Enterprise resource planning

The ERP system is considered a vital organizational tool

because it integrates varied organizational systems and
facilitates error-free transactions and production. How-
ever, ERP system development is different from tradi-
tional systems development.[4] ERP systems run on a va-
riety of computer hardware and network configurations,
typically using a database as an information repository.[5]

1 Origin
The Gartner Group and others first used the acronym
ERP in the 1990s,[6] where it was seen to extend the ca-
pabilities of material requirements planning (MRP), and
Picture showing some typical ERP modules
the later manufacturing resource planning (MRP II),[7][8]
as well as computer-integrated manufacturing. Without
Enterprise resource planning (ERP) is business replacing these terms, ERP came to represent a larger
management software—typically a suite of integrated whole that reflected the evolution of application integra-
applications—that a company can use to collect, store, tion beyond manufacturing.[9]
manage and interpret data from many business activities,
including: Not all ERP packages developed from a manufacturing
core; ERP vendors variously began creating their pack-
ages with accounting, maintenance, and human resource
• Product planning, cost components. By the mid-1990s ERP systems addressed
• Manufacturing or service delivery all core enterprise functions. Governments and non–
profit organizations also began to use ERP systems.[10]
• Marketing and sales

• Inventory management 2 Expansion

• Shipping and payment
ERP systems experienced rapid growth in the 1990s. But
ERP provides an integrated view of core business pro- because the year 2000 problem and introduction of the
euro disrupted legacy systems, many companies took the
cesses, often in real-time, using common databases [11]
maintained by a database management system. ERP opportunity to replace their old systems with ERP.
systems track business resources—cash, raw materials, ERP systems initially focused on automating back office
production capacity—and the status of business commit- functions that did not directly affect customers and the
ments: orders, purchase orders, and payroll. The appli- general public. Front office functions, such as customer
cations that make up the system share data across the relationship management (CRM), dealt directly with cus-
various departments (manufacturing, purchasing, sales, tomers, or e-business systems such as e-commerce, e-
accounting, etc.) that provide the data.[1] ERP facili- government, e-telecom, and e-finance—or supplier re-
tates information flow between all business functions, and lationship management (SRM) became integrated later,
manages connections to outside stakeholders.[2] when the Internet simplified communicating with exter-
Enterprise system software is a multi-billion dollar in- nal parties.
dustry that produces components that support a variety “ERP II” was coined in 2000 in an article by Gartner Pub-
of business functions. IT investments have become the lications entitled ERP Is Dead—Long Live ERP II.[12] It
largest category of capital expenditure in United States- describes web–based software that provides real–time ac-
based businesses over the past decade. Though early ERP cess to ERP systems to employees and partners (such as
systems focused on large enterprises, smaller enterprises suppliers and customers). The ERP II role expands tra-
increasingly use ERP systems.[3] ditional ERP resource optimization and transaction pro-

1
2 7 CONNECTIVITY TO PLANT FLOOR INFORMATION

cessing. 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.[13] ERP II is more flexible than the first gen-
eration ERP. Rather than confine ERP system capabili-
ties within the organization, it goes beyond the corporate
walls to interact with other systems. Enterprise applica-
tion suite is an alternate name for such systems.
Developers now make more effort to integrate mobile de-
vices with the ERP system. ERP vendors are extend-
ing ERP to these devices, along with other business ap-
plications. 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.[14]
3 Characteristics
• Order Processing: Order to cash, order entry, credit
checking, pricing, available to promise, inventory,
shipping, sales analysis and reporting, sales commis-
sioning.
• Supply chain management: Supply chain plan-
ning, supplier scheduling, product configurator,
order to cash, purchasing, inventory, claim process-
ing, warehousing (receiving, putaway, picking and
packing).
• Project management: Project planning, resource
planning, project costing, work breakdown struc-
ture, billing, time and expense, performance units,
activity management
• Customer relationship management: Sales and mar-
keting, commissions, service, customer contact, call
center support — CRM systems are not always con-
sidered part of ERP systems but rather Business
Support systems (BSS).

ERP (Enterprise Resource Planning) systems typically • Data services : Various “self–service” interfaces for
include the following characteristics: customers, suppliers and/or employees

• An integrated system that operates in (or near) real

time without relying on periodic updates 5 Components
• A common database that supports all applications • Transactional database
• A consistent look and feel across modules • Management portal/dashboard
• Installation of the system with elaborate applica-
tion/data integration by the Information Technology
(IT) department, provided the implementation is not 6 Best practices
done in small steps[15]
Most ERP systems incorporate best practices. This means
the software reflects the vendor’s interpretation of the
4 Functional areas of ERP most effective way to perform each business process.
Systems vary in how conveniently the customer can mod-
[16]
An ERP system covers the following common functional ify these practices. Companies that implemented in-
areas. In many ERP systems these are called and grouped dustry best practices reduced time–consuming project
together as ERP modules: tasks such as configuration, documentation, testing, and
training. In addition, best practices reduced risk by 71%
compared to other software implementations.[17]
• Financial accounting: General ledger, fixed asset,
payables including vouchering, matching and pay- Use of best practices eases compliance with requirements
ment, receivables cash application and collections, such as IFRS, Sarbanes-Oxley, or Basel II. They can
cash management, financial consolidation also help comply with de facto industry standards, such
as electronic funds transfer. This is because the proce-
• Management accounting: Budgeting, costing, cost dure can be readily codified within the ERP software,
management, activity based costing and replicated with confidence across multiple businesses
• Human resources: Recruiting, training, rostering, who share that business requirement.
payroll, benefits, 401K, diversity management,
retirement, separation
7 Connectivity to plant floor infor-
• Manufacturing: Engineering, bill of materials, work
orders, scheduling, capacity, workflow manage- mation
ment, quality control, manufacturing process, man-
ufacturing projects, manufacturing flow, product life ERP systems connect to real–time data and transaction
cycle management data in a variety of ways.These systems are typically con-
8.1 Process preparation 3

figured by systems integrators, who bring unique knowl- replenishment.[20]

edge on process, equipment, and vendor solutions.
Direct integration—ERP systems have connectivity
(communications to plant floor equipment) as part of 8.1 Process preparation
their product offering. This requires that the vendors of-
fer specific support for the plant floor equipment their Implementing ERP typically requires changes in existing
customers operate. ERP vendors must be experts in their business processes.[21] Poor understanding of needed pro-
own products and connectivity to other vendor products, cess changes prior to starting implementation is a main
including those of their competitors. reason for project failure.[22] The difficulties could be
Database integration—ERP systems connect to plant related to the system, business process, infrastructure,
floor data sources through staging tables in a database. training, or lack of motivation.
Plant floor systems deposit the necessary information into It is therefore crucial that organizations thoroughly ana-
the database. The ERP system reads the information in lyze business processes before they implement ERP soft-
the table. The benefit of staging is that ERP vendors do ware. Analysis can identify opportunities for process
not need to master the complexities of equipment inte- modernization. It also enables an assessment of the align-
gration. Connectivity becomes the responsibility of the ment of current processes with those provided by the ERP
systems integrator. system. Research indicates that risk of business process
Enterprise appliance transaction modules mismatch is decreased by:
(EATM)—These devices communicate directly
with plant floor equipment and with the ERP system
via methods supported by the ERP system. EATM can • Linking current processes to the organization’s strat-
employ a staging table, web services, or system–specific egy
program interfaces (APIs). An EATM offers the benefit
of being an off–the–shelf solution. • Analyzing the effectiveness of each process
Custom–integration solutions—Many system integra-
tors offer custom solutions. These systems tend to have • Understanding existing automated solutions[23][24]
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 test- ERP implementation is considerably more difficult (and
ing and thorough documentation. Custom–integrated so- politically charged) in decentralized organizations, be-
lutions typically run on workstation or server-class com- cause they often have different processes, business rules,
puters. data semantics, authorization hierarchies, and decision
centers.[25] This may require migrating some business
units before others, delaying implementation to work
through the necessary changes for each unit, possibly re-
8 Implementation ducing integration (e.g., linking via Master data man-
agement) or customizing the system to meet specific
ERP’s scope usually implies significant changes to needs.[26]
staff work processes and practices.[18] Generally, three
types of services are available to help implement such A potential disadvantage is that adopting “standard” pro-
changes—consulting, customization, and support.[18] Im- cesses can lead to a loss of competitive advantage. While
plementation time depends on business size, number of this has happened, losses in one area are often offset
modules, customization, the scope of process changes, by gains in[27][28]
other areas, increasing overall competitive
and the readiness of the customer to take ownership advantage.
for the project. Modular ERP systems can be imple-
mented in stages. The typical project for a large en-
terprise takes about 14 months and requires around 150 8.2 Configuration
consultants.[19] Small projects can require months; multi-
national and other large implementations can take years. Configuring an ERP system is largely a matter of balanc-
Customization can substantially increase implementation ing the way the organization wants the system to work
times.[19] with the way it was designed to work. ERP systems typ-
Besides that, information processing influences various ically include many settings that modify system opera-
business functions e.g. some large corporations like Wal- tions. For example, an organization can select the type of
Mart use a just in time inventory system. This reduces inventory accounting—FIFO or LIFO—to use; whether
inventory storage and increases delivery efficiency, and to recognize revenue by geographical unit, product line,
requires up-to-date-data. Before 2014, Walmart used or distribution channel; and whether to pay for shipping
a system called Inforem developed by IBM to manage costs on customer returns.[26]
4 8 IMPLEMENTATION
8.3 Two tier enterprise resource planning
Two-tier ERP software and hardware lets companies run
the equivalent of two ERP systems at once: one at the cor-
porate level and one at the division or subsidiary level. For
example, a manufacturing company uses an to manage
across the organization. This company uses independent
global or regional distribution, production or sales cen-
ters, and service providers to support the main company’s
customers. Each independent center or subsidiary may
have its own business models, workflows, and business
processes.
Given the realities of globalization, enterprises contin-
uously evaluate how to optimize their regional, divi-
sional, and product or manufacturing strategies to sup-
port strategic goals and reduce time-to-market while in-
creasing profitability and delivering value.[29] With two-
tier ERP, the regional distribution, production, or sales
centers and service providers continue operating under
their own business model—separate from the main com-
pany, using their own ERP systems. Since these smaller
companies’ processes and workflows are not tied to main
company’s processes and workflows, they can respond to
local business requirements in multiple locations.[30]
Factors that affect enterprises’ adoption of two-tier ERP
systems include:
• Manufacturing globalization, the economics of
sourcing in emerging economies
• Potential for quicker, less costly ERP implemen-
Customization advantages include that it:
tations at subsidiaries, based on selecting software
more suited to smaller companies
• Extra effort, (often involving the use of Enterprise
application integration[31] ) is required where data
must pass between two ERP systems [32]
Two-tier
ERP strategies give enterprises agility in respond-
ing to market demands and in aligning IT systems Customization disadvantages include that it:
at a corporate level while inevitably resulting in
more systems as compared to one ERP system used
throughout the organization.[33]
8.4 Customization
ERP systems are theoretically based on industry best
practices, and their makers intend that organizations de-
ploy them as is.[34][35] ERP vendors do offer customers
configuration options that let organizations incorporate
their own business rules, but often feature gaps remain
even after configuration is complete.
ERP customers have several options to reconcile feature
gaps, each with their own pros/cons. Technical solutions
include rewriting part of the delivered software, writing a
homegrown module to work within the ERP system, or
interfacing to an external system. These three options
constitute varying degrees of system customization—
with the first being the most invasive and costly to
maintain.[36] Alternatively, there are non-technical op-
tions such as changing business practices or organiza-
tional policies to better match the delivered ERP feature
set. Key differences between customization and configu-
ration include:
• Customization is always optional, whereas the soft-
ware must always be configured before use (e.g., set-
ting up cost/profit center structures, organizational
trees, purchase approval rules, etc.).
• The software is designed to handle various configu-
rations, and behaves predictably in any allowed con-
figuration.
• The effect of configuration changes on system be-
havior and performance is predictable and is the re-
sponsibility of the ERP vendor. The effect of cus-
tomization is less predictable. It is the customer’s
responsibility, and increases testing activities.
• Configuration changes survive upgrades to new soft-
ware 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 struc-
tures) are overwritten during upgrades and must be
reimplemented.[37]
• Improves user acceptance[38]
• Offers the potential to obtain competitive advantage
vis-à-vis companies using only standard features
• Increases time and resources required to implement
and maintain[36]
• Inhibits seamless communication between suppliers
and customers who use the same ERP system un-
customized
• Can create over reliance on customization, under-
mining the principles of ERP as a standardizing soft-
ware platform
8.5 Extensions
ERP systems can be extended with third–party
software.[39] ERP vendors typically provide access
to data and features through published interfaces.
Extensions offer features such as:
9.2 Benefits
• Archiving, reporting, and republishing
• Capturing transactional data, e.g., using scanners,
tills or RFID
• Access to specialized data and capabilities, such as
syndicated marketing data and associated trend an-
alytics
• Advanced planning and scheduling (APS)
• Managing resources, facilities, and transmission in
real-time
8.6 Data migration
Data migration is the process of moving, copying, and re-
structuring data from an existing system to the ERP sys-
tem. Migration is critical to implementation success and
requires significant planning. Unfortunately, since mi-
gration is one of the final activities before the production 9.2 Benefits
phase, it often receives insufficient attention. The follow-
ing steps can structure migration planning:[40]
• Identify data to migrate
• Determine migration timing
• Generate data templates
• Freeze the toolset
• Decide on migration-related setups
• Define data archiving policies and procedures
9 Comparison to special–purpose
applications
9.1 Advantages
The fundamental advantage of ERP is that integrated
myriad businesses processes saves time and expense.
Management can make decisions faster and with fewer er-
rors. Data becomes visible across the organization. Tasks
that benefit from this integration include:
• Sales forecasting, which allows inventory optimiza-
tion.
• Chronological history of every transaction through
relevant data compilation in every area of operation.
• Order tracking, from acceptance through fulfillment
• Revenue tracking, from invoice through cash receipt
• Matching purchase orders (what was ordered), in-
ventory receipts (what arrived), and costing (what
the vendor invoiced)
5
ERP systems centralize business data, which:
• Eliminates the need to synchronize changes between
multiple systems—consolidation of finance, market-
ing, sales, human resource, and manufacturing ap-
plications
• Brings legitimacy and transparency to each bit of
statistical data
• Facilitates standard product naming/coding
• Provides a comprehensive enterprise view (no “is-
lands of information”), making real–time informa-
tion available to management anywhere, any time to
make proper decisions
• Protects sensitive data by consolidating multiple se-
curity systems into a single structure[41]
• ERP can improve quality and efficiency of the busi-
ness. By keeping a company’s internal business pro-
cesses running smoothly, ERP can lead to better out-
puts that may benefit the company, such as in cus-
tomer service and manufacturing.
• ERP supports upper level management by providing
information for decision making.
• ERP creates a more agile company that adapts better
to change. ERP makes a company more flexible and
less rigidly structured so organization components
operate more cohesively, enhancing the business—
internally and externally.[42]
• ERP can improve data security. A common control
system, such as the kind offered by ERP systems,
allows organizations the ability to more easily ensure
key company data is not compromised.
• ERP provides increased opportunities for
collaboration. Data takes many forms in the
modern enterprise. Documents, files, forms, audio
and video, emails. Often, each data medium has its
own mechanism for allowing collaboration. ERP
provides a collaborative platform that lets em-
ployees spend more time collaborating on content
rather than mastering the learning curve of com-
municating in various formats across distributed
systems.
9.3 Disadvantages
• Customization can be problematic. Compared
to the best-of-breed approach, ERP can be seen
as meeting an organization’s lowest common de-
nominator needs, forcing the organization to find
workarounds to meet unique demands.[43]
6 11 REFERENCES

• Re-engineering business processes to fit the ERP • Information technology management

system may damage competitiveness or divert focus
from other critical activities. • List of project management software

• ERP can cost more than less integrated or less com- • Management information system
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• Manufacturing operations management
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dor’s negotiating power, which can increase support, • Material balance planning
maintenance, and upgrade expenses.
• Operations research
• Overcoming resistance to sharing sensitive informa-
tion between departments can divert management • Service management
attention.
• Software as a service
• Integration of truly independent businesses can cre-
ate unnecessary dependencies.
• Extensive training requirements take resources from
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 9

14 Text and image sources, contributors, and licenses

14.1 Text
• Enterprise resource planning Source: http://en.wikipedia.org/wiki/Enterprise_resource_planning?oldid=668253535 Contributors: Deb,
DavidLevinson, Olivier, Edward, Michael Hardy, Kku, Skysmith, SebastianHelm, Ellywa, Dmb~enwiki, Ronz, Pfeller, Julesd, Evercat,
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