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, CRM, etc. ERP systems
automate this activity with an integrated software 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 data.[2]

ERP systems typically include the following characteristics:

 An integrated system that operates in real time (or next to real time), without relying on periodic
updates.[citation needed]

 A common database, which 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]
Contents
 [hide]

1 Functional areas

2 History

o 2.1 Origin of "ERP"

o 2.2 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

8 Comparison to special–purpose

applications

o 8.1 Advantages

o 8.2 Disadvantages

9 See also

10 References

11 Further reading

[edit]Functional areas

Finance/Accounting 

General ledger, payables, cash management, fixed assets, receivables, budgeting, consolidation

Human resources 

payroll, training, benefits, 401K, recruiting, diversity management

Manufacturing 

Engineering, bill of materials, work orders, scheduling, capacity, workflow management, quality control,

cost management, manufacturing process, manufacturing projects, manufacturing flow, activity based
costing, Product lifecycle management

Supply chain management 

Order to cash, inventory, order entry, purchasing, product configurator, supply chain planning, supplier

scheduling, inspection of goods, claim processing, commissions

Project management 

Costing, billing, time and expense, performance units, activity management

Customer relationship management 

Sales and marketing, commissions, service, customer contact, call center support

Data services 

Various "self–service" interfaces for customers, 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), later manufacturing resource planning[5][6] and computer-integrated manufacturing. Without
supplanting these terms, ERP came to represent a larger whole, reflecting the evolution of application
integration beyond manufacturing.[7] Not all ERP packages were developed from a manufacturing core.
Vendors variously began with accounting, maintenance and human resources. By the mid–1990s ERP systems
addressed all core functions of an enterprise. Beyond corporations, governments and non–profit organizations
also began to employ ERP systems.[8]

[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. [9]

ERP systems initially focused on automating back office  functions that did not directly affect customers and the
general public. Front office  functions such as customer relationship management (CRM) dealt directly with
customers, or e–business systems such as e–commerce, e–government, e–telecom, and e–finance,
or supplier relationship management (SRM) became integrated later, when the Internet simplified
communicating with external parties.[citation needed]

"ERP II" is coined in the early 2000s. It describes web–based software that allows both employees and
partners (such as suppliers and customers) real–time access to the systems. "Enterprise application suite" is
an alternate name such systems.[citation needed]

[edit]Components

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 practice are incorporated into most ERP systems. This means that the software reflects the vendor's
interpretation of the most effective way to perform each business process. Systems vary in the convenience
with which the customer can modify these practices. [10] Companies that implemented industry best practices
reduced time–consuming project tasks such as configuration, documentation, testing and training. In addition,
best practices reduced risk by 71% when compared to other software implementations. [11]

The use of best practices eases compliance with requirements such as IFRS, Sarbanes-Oxley, or Basel II.
They can also help comply with de facto industry standards, such aselectronic funds transfer. This is because
the procedure can be readily codified within the ERP software and replicated with confidence across multiple
businesses who share that business requirement.[citation needed]

[edit]Modularity

Most systems are modular to permit automating some functions but not others. Some common modules, such
as finance and accounting, are adopted by nearly all users; others such as human resource management are
not. For example, a service company probably has no need for a manufacturing module. Other companies
already have a system that they believe to be adequate. Generally speaking, the greater the number of
modules selected, the greater the integration benefits, but also the greater the costs, risks and changes
involved.[citation needed]

[edit]Connectivity to plant floor information

ERP systems connect to real–time data and transaction data in a variety of ways. These systems are typically
configured by systems integrators, who bring unique knowledge on process, equipment, and vendor solutions.

Direct integration—ERP systems connectivity (communications to plant floor equipment) as part of their
product offering. This requires the vendors to offer specific support for the plant floor equipment that their
customers operate. ERP vendors must be expert in their own products, and connectivity to other vendor
products, including competitors.

Database integration—ERP systems connect to plant floor data sources through staging tables in a database.
Plant floor systems deposit the necessary information into the database. The ERP system reads the
information in the table. The benefit of staging is that ERP vendors do not need to master the complexities of
equipment integration. Connectivity becomes the responsibility of the systems integrator.

Enterprise appliance transaction modules (EATM)—Thesedevices communicate directly with plant floor

equipment and with the ERP system via methods supported by the ERP system. EATM can employ a staging
table, Web Services, or system–specific program interfaces (APIs). The benefit of an EATM is that it offers an
off–the–shelf solution.
Custom–integration solutions—Many system integrators offer custom solutions. These systems tend to have
the highest level of initial integration cost, and can have a higher long term maintenance and reliability costs.
Long term costs can be minimized through careful system testing and thorough documentation. Custom–
integrated solutions typically run on workstation or server class computers.

Standard protocols—Communications drivers are available for plant floor equipment and separate products
have the ability to log data to staging tables. Standards exist within the industry to support interoperability
between software products, the most widely known being OPC [12]

[edit]Implementation

ERP's scope usually implies significant changes to staff work practices. [13] Generally, three types of services
are available to help implement such changes—consulting, customization, and support. [13] Implementation time
depends on business size, number of modules, customization, the scope of process changes, and the
readiness of the customer to take ownership for the project. Modular ERP systems and can be implemented in
stages. The typical project for a large enterprise consumes about 14 months and requires around 150
consultants.[14]Small projects can require months; multinational and other large implementations can take years.
[citation needed]
 Customization can substantially increase implementation times.[14]

[edit]Process preparation
Implementing ERP typically requires changing existing business processes. [15] Poor understanding of needed
process changes prior to starting implementation is a main reason for project failure. [16] It is therefore crucial
that organizations thoroughly analyze business processes before implementation. This analysis can identify
opportunities for process modernization. It also enables an assessment of the alignment of current processes
with those provided by the ERP system. Research indicates that the risk of business process mismatch is
decreased by:

linking current processes to the organization's strategy;

 analyzing the effectiveness of each process;

 understanding exising automated solutions. [17][18]

ERP implementation is considerably more difficult (and politically

charged) in decentralized organizations, because they often have
different processes, business rules, data semantics, authorization
hierarchies and decision centers.[19] This may require migrating
some business units before others, delaying implementation to
work through the necessary changes for each unit, possibly
 reducing integration (e.g. linking via Master data management) or
customizing the system to meet specific needs. [citation needed]

A potential disadvantage is that adopting "standard" processes can lead to a loss of competitive advantage.
While this has happened, losses in one area often offset by gains in other areas, increasing overall competitive
advantage.[20][21]

[edit]Configuration

Configuring an ERP system is largely a matter of balancing the way the customer wants the system to work
with the way it was designed to work. ERP systems typically build many changeable parameters that modify
system operation. For example, an organization can select the type of inventory accounting—FIFO or LIFO—to
employ, whether to recognize revenue by geographical unit, product line, or distribution channel and whether to
pay for shipping costs when a customer returns a purchase. [citation needed]

[edit]Customization

When the system doesn't offer a particular feature, the customer can rewrite part of the code, or interface to an
existing system. 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:

 Customization is always optional, whereas the software must

always be configured before use (e.g., setting up cost/profit
center structures, organisational trees, purchase approval
rules, etc.)

 The software was designed to handle various configurations,

and behaves predictably any allowed configuration.

 The effect of configuration changes on system behavior and

performance is predictable and is the responsibility of the
ERP vendor. The effect of customization is less predictable,
is the customer's responsibility and increases testing
activities.

 Configuration changes survive upgrades to new software

versions. Some customizations (e.g. code that uses pre–
defined "hooks" that are called before/after displaying data
screens) survive upgrades, though they require retesting.
Other customizations (e.g. those involving changes to
 fundamental data structures) are overwritten during upgrades
and must be reimplemented.

Customization can be expensive and complicated, and can delay implementation. Nevertheless, customization
offers the potential to obtain competitive advantage vis a vis companies using only standard features.

[edit]Extensions

ERP systems can be extended with third–party software. ERP vendors typically provide access to data and
functionality through published interfaces. Extensions offer features such as: [citation needed]

 archiving, reporting and republishing;

 capturing transactional data, e.g. using scanners, tills

or RFID

 access to specialized data/capabilities, such as syndicated

marketing data and associated trend analytics.
[edit]Data migration
Data migration is the process of moving/copying and restructuring data from an existing system to the ERP
system. Migration is critical to implementation success and requires significant planning. Unfortunately, since
migration is one of the final activities before the production phase, it often receives insufficient attention. The
following steps can structure migration planning:[22]

 Identify the data to be migrated

 Determine migration timing

 Generate the data templates

 Freeze the toolset

 Decide on migration-related setups

 Define data archiving policies and procedures

[edit]Comparison to special–purpose
applications
[edit]Advantages

The fundamental advantage of ERP is that integrating the myriad processes by which businesses operate
saves time and expense. Decisions can be made more quickly and with fewer errors. Data becomes visible
across the organization. Tasks that benefit from this integration include: [citation needed]

 Sales forecasting, which allows inventory optimization

 Order tracking, from acceptance through fulfillment

  Revenue tracking, from invoice through cash receipt

 Matching purchase orders (what was ordered), inventory

receipts (what arrived), and costing (what the vendor
invoiced)

ERP systems centralize business data, bringing the following benefits:

 They eliminate the need to synchronize changes between

multiple systems—consolidation of finance, marketing and
sales, human resource, and manufacturing applications

 They enable standard product naming/coding.

 They provide a comprehensive enterprise view (no "islands

of information"). They make real–time information available
to management anywhere, anytime to make proper
decisions.

 They protect sensitive data by consolidating multiple security

systems into a single structure.[23]
[edit]Disadvantages

 Customization is problematic.

 Re–engineering business processes to fit the ERP system

may damage competitiveness and/or divert focus from other
critical activities

 ERP can cost more than less integrated and/or less

comprehensive solutions.

 High switching costs increase vendor negotiating power vis a

vis support, maintenance and upgrade expenses.

 Overcoming resistance to sharing sensitive information

between departments can divert management attention.

 Integration of truly independent businesses can create

unnecessary dependencies.

 Extensive training requirements take resources from daily

operations.