Table of Contents:-
- What is Enterprise Resource Planning?
- Characteristics of ERP
- Elements of ERP
- Advantages of ERP
- Disadvantages of ERPÂ
What is Enterprise Resource Planning?
Enterprise Resource Planning is derived from the Material Resource Planning (MRP) Aim of ERP to integrate all the data and processes into a single system. The ERP system uses multiple software and hardware components to perform the integration (all data and processes into a single system). A unified database is one of the critical components of an ERP system. These databases store the data for different system modules.
ERP system uses various techniques and concepts to increase the use of organisational resources to improve the working process of the entire organization.
According to James O’Brien, “ERP is the technological backbone of e-business, an enterprise-wide transaction framework with links into sales order processing, inventory management and control, production and distribution planning, and, finance.”
With the help of ERP, all the departments in an enterprise can share information and communicate with each other more efficiently because ERP combines all the business processes into an integrated and unified software program.
Before the implementation of Enterprise Resource Planning, each department’s computer system was optimized according to the needs of that department. It uses a single database to manage and preserve the data effectively. The central concept of the ERP system is to replace the old standalone computer systems of individual departments (having separate software that works departmental functions related to manufacturing, finance, HR, etc.). So, employees from various departments such as purchasing, finance and manufacturing can carry out functions related to their area using the software and the enterprise-wide information to improve the quality of decisions.
For example, a finance manager can use the ERP system to know the status of the shipment of the sales order (from the warehouse) to plan working capital management for the upcoming time.
Characteristics of ERP
Some of the most important characteristics of ERP are as follows:
1) Integrated Management Information
Business managers are utilizing Enterprise Resource Planning (ERP) for many compelling reasons.Â
i)Â ERP supports Electronic Data Interchange (EDI). Thus, information regarding the customer, purchase orders, cash payments and schedule amendments can be received electronically. It is also possible to send acknowledgements and invoices to the customers with the help of EDI.
ii)Â ERP database stores information related to controlling and monitoring machines, time and attendance reporting and post-sales statistics.
iii)Â ERP can display specifications or drawings. It can also store original purchase orders, contracts, quotations and sales orders.
iv)Â There is no need to depend on the information system department as the ERP is a fictive reporting tool for extracting information as and when required.
2) Supply Chain Management
For those enterprises that have multiple distribution networks and manufacturing units, end-to-end supply chain management is very crucial. With the help of Intelligent Resource Planning (IRP), it is possible to optimize the flow of demand and supply data. The demand-supply chain can thus be optimally identified by building relationships between various activities
3) Integrated Data Model
The creation of an integrated data model is the core of every Enterprise Resource Planning system. It can integrate the data associated with the entire enterprise system and provide data to customers, suppliers and employees.
4) Accommodating Variety
The ERP software can support multiple currencies as well as languages. The business can also succeed globally as ERP software supports multi-facility and multi-mode manufacturing.
5) Seamless Integration
Introducing new products and changes in the existing products can be fully integrated into the enterprise system. This function is known as engineering change management. This crucial function of the enterprise must include routing, automatic generation of product structures, change-order processing, routing, electronic approval and revision-level control.
6) Resource Management\
It is necessary to effectively manage the human resources and equipment of an enterprise. To ensure effective management of the equipment, it is necessary to keep online records regarding the status and location of the equipment. The proper accounting methods regarding the maintenance and operating costs are also monitored. The ERP software package also provides functions for the effective management of human resources which include taking care of the training needs, succession and career planning, performance review, applicant tracking, job descriptions and evaluations, requisition management, cost benefits, creating alternate organizational structure, etc.
Elements of ERP
The image below shows the various elements of the ERP architecture. A few of them are described below:
1) Graphical User Interfaces
The manufacturers follow specific style guidelines when designing Graphical User Interfaces (GUIs). GUI determines the interface model and design of menus, system messages, windows and operating elements. Some of the popular style guides are shown below:
- CUA-Common User Access (IBM)Â
- Human Interface Guidelines (Apple)Â
- OSF/Motif Style Guide (OSF)
- Windows Interface (Microsoft)
2) Operating Systems
The operating system creates a separate software layer, which lies between the machine language and hardware on the one side and the middleware on the other. It hides the application details, including the hardware and software employed, from the user. It also manages the processes and various resources.
Operating systems can be categorized into the following types:
- Server Operating Systems: The computers on which these operating systems are installed are centralized and powerful. Many applications and users can access the resources of such computers.
- Desktop Operating Systems: These operating systems are meant for single users and are run on personal computers. They support individual applications such as spreadsheets and word processors. Some of the examples of such operating systems are Windows 7, MS-DOS and Macintosh Operating System.
3) RDBMS
Almost all business applications carry out their functions with a large volume of data. The ‘transaction’ and ‘master data’ typically require a large volume of disk space. Thus, there is a need for powerful access and storage methods so that this large volume of data can be comfortably handled. Therefore, Relational Database Management System (RDBMS) are used, as they are logically simple. Two-dimensional tables are used for both data storage and to show their relationship. Every table is equipped with a primary key to identify every entry uniquely.
4) Repository
An enterprise’s entire set of metadata is stored in the repository environment. These can be accessible globally. The repository differs from the data dictionary because it can be implemented across multiple database management systems and hardware platforms.
Advantages of ERP
1) On-Time Shipment
As the ERP system is highly flexible, it is possible to change the planning and manufacturing methods according to the needs. There is no need to reconfigure the plant or workplace layouts for this. The businesses do not have to restrict themselves to a single planning process, such as make-to-stock or make-to-order
2) Improved Resource Utilization
It is possible to carry out detailed and rough-cut capacity planning with the help of the capacity planning features of the ERP module. The resource and capacity planners can enhance their decision making process by simulating the various resource and capacity utilization scenarios, using the simulation capabilities of the ERP systems. So, an organization can bring about drastic improvement in resources and capacity utilization, with the help of an ERP system.
3) Improved Supplier Performance
It is possible to coordinate and manage the various aspects of the procurement process as there are a lot of tools in the ERP system that facilitate procurement support and vendor management. While assuring the superior quality of the products, the ERP system supports the organization in ‘monitoring’, ‘negotiating’, ‘controlling procurement schedule’ and “costs” in an effective way.
4) Decision-Making Capability
Business decision making is the outcome of implementing Enterprise Resource Planning as it improves the accuracy of information.
5) Reduction of Lead Time
Lead time is the time that elapses between placing an order and receiving it. ERP plays a vital role in the inventory control and purchasing process. Many problems like missing delivery schedules, losing customers in the competitive market or losing customer goodwill due to delivery delays can occur if the item required for production is unavailable.
6) Reduction in Cycle Time
The time that elapses between receiving the order and delivering the product is commonly referred to as the ‘cycle time’. With the help of the Enterprise Resource Planning system, it is possible to reduce the cycle time. The system checks whether the item is available when the order is fed. In the case the nearest manufacturer does not have the item, then the other nearest warehouse identifies the stock item for the customer.
7) Better Customer Satisfaction
With the help of various features of ERP systems, it is possible to produce goods using the make-to-order approach. Thus, the time and cost benefits of made-to-order operations can be achieved in a much more flexible manner.
8) Increased Flexibility
One of the critical issues that are considered when formulating the strategic plans of the organization is ‘flexibility’. ERP systems enhance the flexibility of the whole organization by improving manufacturing operations.
Disadvantages of ERPÂ
1) Difficulty Implementing Change
To accept the working process of ERP, many companies have to change how they operate radically. In many cases, the old employees must retire or quit their jobs as they cannot adapt to such changes. This can result in a need for more experienced employees in the firm. These best practices are sometimes inappropriate for firms as they need to improve workflow.
2) Risks in Using One Vendor
Switching to another vendor, an ERP system, involves a high cost. So, most companies avoid implementing an ERP system within their organization. The vendor usually gives minimum attention to the customer’s complaints once the organization has adopted a system. If the ERP vendor goes out of business or the product becomes outdated, the cost associated with the risk of switching also increases. Thus, choosing a long-term business partner and the best software product is necessary when selecting the ERP system.
3) Expense and Time in Implementation
A significant amount of time and money has to be invested to get the full benefits of the ERP system. Companies spend millions of dollars and wait three to five years for implementation.
4) Difficulty Integrating with Other Systems
There are many other systems in an organization like e-commerce, financial analysis programs and other applications, that have to be integrated with the ERP system. Most of the companies have faced problems while operating such systems with the ERP system. In many situations, additional software is needed to establish a connection between these systems and the ERP system.
5) Risk of Implementation Failure
Implementing the ERP system properly is challenging as it requires the use of the best IS and business people, a considerable amount of resources and full support from the management. But there are some situations where the installation fails. Implementation requires costly solutions to cope with problems (associated with ERP).