[citation needed] . whether to recognize revenue by geographical unit. and can delay implementation.g.[citation needed] A potential disadvantage is that adopting "standard" processes can lead to a loss of competitive advantage.g. Configuration changes survive upgrades to new software versions. etc. an organization can select the type of inventory accounting²FIFO or LIFO²to employ. ERP vendors typically provide access to data and functionality through published interfaces.

[edit] Data migration Data migration is critical to implementation success and requires significant planning.[citation needed] Unlike most single-purpose applications. 5. 2. an outside consulting team is responsible for the ERP implementation including:[citation needed] 1. capturing transactional data. 7. it often receives insufficient attention. since migration is one of the final activities before the production phase. 3. 5. custom reports. the cost of the implementation typically ranges from 1-2x the software's list price. specialist advice to improve how the ERP is used in the business. Large companies. reporting and republishing. 6. Unfortunately. 6. using scanners. system optimization. 2.[citation needed] For mid-sized companies. 4.[citation needed] [edit] Comparison to special-purpose applications .g. and especially those with multiple sites or countries. Typically. complex data extracts or implementingBusiness Intelligence.y y y archiving. such as syndicated marketing data and associated trend analytics. may spend 3-5x. Identify the data to be migrated Determine the timing of data migration Generate the data templates Freeze the tools for data migration Decide on migration-related setups Decide on data archiving [edit] Consultants Many organizations do not have sufficient internal skills to implement ERP. 4. ERP packages typically include source code and a vendor-supporteddevelopment environment for customizing and extending the delivered code. The following steps can structure migration planning:[21] 1. 3. selecting planning training configuring/customizing testing implementation delivery Examples of other services include writing process triggers and custom workflows. tills or RFID access to specialized data/capabilities. e.

Integration of truly independent businesses can create unnecessary dependencies. marketing and sales. Extensive training requirements take resources from daily operations. maintenance and upgrade expenses Overcoming resistance to sharing sensitive information between departments can be a diversion. Tasks that benefit from this integration include:[citation needed] y y y y Sales forecasting. Protects sensitive data by consolidating multiple security systems into a single structure. Benefits of this include: y y y y No synchronizing changes between multiple systems . Decisions can be quicker and with fewer errors. anytime to make proper decisions. Provides comprehensive view of the enterprise (no "islands of information"). Makes real± time information available to management anywhere. Re-engineering of business processes to fit the ERP system may damage competitiveness and/or divert focus from other critical activities Can cost more than less integrated and/or less comprehensive solutions High switching costs increase vendor negotiating power vis a vis support. it saves time and expense. Data is visible across the organization. and costing (what the vendor invoiced) ERP systems centralize data.[22] [edit] Disadvantages y y y y y y y Customization is problematic. and manufacturing applications Enables standard product naming/coding. which allows inventory optimization Order tracking. from acceptance through fulfillment Revenue tracking.consolidation of finance. human resource. inventory receipts (what arrived). .[edit] Advantages The fundamental benefit of ERP is that by integrating the myriad processes by which businesses operate. from invoice through cash receipt Matching purchase orders (what was ordered).

for example.nets personal news page nIDG. MORE COMPUTING INTELLIGENCEnIDG. is the German company SAP AG with its R3 software. Weve always had software for those processes. how do we verify hourly workers paychecks in software. Implementing the software in a company usually involves changing business processes.net home pagenCIO home page nMake your PC work harder with these tipsnReviews indepth info at IDG. With an ERP system. ERP can work and make many an enterprise work better.. With careful planning and lots of elbow grease. ERP tracks company financials.net nIDG. . . guide the employees responsible for those processes through them step by step and automate as many procedures as desired.net in 12 languagesnNews RadionCIO radionFusion audio primersnComputerworld Minute nnn.nets free daily newslettersnSearch IDG. Other big players include PeopleSoft Inc. Edwards Co. human resources data and if applicable all the manufacturing information such as where you put your inventory and when it needs to be taken from the parts warehouse to the shop floor. All this is done with a minimum of human intervention and paperwork. The promise of ERP is great but so is the expense in terms of time. Baan Co. Sounds great. HR and materials management ERP is ERM plus applications. but each piece of the puzzle was provided by a different software vendor. that is. and those pieces typically didnt talk to one another. the financial software can cut an accounts payable check as soon as the loading dock clerk confirms that the goods have been received in inventory. The idea behind ERP is that the software needs to communicate across functions. At least not without a great deal of poking and prodding and rewriting from the techies in IS. ERM encompasses accounting. So employee resistance to these changes can be a major thorn in a companys side and usually requires that executives hone their change management skills.D. the way people do their jobs. Yes. Is there a downside Only if you consider multimilliondollar project failures a downside. The accounting system didnt exchange data with the manufacturing system. Similarly the accounts receivable module can generate an invoice as soon as the shipping clerk says the finished goods are on the truck to the customer. effort and money. ERP aims to replicate business processes how do we record a sale. The leader in ERP market share. NV and J. Oracle Corp.nets editors help you nSubscribe to IDG.. though.nets products pages nYear 2000 WorldnQuestions about computers Let IDG.It integrates key business and management processes to provide a skylevel view of much of whats going on in your organization. and the one that invented the market to an extent. Big whoop. Buzzwords ERM enterprise resource management Some analysts prefer this term and make a subtle distinction between ERM and ERP.

All company transaction are stored in one database 3. Thus some ERP software caters to a wide range of industries from service sectors like software vendors and hospitals to manufacturing industries and even to government departments. companies used to write their own software to control their business processes. etc. inventory. Improves supply chain flow . Sales Order Processingorder entry. and strategic management. It can be monolithic or modular. inventory management. Eliminates multiple data entry points 8. ERPs are cross-functional and enterprise wide. this would include accounting. it would be 'project' control rather than 'shop floor' control. All functional departments that are involved in operations or production are integrated in one system. and shipping. the more they need to manage it with such software as it give them all of the views into what is happening in the business. Benefits of ERP 1. common reusable software may provide costeffective alternatives to custom software. warehousing. human resources. In addition to manufacturing. delivery. invoicing. For Process driven companies it would have 'recipe' and 'batch' controls and for Project companies like Construction. Wikipedia describes ERP thusly: Enterprise resource planning is a term derived from material resource planning. like sales. client/server or web based. Shop Floor Control (work order) software and often CRM Customer Relationship Management. ERPs are often called back office systems indicating that customers and the general public are not directly involved. shipping. Enterprise Resource Planning or ERP software can aid in the control of many business activities. In the early days of business computing. Manufacturing Resource Planning. 5. Since many of these processes occur in common across various types of businesses. and human resources management. This is an expensive approach. With its typical love of jargon and buzzwords.not Quicken). Provides company management with 100% of corporate data for better decision making 4. distribution. Companies use it to keep track of their business. ERP systems typically handle the manufacturing. billing. Provides employees with the ability to gather information more effectively and efficiently. This is contrasted with front office systems like customer relationship management systems that deal directly with the customer. Breaks down communication barriers between departments 2. Inventory Control. Manufacturing Scheduling. marketing. and accounting for a company. production. The bigger the company. Increased productivity per employee / department / organization 6. It keeps track of gross margin. invoicing. Improved customer response times 7. how long it takes to collect an invoice. shipping.ERP stands for Enterprise Resource Planning and is a combination of Accounting software (think Quickbooks . logistics.

9. product line. Complete paper trail of all transactions within the organization. . Improved monitoring capabilities 10. 16. AR aging decrease. Provides a true representation of the overall health of the organization 11. 15. Highlights specific problem areas within the organization 12. Instant P&L by customer. Increased inventory management capabilities. branch. 13. warehouse. sales rep. Decreased time spent with month end / quarter end / year end reporting. product. 14. 17. etc. Cash collection time increases.

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