ERP System – Enterprise Resource Planning Basic and Evolution

What is an ERP system?  A lot more than many people realize.  We also may also wish to ask what is ERP software? There are important distinctions to be made, so let us explore.  Enterprise Resource Planning and the systems that define its form have been around for a good spell.  One can trace its roots back to the 1960s, though it did not begin to gain meaningful traction until the 1990s.  This business quality improvment system has a lot to do with integration of information by managing the flow of data across an entire organization.  This results in a more efficient, streamlined and cohesive set of business units such as business finance, accounting, purchasing and distribution, material handling andinventory management, service and sales, marketing, strategic business planning and development, manufacturing operations, quality management systems, project management, training and human resource and so forth. Once implementation is complete, an integrated business enterprise focused database emerges along with servicable application modules which facilitates automation and enhanced information sharing in everyday business activity.  Effective ERP systems implementation is an enabler which drives process standardization, storing information and recalling that database when it is required in a real time environment.

ERP System – What is ERP Software

The business process  inefficiency usually prompts organizations to start considering the implementation of ERP solutions because it promises the obvious advantages of business process automation, enhanced operational efficiencies and easier accessibility of information. ERP system implementation, if one choosse appropriate ERP software and follows the best practice of implementation process, definitely will improved the system  by which acompany executes its day by day processes.

Organizations think about purchasing an ERP system when they deal with a number of complex and interrelated business issues. Most of them expect to get business advantages through ERP implementation, such as :

- Achieving company’s financial goals as a result of productivity gains as well as efficiency resulting from business process automation.

- Enable to track order from acceptance through fulfillment

- Managing and streamlining the large-scale the company’s operational processes, that may have raised in complexity due to acquisitions in the recent past or current significant organic growth, and also acquiring multi-currency, multi-office, multi-geography support

- Capability to track revenue from invoice through cash receipt

- Obtaining the benefits of improved information management through the enhanced information accessibility, reduced data duplication and also better forecasting features which will optimize inventory.

In fact, many organizations fail in implementing ERP system because they don’t know what exactly an ERP system is. Because of this insufficient information, they may struggle with establishing the required preparation properly. The following is some things about ERP system you should take into consideration before launch.

Ten Things That Matter in Enterprise Resource Planning (ERP Systems)

1. Not an Ideal Fit: Never will you find an ERP software package that can meet all the needs of a company.   Some level of customization is not unusal and in these cases configuration software management is the solution.

2. Modules vs. suite : Most companies will only roll out a couple of modules as needed or at least until they gain a better understanding of the integration of the modules into their organization.

3. Mix and match modules:  You will find many ERP system modules and functionalities across different ERP module packages.  Look for at least three types of  categories which include sector-specific,  what can also be described as cross-industry and then ERP system modules.

10 things you should know about ERP system

(Click to enlarge)

4. Add-on features / functionalities drive ERP:  As with any complex software business soluitons the commoditization of core ERP features  which would inlcude add-on features or other cutomized applications that meet the needs of various customers are becoming an important delivery for ERP vendors and drives the business marketplace.

5. Options For On-Premise Exist:  ERP implementation has moved from the traditonal rollout and to a greater reliance on open source ERP and also on-demand / SaaS ERP as appropriate ERP deliverables to the customer.  Open source ERP systems have yet to be fully realized in the marketplace , while SaaS ERP systems as it applies to HCM and CRM, are becoming more deeply rooted.

6. Pricing models:  Pricing model for a fully integrated ERP system is generally Licensed-based pricing.  In such cases the software expenses are paid up front. Many options consisting of user-based (concurrent user and named user) pricing, package-based pricing, location-based and / or location based are part of the overall menu.  One more pricing model-subscription-based pricing is typically used for on-demand ERP systems. In these cases, service fees are met periodically such as on a monthly basis.

7. Return On Investment (ROI) expectations:  Do not expect for the ROI to be fully realized in the early stages after the ERP solutions is implemented.   ROI is recognized from process enhancements and not only from ERP software.  When ERP is fully function, the realignment of business processes in any company is impacted by numerous factors and given the sheer complexity of this process, patience is best exercised.

8. Customization or configuration: The beauty of an ERP system  is that it can be configured to perform in accordance with the specific needs of the organization.  Additionally, the client may choose to change the soruce code or develop modifications to the software in order to meet its requirments.  Though one should exercise caution regading too many modifications given the sheer complexity of the system.

9. ERP Implementation Tactics: An ERP implementation phase is critical and therefor requires expertise in order to avoid flawed migration of data or conversion and insufficient support of post implementation can cause even feature-rich software perform poorly. A  comprehensive implementation strategy is key and that also includes post launch analyses to ensure their is congruency among business units.

10.  Evaluate Cost components:  Costing out the entire project can be a slipperly slope as  fees for standard license and implementation services are very difficult to accurately projecct in some cases, particularly if software modifcations are needed or issues with the data migration occur, not to mention the overall cost of training.  This calls for a greater level of coordination and planning to avoid surprises of the kind that alienate the client.

Evolution of ERP Systems

The ERP systems evolution tightly followed substantial innovations in the field of computer software and hardware.

In 1960s, inventory control was the focus of manufacturing systems.  There needed to be a way of managing the inherent complexities of these elaborate systems. Therefore, inventory control/.  The concept MRP or Material Requirements Planning systems which is a more exact way of describing the idea,  evolved in the 1970s and primarily involved planning product or parts requirements. The process took a turn down the path to morph into what was characterized as Manufacturing Resource Planning (MRP II as it goes by) and this unfolded in the 1980s. The MRP II was a natural extension of MRP with a focus  manufacturing process optimization by synchronizing production requirements with material delivery. MRP II involved  departments such as accouonting, inventory control, engineering, distribution management, shop floor, marketing project management and human resources.

The following diagram summarize the ERP system evolution.

erp system evolution

Resource : Focus Research

More references on ERP systems:

ERP definition
MRP system
Top ERP vendors
How to choose the best ERP for your company
ERP system implementation best practice
An anatomy of typical ERP implementation failure
Should I Implement Enterprise Resource Planning ?

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