Enterprise Resource Planning (ERP) has revolutionized the way we do business and live our lives. As one of the most widely implemented business software systems across various industries and organizations, ERP holds a significant place in today’s digital world. This article aims to explain the fundamental yet crucial concepts related to ERP in a concise manner.
1. Understanding ERP
ERP stands for Enterprise Resource Planning. The term ERP refers to both the ERP software and the business strategies that implement ERP systems. ERP implementation involves the use of various ERP software applications to enhance the performance of organizations in three key areas: resource planning, management control, and operational control. ERP software comprises multiple software modules that integrate activities across functional departments, from product planning, parts purchasing, inventory control, product distribution, to order tracking. Most ERP software systems include application modules to support common business activities such as finance, accounting, and human resources.
2. Components of ERP Systems
ERP is much more than just a piece of computer software. An ERP System encompasses ERP Software, Business Processes, Users, and Hardware that run the ERP software. An ERP system is more than the sum of its parts or components. These components interact together to achieve a common goal – streamlining and improving organizations’ business processes.
3. The Evolution of ERP
Enterprise Resource Planning (ERP) is the evolution of Manufacturing Requirements Planning (MRP) II in the 1980s, while MRP is the evolution of Inventory Management & Control conceived in the 1960s. ERP has expanded from coordinating manufacturing processes to integrating enterprise-wide backend processes. In terms of technology, ERP has evolved from legacy implementation to a more flexible tiered client-server architecture.
4. Benefits of ERP
ERP software attempts to integrate business processes across departments onto a single enterprise-wide information system. The major benefits of ERP include improved coordination across functional departments and increased efficiencies in doing business. The implementation of ERP systems also facilitates day-to-day management. ERP software systems were originally and ambitiously designed to support the resource planning portion of strategic planning. However, in reality, resource planning has been the weakest link in ERP practice due to the complexity of strategic planning and the lack of adequate integration of ERP with Decision Support Systems (DSS).
5. ERP Failures
We couldn’t conclude our brief guide to ERP without mentioning ERP failures. The failure of multi-million dollar ERP projects are reported once in a while even after 20 years of ERP implementation. We have identified the four components of an ERP System – 1) ERP software, 2) Business Processes that ERP software supports, 3) Users of ERP systems, and 4) Hardware and Operating Systems that run ERP applications. The failures in one or more of those four components could cause the failure of an ERP project.
