ERP

ORIGIN

The Gartner Group first used the abbreviation ERP in the 1990s to extend upon the capabilities of material requirements planning (MRP), and the later manufacturing resource planning (MRP II), as well as computer-integrated manufacturing. Without replacing these terms, ERP came to represent a larger whole that reflected the evolution of application integration beyond manufacturing.

Not all ERP packages developed from a manufacturing core; ERP vendors variously began assembling their packages with finance-and-accounting, maintenance, and human-resource components. By the mid-1990s ERP systems addressed all core enterprise functions. Governments and non–profit organizations also began to use ERP systems.

Expansion

ERP systems experienced rapid growth in the 1990s. Because of the year 2000 problem and the introduction of the euro that disrupted legacy systems, many companies took the opportunity to replace their old systems with ERP.

ERP systems initially focused on automating back office functions that did not directly affect customers and the 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.

“ERP II” was coined in 2000 in an article by Gartner Publications entitled ERP Is Dead—Long Live ERP II. It describes web–based software that provides real–time access to ERP systems to employees and partners (such as suppliers and customers). The ERP II role expands traditional ERP resource optimization and transaction processing. Rather than just manage buying, selling, etc.—ERP II leverages information in the resources under its management to help the enterprise collaborate with other enterprises. ERP II is more flexible than the first generation ERP. Rather than confine ERP system capabilities within the organization, it goes beyond the corporate walls to interact with other systems. Enterprise application suite is an alternate name for such systems. ERP II systems are typically used to enable collaborative initiatives such as supply chain management (SCM), customer relationship management (CRM), and business intelligence (BI) among business partner organizations through the use of various e-business technologies.

Developers now make more effort to integrate mobile devices with the ERP system. ERP vendors are extending ERP to these devices, along with other business applications. Technical stakes of modern ERP concern integration—hardware, applications, networking, supply chains. ERP now covers more functions and roles—including decision making, stakeholders’ relationships, standardization, transparency, globalization, etc.

ERP systems typically include the following characteristics:

An integrated system

Operates in (or near) real time

A common database that supports all the applications

A consistent look and feel across modules

Installation of the system with elaborate application/data integration by the Information Technology (IT) department, provided the implementation is not done in small steps

Functional areas

An ERP system covers the following common functional areas. In many ERP systems these are called and grouped together as ERP modules:

Finance & Accounting: General Ledger, Fixed Assets, payables including vouchering, matching and payment, receivables Cash Management and collections, cash management, Financial Consolidation

Management Accounting: Budgeting, Costing, cost management, activity based costing

Human resources: Recruiting, training, rostering, payroll, benefits, retirement and pension plans, diversity management, retirement, separation

Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity, workflow management, quality control, manufacturing process, manufacturing projects, manufacturing flow, product life cycle management

Order Processing: Order to cash, order entry, credit checking, pricing, available to promise, inventory, shipping, sales analysis and reporting, sales commissioning.

Supply chain management: Supply chain planning, supplier scheduling, product configurator, order to cash, purchasing, inventory, claim processing, warehousing (receiving, putaway, picking and packing).

Project management: Project planning, resource planning, project costing, work breakdown structure, billing, time and expense, performance units, activity management

Customer relationship management: Sales and marketing, commissions, service, customer contact, call center support — CRM systems are not always considered part of ERP systems but rather Business Support systems (BSS).

Data services : Various “self–service” interfaces for customers, suppliers and/or employees.

GRP

(Government resource planning) (GRP) is ERP for public sector, and an integrated office automation system for government bodies. The software structure, modularization, core algorithms and main interfaces do not differ from other ERPs, and ERP software suppliers manage to adapt their systems to government agencies.

Both system implementations, in private and public organizations, are adopted to improve productivity and overall business performance in organizations, but comparisons (private vs public) of implementations shows that the main factors influencing ERP implementation success in the public sector are cultural.

BEST PRATICES

Most ERP systems incorporate best practices. This means the software reflects the vendor’s interpretation of the most effective way to perform each business process. Systems vary in how conveniently the customer can modify these practices. In addition, best practices reduced risk by 71% compared to other software implementations.

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 as electronic 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.