ERP Full Form is Enterprise Resource Planning. ERP is a software designed for business management for integrated applications used by companies to store, collect, interpret, and manage data from various activities. Some of the essential activities managed by ERP include manufacturing, product planning, service delivery, inventory management, payment, shipping, etc. There are series of benefits in using an ERP system. Some of them are explained here.
There are many advantages of using an ERP system which include (1) One data source that offers all information related to services and products like information of vendors, suppliers, orders, etc. This feature provides rapid development in product launch cycles thereby increasing the market share of a company, (2) Effective and holistic management of projects aids in crucial business decisions, (3) Business process automation like invoicing, purchase and sales orders in the system boosts accuracy in forecasts and planning.
ERP Full Form – Additional Information
As explained earlier, Enterprise Resource Planning is actually a kind of software relating to business management. It is basically an integration of applications that an organization or institutions use to gather, save, and translate data coming from different business operations and activities. Such business activities include shipping and payment, product planning, marketing and sales, manufacturing/ service delivery, and inventory management.
ERP allows the user to have an integrated view of the core processes of the business with the help of commonly maintained databases, managed by a Database Management System. The ERP systems help in tracking business materials and resources such as the capacity to produce, raw materials, cash. The capacity to produce includes elements such as the current status of commitments, purchase orders, orders, and payroll.
The applications that help in creating data the system share data from across different departments such as purchasing, manufacturing, accounting, and sales, etc provide the data. This system allows the flow of information among all business functions and helps in managing communications to external stakeholders.
The ERP software we are discussing is an industry with multi-billion worth. It is a part of that industry that manufactures various components that support a myriad of business functions. Early versions of ERP systems had focused on big enterprises, however, with the passage of time small enterprises have begun using these systems more prominently.
ERP systems have played a key role as an organization utility tool because they result in the integration of various organizational systems and allow for error-free productions and transactions. The development of ERP systems, however, varies from a typical traditional system. These systems operate on a variety of hardware and configuration of networks, particularly for the use of the database as a repository of information.
Now that we have discussed briefly what, in general, ERP systems stand for, we shall now move to other aspects of the same. We shall begin with the history behind the origin of its name as well as the system in whole. That segment shall be followed by other segments such as the expansion of ERP systems, Functional areas of ERP systems and whatnot.
A sneak peak at the origin of the ERP systems
Under this segment, we shall explore certain historical facts behind the origin of these vital systems. The first use of the term ERP happened when the Gartner Group used it in the period surrounding around the 1990s. The term was used as an indication for extension of capabilities relating to Material Requirements Planning (abbreviated as MRP) and the later Manufacturing Resource Planning (abbreviated as MRP II), and also Computer-integrated manufacturing. Without having replaced the term, the term ERP began to be used as an indication of the evolution of integrated application that went beyond manufacturing. Now you know how these systems came to be known as ERP systems. It is the time we moved to the next segment, which deals with the expansion of the ERP systems.
The ERP systems witnessed quick expansion from the 1990s. The reason behind its rapid expansion is primarily ascribed to the EURP legacy systems. Because of this, many companies started switching their old systems with the ERP systems.
In the initial years, the ERP systems maintained their focus on automating the back office functions, which did not directly cause any effect to customers and public at large. The integration of certain functions happened at a much later stage. Those functions included Front office functions, which included customer relationship management (abbreviated as CRM) and directly dealt with customers, or e-finance functions and e-business systems such as e-telecom, e-commerce, and e-government. The integration of the aforementioned functions was caused by the simplification of communication with external parties through the internet.
In the year 2000, the term ERP II was coined. The term was used in an article titled ERP is Dead-Long Live ERP II published by Gartner Publications. The term is used to describe web-based software that facilitates real-time access to the ERP systems to partners and employees. Partners include customers as well as suppliers. There is an expansion of the traditional roles of the typical ERP systems with the introduction of ERP II systems. It has expanded transaction processing and resource optimization.
The ERP II systems take benefit of the information contained in the resources kept under its care and management to support enterprise in collaboration with other enterprises. The traditional ERP systems are not as flexible as the new ERP II systems because the latter is able to transcend the corporate barriers with the purpose of interacting with other systems. These systems are also known by an alternate name Enterprise Application Suite.
Recently, many developers have started attempting the integration of these systems with mobile systems. Now ERP vendors have started extending the functions of ERP to mobiles, alongside many other businesses related applications. Today, the ERP system covers a wide range of functions such as standardizations, globalization, transparency, decision making, etc.
Thus, ERP systems have tread a long path to becoming a successful system in the corporate world. The discussion under this segment clearly illustrates this point. Now we shall move to our next segment, which deals with certain major characteristics of the ERP systems that are crucial for our discussion.
Characteristics of the ERP systems
The ERP systems generally possess the following characteristics:
- It is a system that causes integration, which operates in real time without putting any reliance on period updates.
- There is a commonly maintained database that provides support to applications.
- It has a consistent appearance across modules.
- Installs of the system with data integration by the Department of Information technology (abbreviated as IT).
Functional areas of the ERP
The ERP system covers functional areas. Many ERP systems, when grouped together, are called as ERP Modules.
- Customer relationship management: This includes service, commissions, customer contact,Sales and marketing, call center
- Manufacturing: This includes work orders, bill of materials, Engineering, scheduling, workflow management, capacity, manufacturing process, quality control, manufacturing projects, product lifecycle management, manufacturing flow, product lifecycle management, and workflow management
- Financial accounting:This includes fixed asset, General ledger, payables that include matching, vouchering and payment, collections, receivables cash application and financial consolidation, and cash management,
- Human Resources: This includes Recruiting, diversity management, training, payroll, benefits, rostering, retirement, 401K, separation, etc
- Data services : This includes many interfaces relating to “self–service” for customers, and/or employees, and suppliers.
Connectivity to the plant floor information
In this segment, we shall discuss plant floor information and connectivity to it. As mentioned above, ERS systems provide communication to real-time transactions and data in a myriad of ways. These ERS systems are generally configured with the help of system integrators, which bring peculiar knowledge on equipment, process, and vendor solutions.
Direct Integration: The first for our discussion is Direct Integration. As a part of product offering, the ERS systems connect to the plant floor information. This has a requirement, which is that the vendors provide particular support to customers for plant floor equipment for operation. The vendors we are talking about must hold expertise in their services and products as well as connectivity to products of other vendors, which includes products of that of the vendors.
Database Integration: With the help of staging tables in the database, these ERS systems provide connection to the plant floor data sources. These plant floor systems deposit the required information in the database. The ERS system will read this deposited information in the table. The advantage of staging is that it does away with the requirement to master complex equipment integration. The systems integrators are responsible for connectivity.
Enterprise Appliance Transaction Modules (abbreviated as EATM): EATM is devices that provide communication to plant floor equipment with ERP systems directly with the help of those methods, which are supported by the ERP system itself. EATM cam even makes use of a staging table for this purpose or even web services, or it can use specific program interface (abbreviated as APIs). These devices offer solutions, which are off-the-shelf solutions.
Custom Integration Solutions: There are several system integrators that provide customized solutions. These systems possess the biggest level of early integration cost. They can even have bigger long term maintenance prices as well as reliability costs. With the help of careful system testing and meticulous documentation, these long-term maintenance costs are reduced. Such solutions generally operate on server class computers or workstation. All of these modules we have discussed greatly help in the functioning of the ERP systems and therefore, should be understood substantially for better appreciation.
Implementation of the ERP systems
In this, we shall discuss the key issues revolving around the implementation of the ERP systems. The scope of ERP systems indicates major changes to many staff practices and work. Typically, there are about three different categories of services that are available for the effective implementation of these systems. These are customization, consulting and support. The time of implementation depends greatly on several factors such as a number of modules, the size of the business, process changes, and willingness of the customer to take up the project as owner. ERP systems, which are modular in nature, can be implemented in different stages.
For a large enterprise, the implementation would generally take up 14 months and may require about 150 consultants for the same. Meanwhile, enterprises that are small sized may require less time though may extend to months. International enterprises may take years for effective implementation of these systems. Time of implementation is greatly increased with customization. The business functions are influenced by information processing, for example, big corporations such as Wal-Mart make use of an inventory known as just in time. This effectively reduces storage of inventory and thus, improves the efficiency of delivery.
The implementation process of ERP systems generally requires amendments in the present business processes. Many projects fail because of the poor determination of the required changes for the purpose of implementing. The reason for such poor determination can be attributed to various factors such as lack of willingness, poor infrastructure, business process, and lack of good training.
Thus, it is important that focus is given towards the assessment of business processes before the ERP systems are implemented. The assessment of the business processes helps in identifying those areas, which require modernization. It allows an assessment of the risk involved in business process mismatch. It reduces such risks by connecting the present business processes to the strategy of the organization; assessing the effectiveness of every business process, and understanding the present automated solutions.
The implementation of ERP is relatively difficult particularly in decentralized organizations and this is because these organizations, due to their character, have different business processes, rules, authorization hierarchies, data semantics, and decisions centers. This may result in the need to transfer business units, which may delay the whole implementation process. There is a potential disadvantage, which is the loss of competition advantage that is a resultant of adoption of standard processes. Otherwise, it is a good process.
Configuration of the ERP systems
Configuration is an essential step in the whole implementation process. The configuration of the ERP systems is a big matter, considering the fact that it tries to strike a balance between the organization and the system itself. There are many settings incorporated in the ERP systems that allow for configuration facilities and modification of system operations. Take, for example, an organization has the option of choosing from the type of inventory accounting, which can either FIFO or LIFO for the user. There are other options such as whether the revenue is to be determined on the basis of geographical area, distribution channel, or product line; or whether to pay for customer returns or shipping charges.
Customization of the ERP systems
Customization is an essential process because it can potentially increase the whole process of implementation. The ERP customers are offered many options that help them reconcile many feature gaps. There are technical solutions provided such as rewriting the portion of the software delivered, a homegrown module, or interfacing to an external mechanism. These options given to the ERP customers comprises varying levels of system customization, the first option though is the most expensive one for the purpose of maintenance. There are also non-technical options available to the ERP customers such as changing organizational policies or business practices to match the ERP feature set delivered.
The ERP systems can be effectively extended with the help of third party software. These extensions generally offer the following features:
- Capturing transaction data, for example, scanners, RFID, or tills.
- Advanced planning and scheduling (abbreviated as APS)
- Providing access to certain specialized capabilities and data, for associated trend analytics
- Reporting as well as republishing
- Transmission in real-time