Enterprise resource planning (ERP) is business management software—usually a suite of integrated applications—that a company can use to store and manage data from every stage of business, including:
- Product planning, cost and development
- Marketing and sales
- Inventory management
- Shipping and payment
ERP provides an integrated real-time view of core business processes, using common databases maintained by a database management system. ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across the various
departments (manufacturing, purchasing, sales, accounting, etc.) that entered the data. ERP facilitates information flow between all business functions, and manages connections to outside stakeholders.
Enterprise system software is a multi-billion dollar industry that produces components that support a variety of business functions. IT investments have become the largest category of capital expenditure in United States-based businesses over the past decade. Though early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP systems. Organizations consider the ERP system a vital organizational tool because it integrates varied organizational systems and facilitates error-free transactions and production. However, ERP system development is different from traditional systems development. ERP systems run on a
variety of computer hardware and network configurations, typically using a databaseas an information repository.
The fundamental advantage of ERP is that integrating myriad businesses processes saves time and expense. Management can make decisions faster and with fewer errors. Data becomes visible across the organization. Tasks that benefit from this integration include:
- Sales forecasting, which allows inventory optimization (used in the best possible way).
- 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), inventory receipts (what arrived), and costing (what the vendor invoiced)
ERP systems centralize business data, which:
- Eliminates the need to synchronize changes between multiple systems—consolidation of finance, marketing, sales, human resource, and manufacturing applications
- Brings legitimacy and transparency to each bit of statistical data
- Facilitates standard product naming/coding
- Provides a comprehensive enterprise view (no “islands of information”), making real–time information available to management anywhere, any time to make proper decisions
- Protects sensitive data by consolidating multiple security systems into a single structure
- ERP can greatly improve quality and efficiency of the business. By keeping a company’s internal business process running smoothly, ERP can lead to better outputs that benefit the company, such as customer service and manufacturing.
- ERP supports upper level management, providing critical decision making information. This decision support lets upper management make managerial choices that enhance the business.
- ERP creates a more agile company that better adapts to change. ERP makes a company more flexible and less rigidly structured so organization components operate more cohesively, enhancing the business—internally and externally.
- 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 employees spend more time collaborating on content rather than mastering the learning curve of communicating in various formats across distributed systems.
- Customization is problematic.
- Re-engineering business processes to fit the ERP system may damage competitiveness or divert focus from other critical activities.
- ERP can cost more than less integrated or less comprehensive solutions.
- High ERP switching costs can increase the ERP vendor’s negotiating power, which can increase support, maintenance, and upgrade expenses.
- Overcoming resistance to sharing sensitive information between departments can divert management attention.
- Integration of truly independent businesses can create unnecessary dependencies.
- Extensive training requirements take resources from daily operations.
- Due to ERP’s architecture (OLTP, On-Line Transaction Processing) ERP systems are not well suited for production planning and supply chain management (SCM).
- Harmonization of ERP systems can be a mammoth task (especially for big companies) and requires a lot of time, planning, and money.
Recognized ERP limitations have sparked new trends in ERP application development. Development is taking place in four significant areas: more flexible ERP, Web-enabled ERP, inter-enterprise ERP, and e-business suites.