The word Enterprise Resource Planning or ERP conveys a sense of planning the use of enterprise-wide resources to achieve enterprise objectives in the best possible manner. However, ERP has come to mean something much less ambitious. It simply means integrating two or more separate applications.
The integration is done by the use of a common database and multiple software and hardware components. Thus an ERP system can include Manufacturing, Financials, Sales & Distribution, and HR functionalities in separate modules.
Integration of a number of systems results in:
- Creation of a unified database that results in greater reporting capabilities
- Elimination of external interfaces between different applications that were needed earlier to exchange information between them
- Standardization and lower maintenance costs as a single system replaces the earlier multiple systems.
Typical modules in modern ERP systems:
- Manufacturing: This module facilitates manufacturing and related operations such as plant engineering, production scheduling, materials requirements lists, workflow and process management, quality control and cost control.
- Supply Chain Management: Inventory control and purchasing functions, including supply chain planning, and supplier performance monitoring, are the major functions facilitated by this module.
- Customer Relationship Management: Sales and Distribution, Commissions and Customer Support are covered by this module.
- Financials: This module covers the traditional accounting and cash flow management functions, including accounts receivable, accounts payable, cash flow control, and general ledger.
- Other typical modules include Human Resources (including payroll), Project Management and Data Warehouse. ERP systems also provide direct interfaces for external entities like customers and suppliers, and internally for employees.
The separation of modules in this manner has resulted in some large organizations selecting different modules from different ERP vendors. Some functionality might be better with one vendor's module while other vendors’ modules better manage other functionalities.
This would, however, involve building interfaces between modules from different vendors, which might have to be done by in-house staff. It follows that the staff should have the required skill level.
Implementing ERP in Organizations
Implementing ERP typically involves significant changes in working practices. Necessary skills might also not be available in-house. Either the ERP vendor or a third-party consultant usually helps implement ERP in an organization. The ERP implementation needs to be aligned with the organization's business processes, which usually need to be re-engineered.
New user interfaces and even some processing might have to be coded where the ERP system does not meet certain work practices in the organization. The ERP system should ideally accommodate such customization. Implementation will also involve training to the organization's personnel to work with the ERP system, and continuing support to keep the system running with minimal additional costs.
In the absence of ERP, the different applications in use might not be able to exchange information. Such information exchange can become very critical for efficient operations and competitiveness. Organizations that have implemented ERP properly will be able to operate in a lean manner, leading to lower costs and customer prices, giving them an advantage in the marketplace.
Enterprise Resource Planning systems facilitate this goal by combining applications and using a common database.