ERP - Enterprise
Resources Planning
ERP systems evolved from 1970s-era systems that helped manufacturers identify component and material requirements and availability, towards a comprehensive and integrated set of functionalities. Now, they have become the organization’s information key-bone integrating a wide variety of functions including sales and distribution, planning, purchasing, production, cost accounting and finance. Some systems also include engineering management, finite scheduling, production control, and enterprise information system capabilities.
Manufacturing used to be a much simpler process than the convoluted mélange of hardware and software choices that confront manufacturers today. In the old days quality and price was the primary concerns of the buyer. As more products became available, convenience was added to the mix. If a local manufacturing had good quality and a reasonable price, that company could got the job over some far away company who might have a better price. Increased mobility changed the situation somewhat, but the differentials had to be high to warrant traveling any significant distance for a commodity product. Given a unique product, available in limited locations, a buyer might justify a long trip or high shipping costs. For a company to overcome its limitation on being far the solution relies in a better system to provide better quality, better price, better customer interfaces, better supply chain management, ... An efficient information system to convert all the data available in information can improve all the functions related with a manufacturing company. Shop floor workers need one level of information, in real-time, about the process or production; executives need a different view of that data for long-range planning and short-term deployment. Same data, different information. In many situations, data are available but uncollected. This could require manual entry, bar code scanning or sensor monitoring to correct. In other cases, the data are collected but stored awaiting a request. Data mining and data warehousing applications involve this aspect of information development. Databases are becoming larger and larger as companies find more and more data to store. But all those bytes are still just data. What ERP strives to do is combine the needed functions of every application a company requires to do its job and integrate them all together. It facilitates intelligent resource planning in the face of rapidly changing constraints such as materials availability, market readiness, plant capacities, personnel certification and business costs per location.
The power and benefit of ERP systems lies in their ability to "mirror" or "model", in electronic form, the company’s core and supportive business processes. They provide a global view of an organization, help better manage and utilize company resources, while minimizing duplication and potential for errors.
ERPs accomplish this objective by modeling business processes. For example, an ERP provides the capability to track a sales order from the order desk, to production planning, purchasing, production, warehousing, shipping and accounts receivable (referred to as "Order to Payment" process). An ERP will also help identify the impact of the order on other departments, for example, purchasing and production, to determine additional material and capacity requirements to fulfill the order.
According to (Koch, Slater, Baatz 1999) ERP attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different department's particular needs. ERP software try to include in one application functionalities to help the needs of finance people, human resources, and in the warehouse. ERPs combines the optimized applications of each department into a single integrated one that runs off a single database, becoming a typical example of an application that follows an integrated approach. But this has a price because the successfull implementation of such a type of software is extremely complex.
The What is Web Site defines " ERP (enterprise resource planning) is an industry term for the broad set of activities supported by multi-module application software that help a manufacturer or other business manage the important parts of its business, including product planning, parts purchasing, maintaining inventories, interacting with suppliers, providing customer service, and tracking orders. ERP can also include application modules for the finance and human resources aspects of a business. Typically, an ERP system uses or is integrated with a relational database system. The deployment of an ERP system can involve considerable business process analysis, employee retraining, and new work procedures."
Figure 2 - History of ERP
The ERP, for (Shankarnarayanan 1998), is a natural evolution after the MRPII. According to this author the natural evolution of planning systems is (Figure 1)
- MRP – Materials Requirement Planning
- MRPII – Manufacturing Resource Planning
- ERP – Enterprise Resource Planning
- MRPIII – Money Resource Planning ??
The ERP concept is not applied only for the manufacturing environment but for all kinds of enterprises. For many vendors ERP refers to the enterprise of manufacturing. The ERP facilitates company-wide integrated information systems covering all functional areas and performs core corporate activities and increases customer service.
Examples of problems managed by ERP software can be found below:
- Material Shortages
- Productivity Enhancements
- Customer Service
- Cash Management
- Inventory Problems
- Quality Problems
The core subsystems of ERPs are:
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ERPs integrates the following components:
- Applications
- Databases
- Interfaces
- Tools
Figure 2 - Classes of Software
Figure 2 shows the relative position in the hierarchy of enterprise software. It occupies the higher level as it was expected from the previous description.