ENTERPRISE RESOURCE PLANNING (ERP)

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Enterprise resource planning (ERP) is a method of using computer technology to link

various functions—such as accounting, inventory control, and human resources—across
an entire company. ERP is intended to facilitate information sharing, business planning,
and decision making on an enterprise-wide basis. ERP enjoyed a great deal of popularity
among large manufacturers in the mid-to late-1990s. Most early ERP systems consisted
of mainframe computers and software programs that integrated the various smaller
systems used in different parts of a company. Since the early ERP systems could cost up
to $2 million and take as long as four years to implement, the main market for the
systems was Fortune 1000 companies.

"Throughout the 1990s, most large industrial companies installed enterprise resource
planning systems—that is, massive computer applications allowing a business to
manage all of its operations (finance, requirements planning, human resources, and
order fulfillment) on the basis of a single, integrated set of corporate data," Dorien
James and Malcolm L. Wolf wrote in The McKinsey Quarterly. "ERP promised huge
improvements in efficiency—for example, shorter intervals between orders and
payments, lower back-office staff requirements, reduced inventory, and improved
customer service. Encouraged by these possibilities, businesses around the world
invested some $300 billion in ERP during the decade."
By the late 1990s, however, sales of ERP systems began to slow. Some large
manufacturers encountered problems implementing the systems, and others felt that
ERP did not live up to its billing as a planning tool. Larger economic factors also
influenced sales of ERP systems. For example, many companies developed close
relationships with customers and suppliers and began conducting business over the
World Wide Web. In addition, a growing number of companies came to value the speed
and flexibility of smaller, interconnected computer systems and no longer wanted to rely
on a mainframe to run ERP software. In response to these issues, the vendors of ERP
systems have evolved to focus on smaller companies, develop Web-enabled systems, and
expand their offerings up and down the supply chain.

BENEFITS AND DRAWBACKS OF ERP

When the idea was first introduced, ERP was an attractive solution for many large
companies because it offered so many potential uses. For example, the same system
could be used to forecast demand for a product, order the necessary raw materials,
establish production schedules, track inventory, allocate costs, and project key financial
measures. ERP "acts as a planning backbone for a company's core business processes,"
Gary Forger wrote in Modern Materials Handling. "In addition to directing many of
them, the system also ties together these varied processes using data from across the
company. For instance, a typical ERP system manages functions and activities as
different as the bills of materials, order entry, purchasing, accounts payable, human
resources, and inventory control, to name just a few of the 60 modules available. As
needed, ERP is also able to share the data from these processes with other corporate
software systems." Another important benefit of ERP systems was that they allowed
companies to replace a tangle of complex computer applications with a single,
integrated system.

Despite these potential benefits, however, traditional ERP systems also had a number of
drawbacks. For instance, the early systems tended to be large, complicated, and
expensive. Implementation required an enormous time commitment from a company's
information technology department or outside professionals. In addition, because ERP
systems affected most major departments in a company, they tended to create changes
in many business processes. Putting ERP in place thus required new procedures,
employee training, and both managerial and technical support. As a result, many
companies found the changeover to ERP a slow and painful process. Once the
implementation phase was complete, some businesses had trouble quantifying the
benefits they gained from ERP.

Finally, as technology began shifting toward speedy Internet connections, Web-based

business-to-business (B2B) relationships, and electronic commerce, some companies
worried that their mainframe-based ERP systems were too slow and outdated. As it
turned out, though, many companies found that their ERP systems provided a solid
technological foundation for future growth by standardizing business procedures,
facilitating information sharing across the company, and creating an organization
accustomed to change. "ERP systems may feel like an albatross to companies that have
expensively and painfully installed them," James and Wolf stated. "Nonetheless, they
constitute a valuable foundation for a wide range of new value-enhancing applications.
…In hindsightit appears that much of the value of these large systems lay in the
infrastructure foundation they created for future growth based on information
technology."

ERP SOLUTIONS FOR SMALL BUSINESSES

As sales of ERP systems to large manufacturing companies began to slow, some vendors
changed their focus to smaller companies. According to a survey by AMR research
reported in Modern Materials Handling, the overall market for ERP systems grew 21
percent in 1998, despite the fact that sales to companies with greater than $1 billion in
revenues declined 14 percent during the same period. "ERP applications are no longer
just the stuff of huge corporations," Constance Loizos noted in Industry Week. "While
billion-dollar manufacturing companies are now completing their ERP
implementations, mid-size customers—witness to the improved business processes of
manufacturing market leaders—are beginning to refine their own operations….
Invariably the mostsubstantial reason for companies to implement ERP is that without
it, staying competitive is a practical impossibility. The business world is moving ever
closer toward a completely collaborative model, and that means companies must
increasingly share with their suppliers, distributors, and customers the in-house
information that they once so vigorously protected."

Of course, small and medium-sized companies—as well as those involved in service

rather than manufacturing industries—have different resources, infrastructure, and
needs than the large industrial corporations who provided the original market for ERP
systems. Vendors had to create a new generation of ERP software that was easier to
install, more manageable, required less implementation time, and entailed lower startup
costs. Many of these new systems were more modular, which allowed installation to
proceed in smaller increments with less support from information technology
professionals. Other small businesses elected to outsource their ERP needs to vendors.
For a fixed amount of money, the vendor would supply the technology and the support
staff needed to implement and maintain it. This option often proved easier and cheaper
than buying and implementing a whole system, particularly when the software and
technology seemed likely to become outdated within a few years.

ERP AND THE INTERNET

Another trend in ERP development and use involves vendors making the software
available to client companies on the Internet. Known as hosted ERP or Web-deployed
ERP, this trend has also contributed to making ERP systems available to smaller
businesses. When a company chooses to run its ERP systems through a Web-based host,
the software is not purchased by or installed at the client company. Instead, it resides on
the vendor's host computer, where clients access it through an Internet connection.
"Rather than dispersing ERP to multiple corporate sites and incurring the costs of many
servers needed to run the software, Web-deployed ERP centralizes the system," Forger
noted. "Using the Web to access a single ERP system at a central location, companies
can reduce their IT investment on two fronts—hardware and personnel."

Running ERP systems on a host computer relieves small businesses from the need to
purchase a mainframe computer or hire information technology specialists to support
the system. In addition, this arrangement allows client companies to save money by
paying only for the ERP applications they use rather than having to buy a certain
number of modules. In effect, ERP vendors act as application service providers (ASPs)
for several client firms. "Systems supplied by ASPs are particularly attractive to start-up
companies that can't reliably predict their future business volumes, can't afford to pay
for first-tier ERP systems, and don't want to be continually replacing cheaper, less
capable systems as their businesses grow," James and Wolf explained.

ERP EXPANDS ALONG THE SUPPLY CHAIN

Traditional ERP systems were concerned with automating processes and connecting
disparate information systems within a business enterprise. But during the late 1990s,
an increasing number of businesses turned their focus outward, toward collaboration
and forging technological links to other companies in the supply chain. "Increasingly,
manufacturers in developed countries are becoming part of the design and production
line of their customers," Richard Adhikari wrote in Industry Week. "Tight scheduling
requires automating the supply chain and enterprise resource planning functions and
implementing electronic communications links." ERP vendors have responded to this
trend by integrating ERP systems with other types of applications, such as e-commerce,
and even with the computer networks of suppliers and customers. These interconnected
ERP systems are known as extended enterprise solutions.

Sales of extensions to traditional ERP systems increased by 92 percent in 1999, and

were expected to continue growing by over 50 percent annually through 2004,
according to a survey by AMR Research reported in Manufacturing Systems. In the
meantime, sales of core ERP systems were expected to stagnate. These core systems,
which accounted for 90 percent of ERP vendors' revenues in 1999, were expected to
make up only 57 percent of the market by 2004. "In today's business climate,
manufacturers realize that true value comes from collaboration rather than trying to
further streamline business processes," analyst Simon Bragg told Jim Fulcher in
Manufacturing Systems. "For example, to get MRP [material requirements planning] to
really work, a manufacturer needs decent forecast information. The best way to improve
forecast accuracy is to work closely with customers and suppliers."
ERP systems have expanded to include several new functions. For example, application
integration functions link ERP to other software systems that affect the supply chain.
Visibility functions give companies an overview of inventory and its status as it moves
through the supply chain. Supply chain planning software helps create optimal plans for
producing and delivering goods. Similarly, customer relationship management software
customizes the way that a supplier deals with each customer individually. ERP has also
been adapted to support e-commerce by facilitating order fulfillment and distribution,
simplifying the process of electronic procurement, and tracking information about
customers and their orders.

CHOOSING AN ERP VENDOR

As of 1998, according to Loizos, there were five leading ERP vendors that accounted for
62 percent of the market: SAP of Germany; Oracle; J.D. Edwards; People Soft; and Baan
of the Netherlands. For the most part, these vendors focused on large business clients
and concentrated on automating manufacturing, distribution, human resources, and
financial systems. The remaining 38 percent of the ERP applications market was
comprised of numerous smaller vendors which served smaller business clients and
focused on niche applications.

Loizos outlined a series of factors for small businesses to consider in choosing an ERP
vendor. For example, she emphasized that implementing an ERP system is a major
information technology decision which requires time and resources, so companies
should avoid choosing a vendor too quickly. Instead, she recommended that small
businesses evaluate their needs carefully and come up with a list of business issues they
expect the ERP system to help them address. Loizos also suggested that companies
research potential ERP vendors thoroughly, looking at their reputations in the industry
but also checking references and interviewing previous clients. She recommended
avoiding multiple vendors if possible, and ensuring that the vendor chosen is
appropriate for the small business's future growth and expansion plans. Finally, she
noted that companies should ensure that project funding is in place before a contract is
signed.
FACTORS IN A SUCCESSFUL ERP IMPLEMENTATION

Once a small business has decided to install an ERP system and selected a vendor, there
are a number of steps the company can take to ensure a successful implementation. In
his article, Forger noted that the ERP implementation is more likely to succeed if the
company positions it as a strategic business issue and integrates it with a process
redesign effort. Of course, the ERP system should fit the company's overall strategy and
help it serve its customers. It may also be helpful to find a passionate leader for the
project and select a dedicated, cross-functional project team. The small business owner
should make certain that these individuals have the power to make decisions about the
ERP implementation process.

Forger recommends that companies attack the implementation project in short, focused
stages, working backward from targeted deadlines to create a sense of urgency. It may
be helpful to begin with the most basic systems and then expand to other functional
areas. Forger also suggests using change management techniques to manage the human
dimension of the project, since ERP requires a great deal of support from affected areas
of the company. Finally, he emphasizes that once the ERP system is in place, companies
need to interpret the data collected carefully and accurately if the system is to contribute
to business planning.

Although ERP systems may seem complex and costly, even small businesses are
increasingly finding it necessary to invest in such technology in order to remain
competitive. "ERP systems are being implemented today to provide a stable foundation
for a growing number of businesses across all segments, from dot-coms to major
automotive manufacturers," Dave Morrison wrote in CMA Management. "The number
of implementations down the supply chain and into small and medium-sized companies
is steadily growing as the initial costs are reduced along with the overall cost of
ownership. Pre-configured and pretested versions are now effectively slashing the
implementation costs while reducing the project complexity and risks. These new
systems are providing a clean head start in development and delivering a stable and
fully tested product to production. The methodology is continually evolving and the
results are very positive."
FURTHER READING:

Adhikari, Richard. "ERP Meets the Middle Market." Industry Week. March 1, 1999.

Forger, Gary. "ERP Goes Mid-Market." Modern Materials Handling. January 31, 2000.

Fulcher, Jim. "Extended Enterprise Systems." Manufacturing Systems. December

2000.

James, Dorien, and Malcolm L. Wolf. "A Second Wind for ERP." McKinsey Quarterly.
Spring 2000.

Johnson, Dexter. "Enterprise Resource Planning." Advanced Manufacturing

Technology. December 15, 2000.

Krumwiede, Kip R., and Win G. Jordan. "Reaping the Promise of Enterprise Resource
Systems." Strategic Finance. October 2000.

Loizos, Constance. "ERP: Is It the Ultimate Software Solution?" Industry Week.

September 7, 1998.

Morrison, Dave. "Full Speed Ahead." CMA Management. November 2000.

Pender, Lee. "The Missing Link." CIO. June 15, 2000.

Peterson, Scot. "What's Behind the ERP Blues?" eWeek. June 12, 2000.

Wah, Louisa. "Give ERP a Chance: Many Businesses Have Declared ERP a Waste or a
Burden, but Experts Urge Companies Not to Dismiss This Technology." Management
Review. March 2000.

Read more: Enterprise Resource Planning (ERP) - benefits, cost, Benefits and
drawbacks of erp, Erp solutions for small businesses, Erp and the internet, Erp expands
along the supply chain http://www.referenceforbusiness.com/small/Di-Eq/Enterprise-
Resource-Planning-ERP.html#ixzz10NVpTrc7

Books

Books on ERP
The advent of web has not always caused an adverse effect for the print medium. ERP books are widely read and
circulated in industry and among academicians. This gives the list of Books on ERP and related subjects.

Following are some of the details about famous ERP books

Successful SAP RA3 implementation: Practical Management of ERP by Norbert Welti

This book provides information on the Vital Factors involved in ERP implementation. The Implementation of ERP
forms an integral part in deciding ERP success. The objective of this book is to create awareness about errors that
ought not to have been made during the implementation cycle. The model of SAP implementation is explained in-
depth. Since SAP happens to be an ERP giant learning from case will be universally applicable. In addition the reader
is exposed to many areas covered in SAP ERP implementation about which he would not have otherwise heard.

2.) ERP Supply chain, plant floor automation and CMMS by Mary Connors.
This book offers a systematic and methodical approach for handling ERP. The precautions that one need to take in
the process of handling issues right from the stage of business process reengineering are addressed. It lays down
the procedures to be followed in making arrangements for supply chain, Plant floor automation and CMMS. This book
also includes many live examples of how the above mentioned actions have been executed successfully in the
organization. The numbers of those examples are quiet high and are drawn from several
sector/industry/platform/application. The basic idea is to help the user to have an exposure from vast setups .The
reader has the rare privilege of accessing the latest status of the examples citied in the book from the internet .In
addition the latest ones in the fray are also included .

Another unique feature of the book is that it does not provide direct answers or any biased information. The reader is
asked to make judgments on his perception as ERP requirements vary from organization to organization. The
illustrations and diagrammatic representations facilitate better understanding besides arousing the interest of the
reader.

Enterprise Resource Planning (ERP): The Dynamics of Operations Management by Avraham Shtub
This book explains the relationship between ERP and Operations Management. If everything functions successfully in
the company with an exception of the execution part the net result will be nil. This issue has occupied the top most
concern of organizations. This book aims to guide them in handling operations in general and ERP in particular. This
book bears the framework of a manufacturing setup. However this does not necessarily stop other sectors from
following the footpath by taking the required guidelines. The readers of this book are spread to a wide niche. Almost
all categories of people be it academicians or researchers or students or anyone willing to learn the concepts will find
it extremely useful. Clear understanding of enterprise operations and ERP systems will be prerequisite to read this
book. Even if the reader does not have expert knowledge some understanding of some basic issues is a must.

Enterprise Resource Planning Systems System, Lifecycle, Electronic Commerce and Risk by Daniel
E.O. Leary
This book answers many questions regarding ERP and its impact on business and related elements. The broad term
business has been well analyzed in four segments namely System, Life cycle, Electronic commerce and Risk. This
book also analyses the transformations that have taken place in the business process from yester years to the
current trend of Electronic commerce. It points out the issues that need to be addressed in order to make the two
sides of the coin compatible to each other.

ERP A-Z Implementer's Guide for success by Travis Anderegg

This book addresses the impact of technologies like internet and other latest technologies and how they needs to be
coordinated with the business process in the normal functioning of ERP. This book is also suited for people from all
genres and highly recommended for practitioners. This book tests the understanding and knowledge of the users by
posing some questions on burning issues at the end of every chapter. Some leading companies have reported high
readership. In addition this book has been prescribed as syllabi for some ERP courses run by reputed organizations
and established business houses. There is not a single are of ERP implementation that is untouched.

ERP tools techniques and applications for integrating the supply chain by Carol A. Ptak, Eli
Schragenheim.
The contents of this book have been written in a simple manner that can be easily understood. This book covers the
financial aspects of ERP in various dimensions with special emphasis on supply chain. The materials can be browsed
often to make clarifications and confirm the validity of the steps taken. It will be appropriate to read this book in-depth
and then go ahead with the implementation process. ERP books are recommended for those who are deeply
interested in the subject either for academic or professional reasons. One needs to implement whatever he has
learned after considering the merits of the circumstances.