What is ERP – The ERP Definition

Way back in the day (i.e. 1990) the phrase ERP was first coined to describe how novel and innovative business software can be developed to create a shared database across multiple business units.  The idea was to maximize synchronization throughout the organization, thereby improving processes, performance metrics, and ultimately business performance.  In this What is ERP article I am going to share with you my views on the ERP Definition that best describes this holistic business enterprise software implementation process.  If you have tried to wrap your brain around this concept, know that this meaningful business tool is not altogether easily understood in its full form.  Nor is it immediately apparent what the totality of its positive consequences are, without  peeling away some of the layers. This is in part what we endeavor to do at this website, along with keeping you informed of the Enterprise Resource Planning and all of its related components as well as its applications in the business world.  Also know this, due to advances in software technologies and the realization of enterprise resource planning importance to small and large companies, this whole concept has been and will continue to be transformative  for companies busy with ERP implementation.  Where do you come in?  To the degree that you can improve your understanding by way of online ERP certificate and training or just researching the topic, you can grow your knowledge and explore making contributions to the field.

Closing In On Enterprise Resource Planning

Two common things that people usually talk about with regard to ERP are the significance of an ERP system and ERP software. In my opinion ERP system refers to all components necessary  to create the business system, such as the ERP software, information technology infrastructure, and the integration of related business unit processes. Thus, ERP software is part of the ERP system. But sometime people do not distinguish ERP system and ERP software.  Think of the software as an enabler…the tool employed to move you toward a organization that becomes highly integrated and streamlined due to the result of tying together its various business units.  Hence, a system is formed that closely aligns key components of the organization allowing for improved communication, analysis, predictive competitive modeling,  enhanced financial compliance, and productivity improvements.

Many people, from scholars, business owners, and employees talk about it and all of its intended benefits.  Often, depending on one’s vantage point, the view and understanding of ERP varies. When they are talking about integrated business software, they should be talking about ERP. Sometime they have a different understanding what ERP system and software is all about, so as mentioned above, they likely will happen upon some different ERP definitions and understanding of its role in the organization.  Some individuals may define ERP as SAP or MRP. Their view can also be skewed by what they hear or read about from ERP vendors.  While some others may think that ERP is an integrated system employing manufacturing software or it could be accounting software or perhaps human resource software or… you name it.

Part of this confusion or difference in interpretation comes from its origins.  Before the 1990s, when ERP first began gaining traction (think 1960s), the concept emerged from the need to tie together inventory control systems within manufacturing.   This gave way to the 1970′s term MRP (material requirements planning) which dealt with scheduling systems and processes.   When the 1980s rolled around, MRP II took shape as it encompassed “Manufacturing Resource Planning” which reflected a more comprehensive organizational viewpoint.

Pegging The ERP Definition

So let us try and tie together a basic understanding of what all this means.

• This concept describes the integration of key  business information across the organization by way of computer software that is engineered to benefit the organization as a whole and improve its competitive posture.
• ERP can be effectively employed by small and large companies and the business software utilized enables the company to be more streamlined and productive.
• An ERP enabled company, as a result of these software technologies, has a more holistic view of its internal business and future opportunities.

Now, as referenced earlier, the ERP term originally comes from Material Requirements Planning….people called it MRP for short. Then it evolved into Manufacturing Resource Planning or MRP II.  By now you realize you are in an ocean of acronyms.   Dial the time capsule forward to the present time,  MRP and MRP II are now part of ERP modules (software vendors enjoy talking about these modules)  where capacity planning activity, routing, and integration of business units (think company departments) have become a part of the standard software activity.  Here is a nice, but basic image that will help you see the evolution.  And guess what, we are relatively still in the infancy of this concept and its utilization by companies of all sizes.

Just a Bit More on MRP II

MRP and MRP II were essentially strategies deployed using both software modular applications and applicable hardware.  The end state was a linkage of organizational business units through a centralized database which stores all kinds of company information goodies that employees and managers can proactively act upon.

Through MRP and later MRP II systems, a lot could be accomplished in the area of inventory control, scheduling, marketing, purchasing and sales forecasting.  Think of 2001 Space Odyssey and HAL, at least HAL in the scheme of Manufacturing and Materials planning.  Later, as ERP was given birth,  the computer HAL that we all know and love, beaome a much more complete metaphor for what we are now talking about.  Think of a computer software system that knows and controls most everything (at least as it applies to data) that matters to an organization.  At some stage it may even become a member of the organization.

So when you look at an ERP system we are typically talking about a process that encompasses an organization’s finance,  accounting, material requirements, logistic, distribution, human resources, shipping and receiving, manufacturing and procurement, purchasing, marketing, sales, delivery, quality control, etc.  Of course, each organizations is a unique entity, so how they choose to deploy ERP across the business will vary.

Just like like the HAL computer, there is a certain business intelligence that exists as a result of the database information, thereby allowing management to evaluate performance metrics and business trends for future strategic planning.  As more companies realize these benefits, they seek to find ways to implement ERP systems into their organization.  It becomes a competitive necessity in many ways.

Well, there you have it.  That was my take on what is erp system, along with an erp definition that should be much easier to grasp.  I hope by reading this article you have a much better idea of what this concept is all about and I encourage you to explore many of the other articles we have throughout this website such as Why do Want to Implement ERP, ERP Vendor Evaluation and so on.

More Helpful References:

MRP System to enhance company efficiency
Market share and vendor evaluation 2011
ERP report 2011
Market share and vendor evaluation 2010
Tier I and Tier II ERP Comparison 2008