ERP, stands for enterprise resource planning, is a software system that aims to serve as a backbone for your whole business. It integrates key business and management processes to provide a sky-level view of much of what's going on in your organization. ERP tracks company financials, human resources data and all the manufacturing information such as where you put your inventory and when it needs to be taken from the parts warehouse to the shop floor.
For Process driven companies it would have 'recipe' and 'batch' controls and for project companies like construction, it would be 'project' control rather than 'shop floor' control. It can be monolithic or modular, client/server or web based.
The leader in ERP market share, and the one that invented the market to an extent, is the German company SAP AG with its R/3 software. Other big players include PeopleSoft Inc., Oracle Corp., Baan Co. NV and J.D. Edwards & Co.
ERP systems attempt to integrate several data sources and processes of an organization into a unified system. A typical ERP system will use multiple components of computer software and hardware to achieve the integration. A key ingredient of most ERP systems is the use of a unified database to store data for the various system modules. The two key components of an ERP system are a common database and a modular software design. A common database is the system that allows every department of a company to store and retrieve information in real-time. Using a common database allows information to be more reliable, accessible, and easily shared. Furthermore, a modular software design is a variety of programs that can be added on an individual basis to improve the efficiency of the business. This improves the business by adding functionality, mixing and matching programs from different vendors, and allowing the company to choose which modules to implement. These modular software designs link into the common database, so that all of the information between the departments is accessible in real time.
The Advantages and Disadvantages of ERP
The advantages and disadvantages of ERP is an interesting Study. The foremost advantage of an ERP system is bringing down the costs and saving the valuable time which would have been wasted in procedural maneuvers and unwanted delays.
There are a number of powerful advantages to Enterprise Resource Planning. It has been used to solve a number of problems that have plagued large organizations in the past. At the same time, it is not without a number of disadvantages. Being able to weigh the two will allow a company to decide if this solution will properly meet their needs.
Advantages of ERP
Integration
Integration can be highest benefit of them all - practically, the only really good project aim for implementing ERP is reducing data redundancy and redundant data entry. If this is set as a goal, to automate inventory posting to G/L etc. then it might be a successful project. Those companies where integration is not so important or even dangerous tend to have a hard time with ERP: ERP does not improve the individual efficiency of users, so if they expect it, it will be a big disappointment - ERP only improves the cooperation of users.
Efficiency
Generally, ERP software focuses on integration and tends to not care about the daily needs of people. I think individual efficiency can suffer by implementing an ERP - so the big question is that whether the benefit of integration and cooperation can make up for the loss in personal efficiency or not.
Cost reduction
It reduces cost only if the company took accounting and reporting seriously even before the ERP and had put a lot of manual effort in it. If they didn't care about it, if they just did some simple accounting to fill mandatory statements and if internal reporting did not exists of has not been financially-oriented, then no cost is reduced. If you can get a good estimate on next years sales by asking "Hey Joe, how it's going?" then don't ever think on implementing an ERP.
Fewer personnel
Same as above. Less reporting or accounting personnel, but more sales assistants etc.
Accuracy
People are accurate, not software. What ERP does is makes the lives of inaccurate people or organization a complete hell and maybe forces them to be accurate (which means hiring more people or distributing work better), or it falls.
Disadvantages of ERP
Problems with ERP systems are mainly due to inadequate investment in ongoing training for involved personnel, including those implementing and testing changes, as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and how it is used.
1. Customization of the ERP software is limited.
2. Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage.
3. ERP systems can be very expensive leading to a new category of "ERP light" solutions
4.ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure.
5. Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, and then over time "dirty data" will reduce the reliability of some applications.
6. Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level).
7. The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.
8. Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.
9. Some large organizations may have multiple departments with separate, independent resources, missions, chains-of-command, etc, and consolidation into a single enterprise may yield limited benefits.
10. The system may be too complex measured against the actual needs of the customer.
Conclusion
ERP is recommended in an organization not only because the advantages outnumber the disadvantages but also by keeping in mind the ways to overcome the disadvantages. An organization has to correctly weigh the advantages and disadvantages of ERP before going for them.
