Enterprise Resource Planning (ERP)


Enterprise Resource Planning (ERP) refers to the integration of all data and processes of an organization into a single unified system. This is achieved by using a single software package that serves all the data crunching needs of the various departments within the organization.  This software package must also be connected to just a single, central database to effect full integration.  Such a fully-integrated software system allows the various departments to conveniently communicate and share information with each other.


The five major reasons why companies implement ERP are: 1) to integrate financial information, creating a single 'true' picture of the organization's financial performance; 2) to integrate customer order information, facilitating the real-time tracking of an order from the time it is placed until it is shipped to the customer; 3) to standardize and speed up manufacturing processes, thereby reducing cycle times and manpower requirements; 4) to reduce inventory, since an effective ERP system will ensure a smooth manufacturing process flow and align it with actual customer requirements; and 5) to standardize human resources (HR) information.


An ERP system is a tool for managing various aspects of the organization's operations under a single system.  It may consist of several software modules, each catering to a special need or application, but all of these modules must be controlled by a single ERP control program. Examples of operational aspects for which ERP system modules have been created include supply chain management, human resources, financial operations, warehousing, distribution, and of course, the manufacturing operations itself.  An ERP system is essentially the opposite of using stand-alone computers to manage different operations individually.


The acronym 'ERP' is somewhat of a misnomer for what it now represents, since it does much more than planning.  In fact, if installed correctly, an ERP system can give the organization tremendous payback. Because of an ERP's 'integrated' approach, everyone within the organization is on 'the same' page all the time. Conflicts in data and financial figures are eliminated, since everyone sees the same numbers - those stored in the ERP's single database.  Information sharing is also facilitated, allowing people to take orders efficiently and check their progress along the manufacturing line in real time.  As such, lost or misplaced orders are prevented, and all orders are promptly served.


Implementation of an ERP system within an organization is not easy.  A true ERP program that is wide in scope is a complex system, since data must be shared smoothly between different operations.  As such, companies often seek the help of an ERP supplier or third-party ERP consultant for ERP installation. 


ERP consulting is often done at three levels: 1) architecture level, wherein the systems architect designs the over-all flow of data; 2) business process level, wherein the business consultant studies the organization's existing business processes and configures the ERP system according to these processes; and 3) and technical level, which involves programming to modify the ESP software to suit the business needs of the customer.  Since customizing an ERP system to completely suit an existing operation is expensive, most companies simply opt to implement the best known practices embedded within off-the-shelf ERP systems.  It is also very important for a company to understand why they need an ERP system and how they can use it as a tool to improve their business before implementing one.


See Also:   Lean ManufacturingKnowledge ManagementSupply Chain ManagementCRM




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