Enterprise Resource Planning (
ERP) is a term usually used in conjunction with ERP software or an ERP system which is intended to manage all the information and functions of a business or company from shared data stores.
An ERP system typically has modular hardware and software units and "services" that communicate on a
local area networkA local area network is a computer network covering a small physical area, like a home, office, or small group of buildings, such as a school, or an airport...
. The modular design allows a business to add or reconfigure modules (perhaps from different vendors) while preserving
data integrityData integrity is a term used in computer science and telecommunications that can mean ensuring data is "whole" or complete, the condition in which data is identically maintained during any operation , the preservation of data for their intended use, or, relative to specified operations, the a...
in one shared database that may be centralized or distributed.
Origin of the term
The
initialsAcronyms and initialisms are abbreviations that are formed using the initial components in a phrase or name. These components may be individual letters or parts of words . There is no universal agreement on the precise definition of the various terms , nor on written usage...
ERP originated as an extension of MRP (
Material Requirements PlanningMaterial Requirements Planning is a software based production planning and inventory control system used to manage manufacturing processes...
and
Manufacturing Resource PlanningManufacturing Resource Planning is defined by APICS as a method for the effective planning of all resources of a manufacturing company...
; later
manufacturing resource planningManufacturing Resource Planning is defined by APICS as a method for the effective planning of all resources of a manufacturing company...
) and CIM (
Computer Integrated ManufacturingComputer-Integrated Manufacturing in engineering is a method of manufacturing in which the entire production process is controlled by computer. The traditional separated process methods are joined through a computer by CIM. This integration allows that the processes exchange information with each...
). It was introduced by research and analysis firm
GartnerGartner, Inc. is an information technology research and advisory firm headquartered in Stamford, Connecticut. It was known as GartnerGroup until 2001....
in 1990. ERP systems now attempt to cover all core functions of an enterprise, regardless of the organization's business or charter. These systems can now be found in non-manufacturing businesses, non-profit organizations and governments.
To be considered an ERP system, a software package must provide the function of at least two systems. For example, a software package that provides both payroll and accounting functions could technically be considered an ERP software package.
Examples of modules in an ERP which formerly would have been stand-alone applications include:
Product lifecycle managementProduct lifecycle management is the process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal...
,
Supply chain managementSupply chain management software is a business term which refers to a range of software tools or modules used in executing supply chain transactions, managing supplier relationships and controlling associated business processes....
(e.g.
PurchasingPurchasing refers to a business or organization attempting to acquire goods or services to accomplish the goals of the enterprise. Though there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between organizations...
,
ManufacturingManufacturing is the use of machines, tools and labor to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
and
DistributionDistribution is one of the four elements of marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user....
),
Warehouse ManagementA warehouse management system, or WMS, is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, putaway and picking...
,
Customer Relationship Management (CRM)Customer relationship management are methods that companies use to interact with customers. The methods include employee training and special purpose CRM software...
, Sales Order Processing, Online Sales, Financials,
Human ResourcesHuman resources is a term used to refer to how people are managed by organizations. The field has moved from a traditionally administrative function to a strategic one that recognizes the link between talented and engaged people and organizational success. The field draws upon concepts developed in...
, and
Decision Support SystemDecision support systems constitute a class of computer-based information systems including knowledge-based systems that support decision-making activities.- Overview :...
.
Overview of ERP solutions
Some organizations — typically those with sufficient in-house IT skills to integrate multiple software products — choose to implement only portions of an ERP system and develop an external interface to other ERP or stand-alone systems for their other application needs. For example, one may choose to use
human resource management systemA Human Resource Management System , Human Resource Information System , HR Technology or also called HR modules, refers to the systems and processes at the intersection between human resource management and information technology...
from one vendor, and perform the integration between the systems themselves.
This is common to retailers , where even a mid-sized retailer will have a discrete
Point-of-SalePoint of sales or checkout is both a checkout counter in a shop, and the location where a transaction occurs. Colloquially, a "checkout" refers to a POS terminal or more generally to the hardware and software used for checkouts, the equivalent of an electronic cash register. A POS terminal manages...
(POS) product and financials application, then a series of specialized applications to handle business requirements such as warehouse management, staff rostering, merchandising and logistics.
Ideally, ERP delivers a single database that contains all data for the various software modules that typically address areas such as:
ManufacturingManufacturing is the use of machines, tools and labor to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
: Engineering, bills of material, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow
Supply chain managementSupply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
:
Order to cashOrder to cash normally refers to the Enterprise Resource Planning process in which taking customer sales orders via different sales channels, such as email, internet, sales person, fax or by some other means like EDI, and then fulfilling the order, shipping, logistic and then generating an...
, inventory, order entry, purchasing, product configurator, supply chain planning, supplier scheduling, inspection of goods, claim processing, commission calculation
Financials : General ledger, cash management, accounts payable, accounts receivable, fixed assets
Project managementProject management is the discipline of planning, organizing, and managing resources to bring about the successful completion of specific project goals and objectives...
: Costing, billing, time and expense, performance units, activity management
Human resourcesHuman resources is a term used to refer to how people are managed by organizations. The field has moved from a traditionally administrative function to a strategic one that recognizes the link between talented and engaged people and organizational success. The field draws upon concepts developed in...
: Human resources, payroll, training, time and attendance, rostering, benefits
Customer relationship managementCustomer relationship management are methods that companies use to interact with customers. The methods include employee training and special purpose CRM software...
: Sales and marketing, commissions, service, customer contact and call center support
Data servicesWhat is a data service?In Scorecard Street, author L. Edell coins the term Data Service Oriented Architecture, or 'DSOA' for short, a phrase formed by two concepts, Data Services and Service Oriented Architecture....
: various "self-service" interfaces for customers, suppliers, and/or employees
Access controlAn access control system is a system which enables an authority to control access to areas and resources in a given physical facility or computer-based information system. An access control system, within the field of physical security, is generally seen as the second layer in the security of a...
: management of user privileges for various processes
The term "Enterprise resource planning" originally derived from manufacturing resource planning (MRP II) that followed
material requirements planningMaterial Requirements Planning is a software based production planning and inventory control system used to manage manufacturing processes...
(MRP). MRP evolved into ERP when "routings" became a major part of the software architecture and a company's
capacity planningCapacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time.A...
activity also became a part of the standard software activity. ERP systems typically handle the
manufacturingManufacturing is the use of machines, tools and labor to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
,
logisticsLogistics is the management of the flow of goods, information and other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers...
,
distributionDistribution is one of the four elements of marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user....
,
inventoryInventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. It is also used for a list of the contents of a household and for a list for testamentary purposes of the possessions of someone who has died...
,
shippingShipping has multiple meanings. It can be a physical process of transporting goods and cargo, by land, air, and sea. It also can describe the movement of objects by ship.Land or "ground" shipping can be by train or by truck...
,
invoicingAn invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer...
, and accounting for a company. ERP
softwareComputer software, or just software is a general term used todescribe the role that computer programs, procedures anddocumentation play in a computer system.The term includes:...
can aid in the control of many
businessA business is a legally recognized organization designed to provide goods and/or services to consumers. Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit that will increase the wealth of its owners and grow the business itself...
activities, including
salesA sale is the pinnacle activity involved in selling products or services in return for money or other compensation. It is an act of completion of a commercial activity.A sale is completed by the seller, the owner of the goods...
, marketing,
deliveryDelivery is the process of transporting goods. Most goods are delivered through a transportation network. Cargo are primarily delivered via roads and railroads on land, shipping lanes on the sea and airline networks in the air...
, billing, production, inventory management,
quality managementQuality management can be considered to have three main components: quality control, quality assurance and quality improvement. Quality management is focused not only on product quality, but also the means to achieve it...
, and
human resource managementHuman resource management is the strategic and coherent approach to the management of an organization's most valued assets - the people working there who individually and collectively contribute to the achievement of the objectives of the business...
.
ERP systems saw a large boost in sales in the 1990s as companies faced the
Y2KThe Year 2000 problem was a notable problem for both digital and non-digital documentation and data storage situations which resulted from the practice of abbreviating a four-digit year to two digits.In computer program design, the practice of representing the year...
problem (real or imagined) in their "legacy" systems. Many companies took this opportunity to replace such information systems with ERP systems. This rapid growth in sales was followed by a slump in 1999, at which time most companies had already implemented their
Y2KThe Year 2000 problem was a notable problem for both digital and non-digital documentation and data storage situations which resulted from the practice of abbreviating a four-digit year to two digits.In computer program design, the practice of representing the year...
solution.
ERP systems are often incorrectly called
back officeA back office is a part of most corporations where tasks dedicated to running the company itself take place. The term comes from the building layout of early companies where the front office would contain the sales and other customer-facing staff and the back office would be those manufacturing or...
systems indicating that
customerA customer, also called client, buyer, or purchaser, is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services...
s and the general public are not directly involved. This is contrasted with
front officeThe term, front office is used in business settings and may refer to the Sales and Marketing divisions of a company. It may also refer to any other divisions in a company that interact with their customers...
systems like
customer relationship managementCustomer relationship management are methods that companies use to interact with customers. The methods include employee training and special purpose CRM software...
(CRM) systems that deal directly with the customers, or the eBusiness systems such as eCommerce, eGovernment, eTelecom, and eFinance, or
supplier relationship managementSupply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
(SRM) systems.
ERP systems are cross-functional and enterprise-wide. All functional departments that are involved in operations or production are integrated in one system. In addition to areas such as manufacturing, warehousing, logistics, and information technology, this typically includes
accountingAccountancy or accounting is the art of communicating financial information about a business entity to users such as shareholders and managers...
,
human resourcesHuman resources is a term used to refer to how people are managed by organizations. The field has moved from a traditionally administrative function to a strategic one that recognizes the link between talented and engaged people and organizational success. The field draws upon concepts developed in...
,
marketingMarketing is an integrated communications-based process through which individuals and communities are informed or persuaded that existing and newly-identified needs and wants may be satisfied by the products and services of others....
and
strategic managementStrategic or institutional management is the conduct of drafting, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives...
.
ERP II, a term coined in the early 2000s, is often used to describe what would be the next generation of ERP software. This new generation of software is web-based and allows both employees and external resources (such as suppliers and customers) real-time access to the system's data.
EAS — Enterprise Application Suite is a new name for formerly developed ERP systems which include (almost) all segments of business using ordinary Internet browsers as thin clients.
Best practiceA Best practice is a technique, method, process, activity, incentive or reward that is believed to be more effective at delivering a particular outcome than any other technique, method, process, etc. The idea is that with proper processes, checks, and testing, a desired outcome can be delivered...
s are incorporated into most ERP vendor's software packages. When implementing an ERP system, organizations can choose between customizing the software or modifying their business processes to the "best practice" function delivered in the "out-of-the-box" version of the software.
Prior to ERP, software was developed to fit individual processes of an individual business. Due to the complexities of most ERP systems and the negative consequences of a failed ERP implementation, most vendors have included "Best Practices" into their software. These "Best Practices" are what the Vendor deems as the most efficient way to carry out a particular business process in an Integrated Enterprise-Wide system. A study conducted by Lugwigshafen University of Applied Science surveyed 192 companies and concluded that companies which implemented industry
best practiceA Best practice is a technique, method, process, activity, incentive or reward that is believed to be more effective at delivering a particular outcome than any other technique, method, process, etc. The idea is that with proper processes, checks, and testing, a desired outcome can be delivered...
s decreased mission-critical project tasks such as configuration, documentation, testing and training. In addition, the use of best practices reduced over risk by 71% when compared to other software implementations.
The use of best practices can make complying with requirements such as IFRS, Sarbanes-Oxley, or
Basel IIBasel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision...
easier. They can also help where the process is a
commodityA commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. The price of copper is universal,...
such as
electronic funds transferElectronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically.The term is used for a number of different concepts:...
. This is because the procedure of capturing and reporting legislative or commodity content can be readily codified within the ERP software, and then replicated with confidence across multiple businesses who have the same business requirement.
Implementation
Businesses have a wide scope of applications and processes throughout their functional units; producing ERP software
systemSystem is a set of interacting or interdependent entities forming an integrated whole....
s that are typically complex and usually impose significant changes on staff work practices. Implementing ERP software is typically too complex for "in-house" skill, so it is desirable and highly advised to hire outside consultants who are professionally trained to implement these systems. This is typically the most cost effective way. There are three types of services that may be employed for - Consulting, Customization, Support. The length of time to implement an ERP system depends on the size of the business, the number of modules, the extent of customization, the scope of the change and the willingness of the customer to take ownership for the project. ERP systems are modular, so they don't all need be implemented at once. It can be divided into various stages, or phase-ins. The typical project is about 14 months and requires around 150 consultants. A small project (e.g., a company of less than 100 staff) can be planned and delivered within 3–9 months; however, a large, multi-site or multi-country implementation can take years. The length of the implementations is closely tied to the amount of customization desired.
To implement ERP systems, companies often seek the help of an ERP vendor or of third-party consulting companies. These firms typically provide three areas of professional services: consulting; customization; and support. The client organization can also employ independent
program managementProgram management or programme management is the process of managing several related projects, often with the intention of improving an organization's performance. In practice and in its aims it is often closely related to Systems engineering....
,
business analysisBusiness analysis is the discipline of identifying business needs and determining solutions to business problems. Solutions often include a systems development component, but may also consist of process improvement or organizational change. The person who carries out this task is called a business...
, change management, and UAT specialists to ensure their business requirements remain a priority during implementation.
Data migration is one of the most important activities in determining the success of an ERP implementation. Since many decisions must be made before migration, a significant amount of planning must occur. Unfortunately, data migration is the last activity before the production phase of an ERP implementation, and therefore receives minimal attention due to time constraints. The following are steps of a data migration strategy that can help with the success of an ERP implementation:
- Identifying the data to be migrated
- Determining the timing of data migration
- Generating the data templates
- Freezing the tools for data migration
- Deciding on migration related setups
- Deciding on data archiving
Process preparation
ERP vendors have designed their systems around standard business processes, based upon best business practices. Different vendor(s) have different types of processes but they are all of a standard, modular nature. Firms that want to implement ERP systems are consequently forced to adapt their organizations to standardized processes as opposed to adapting the ERP package to the existing processes. Neglecting to map current business processes prior to starting ERP implementation is a main reason for failure of ERP projects. It is therefore crucial that organizations perform a thorough business process analysis before selecting an ERP vendor and setting off on the implementation track. This analysis should map out all present operational processes, enabling selection of an ERP vendor whose standard modules are most closely aligned with the established organization. Redesign can then be implemented to achieve further process congruence. Research indicates that the risk of business process mismatch is decreased by:
- linking each current organizational process to the organization's strategy;
- analyzing the effectiveness of each process in light of its current related business capability;
- understanding the automated solutions currently implemented.
ERP implementation is considerably more difficult (and politically charged) in organizations structured into nearly independent business units, each responsible for their own profit and loss, because they will each have different processes, business rules, data semantics, authorization hierarchies and decision centers. Solutions include requirements coordination negotiated by local change management professionals or, if this is not possible, federated implementation using loosely integrated instances (e.g. linked via
Master Data ManagementIn computing, master data management comprises a set of processes and tools that consistently defines and manages the non-transactional data entities of an organization...
) specifically configured and/or customized to meet local needs.
A disadvantage usually attributed to ERP is that business process redesign to fit the standardized ERP modules can lead to a loss of competitive advantage. While documented cases exist where this has indeed materialized, other cases show that following thorough process preparation ERP systems can actually increase sustainable competitive advantage.
Configuration
Configuring an ERP system is largely a matter of balancing the way you want the system to work with the way the system lets you work. Begin by deciding which modules to install, then adjust the system using configuration tables to achieve the best possible fit in working with your company’s processes.
Modules — Most systems are modular simply for the flexibility of implementing some functions but not others. Some common modules, such as finance and accounting are adopted by nearly all companies implementing enterprise systems; others however such as human resource management are not needed by some companies and therefore not adopted. A service company for example will not likely need a module for manufacturing. Other times companies will not adopt a module because they already have their own proprietary system they believe to be superior. Generally speaking the greater number of modules selected, the greater the integration benefits, but also the increase in costs, risks and changes involved.
Configuration Tables – A configuration table enables a company to tailor a particular aspect of the system to the way it chooses to do business. For example, an organization can select the type of inventory accounting –
FIFO or LIFOFIFO and LIFO accounting Methods are means of managing inventory and financial matters involving the money a company ties up within inventory of produced goods, raw materials, parts, components, or feed stocks. FIFO stands for first-in, first-out, meaning that the oldest inventory items are...
– it will employ or whether it wants to recognize revenue by geographical unit, product line, or distribution channel.
So what happens when the options the system allows just aren't good enough? At this point a company has two choices, both of which are not ideal. It can re-write some of the enterprise system’s code, or it can continue to use an existing system and build interfaces between it and the new enterprise system. Both options will add time and cost to the implementation process. Additionally they can dilute the system’s integration benefits. The more customized the system becomes the less possible seamless communication between suppliers and customers.
Consulting services
Many organizations did not have sufficient internal skills to implement an ERP project. This resulted in many organizations offering consulting services for ERP implementation. Typically, a consulting team was responsible for the entire ERP implementation including planning, training, testing, implementation, and delivery of any customized modules. Examples of customization includes additional product training; creation of process triggers and workflow; specialist advice to improve how the ERP is used in the business; system optimization; and assistance writing reports, complex data extracts or implementing Business Intelligence.
For most mid-sized companies, the cost of the implementation will range from around the list price of the ERP user licenses to up to twice this amount (depending on the level of customization required). Large companies, and especially those with multiple sites or countries, will often spend considerably more on the implementation than the cost of the user licenses—three to five times more is not uncommon for a multi-site implementation.
Unlike most single-purpose applications, ERP packages have historically included full source code and shipped with vendor-supported
team IDEsAn integrated development environment also known as integrated design environment or integrated debugging environment is a software application that provides comprehensive facilities to computer programmers for software development...
for customizing and extending the delivered code. During the early years of ERP the guarantee of mature tools and support for extensive customization was an important sales argument when a potential customer was considering developing their own unique solution in-house, or assembling a cross-functional solution by integrating multiple "best of breed" applications.
"Core system" customization vs configuration
Increasingly, ERP vendors have tried to reduce the need for customization by providing built-in "configuration" tools to address most customers' needs for changing how the out-of-the-box core system works. Key differences between customization and configuration include:
- Customization is always optional, whereas some degree of configuration (e.g., setting up cost/profit centre structures, organisational trees, purchase approval rules, etc.) may be needed before the software will work at all.
- Configuration is available to all customers, whereas customization allows individual customer to implement proprietary "market-beating" processes.
- Configuration changes tend to be recorded as entries in vendor-supplied data tables, whereas customization usually requires some element of programming and/or changes to table structures or views.
- The effect of configuration changes on the performance of the system is relatively predictable and is largely the responsibility of the ERP vendor. The effect of customization is unpredictable and may require time-consuming stress testing
In software testing, stress testing refers to tests that determine the robustness of software by testing beyond the limits of normal operation. Stress testing is particularly important for "mission critical" software, but is used for all types of software...
by the implementation team.
- Configuration changes are almost always guaranteed to survive upgrades to new software versions. Some customizations (e.g. code that uses pre-defined "hooks" that are called before/after displaying data screens) will survive upgrades, though they will still need to be re-tested. More extensive customizations (e.g. those involving changes to fundamental data structures) will be overwritten during upgrades and must be re-implemented manually.
By this analysis, customizing an ERP package can be unexpectedly expensive and complicated, and tends to delay delivery of the obvious benefits of an integrated system. Nevertheless, customizing an ERP suite gives the scope to implement secret recipes for excellence in specific areas while ensuring that industry best practices are achieved in less sensitive areas.
Extensions
In this context, "Extensions" refers to ways that an ERP environment can be "extended" (supplemented) with third-party programs. It is technically easy to expose most ERP transactions to outside programs that do other things, e.g.:
- archiving, reporting and republishing (these are easiest to achieve, because they mainly address static data);
- performing transactional data captures, e.g. using scanners, tills or RFIDs (also relatively easy because they touch existing data);
However, because ERP applications typically contain sophisticated rules that control how data can be created or changed, some such functions can be very difficult to implement.
Advantages
In the absence of an ERP system, a large manufacturer may find itself with many software applications that cannot communicate or interface effectively with one another. Tasks that need to interface with one another may involve:
- Integration among different functional areas to ensure proper communication, productivity and efficiency
- Design engineering
Engineering is the discipline, art and profession of acquiring and applying technical, scientific and mathematical knowledge to design and implement materials, structures, machines, devices, systems, and processes that safely realize a desired objective or inventions.The American Engineers' Council...
(how to best make the product)
- Order tracking, from acceptance through fulfillment
- The revenue cycle, from invoice
An invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer...
through cash receipt
- Managing inter-dependencies of complex processes bill of materials
Bill of materials is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts and the quantities of each needed to manufacture an end item...
- Tracking the three-way match between purchase order
A purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a PO to a supplier constitutes a legal offer to buy products or services...
s (what was ordered), inventoryInventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. It is also used for a list of the contents of a household and for a list for testamentary purposes of the possessions of someone who has died...
receipts (what arrived), and costIn business, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In economics, a cost is an alternative that is given up as a result of a decision. In business, the cost may be one of acquisition, in which case...
ing (what the vendor invoiced)
- The accounting for all of these tasks: tracking the revenue
In business, revenue or revenues is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. Some companies also receive revenue from interest, dividends or royalties paid to them by other companies...
, costIn business, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In economics, a cost is an alternative that is given up as a result of a decision. In business, the cost may be one of acquisition, in which case...
and profitAccounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.A key difficulty in measuring profit is in defining costs...
at a granular level.
ERP Systems centralize the data in one place. Benefits of this include:
- Eliminates the problem of synchronizing changes between multiple systems
- Permits control of business processes that cross functional boundaries
- Provides top-down view of the enterprise (no "islands of information")
- Reduces the risk of loss of sensitive data by consolidating multiple permissions and security models into a single structure.
Some
securitySecurity is the degree of protection against danger, loss, and criminals.Security has to be compared and contrasted with other related concepts: Safety, continuity, reliability...
features are included within an ERP system to protect against both outsider crime, such as
industrial espionageIndustrial espionage or corporate espionage is espionage conducted for commercial purposes instead of national security purposes.The term is distinct from legal and ethical activities such as examining corporate publications, websites, patent filings, and the like to determine the activities of a...
, and insider crime, such as
embezzlementEmbezzlement is the act of dishonestly appropriating or secreting assets, usually financial in nature, by one or more individuals to whom such assets have been entrusted. It is a kind of financial fraud...
. A data-tampering scenario, for example, might involve a disgruntled employee intentionally modifying prices to below-the-breakeven point in order to attempt to interfere with the company's profit or other sabotage. ERP systems typically provide functionality for implementing
internal controlIn accounting and auditing, internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It is a means by which an organization's...
s to prevent actions of this kind. ERP vendors are also moving toward better integration with other kinds of information security tools.
Disadvantages
Problems with ERP systems are mainly due to inadequate investment in ongoing training for the involved IT 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 the ways in which it is used.
Disadvantages
- Customization of the ERP software is limited.
- Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage.
- ERP systems can be very expensive (This has led to a new category of "ERP light" solutions)
- ERPs are often seen as too rigid and too difficult to adapt to the specific workflow
A workflow consists of a sequence of connected steps. It is a depiction of a sequence of operations, declared as work of a person, a group of persons, an organization of staff, or one or more simple or complex mechanisms. Workflow may be seen as any abstraction of real work, segregated in...
and business process of some companies—this is cited as one of the main causes of their failure.
- Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications.
- 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).
- The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.
- Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.
- 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.
- The system may be too complex measured against the actual needs of the customers.
See also
- List of ERP software packages
- List of ERP vendors
- Accounting software
Accounting software is application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance. It functions as an accounting information system...
- Advanced Planning & Scheduling
Advanced Planning & Scheduling refers to a manufacturing management process by which raw materials and production capacity are optimally allocated to meet demand...
- APICS
APICS The Association for Operations Management, is a not-for-profit international education organization, offering certification programs, training tools and networking opportunities to increase workplace performance...
- Bill of materials
Bill of materials is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts and the quantities of each needed to manufacture an end item...
(BOM)
- Business process management
Business process management is a management approach focused on aligning all aspects of an organization with the wants and needs of clients. It is a holistic management approach that promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with...
- Configurable BOM
A configurable bill of materials is a form of bill of materials used by industries that have multiple options and highly configurable products...
(CBOM)
- Data migration
Data migration is the process of transferring data between storage types, formats, or computer systems. Data migration is usually performed programmatically to achieve an automated migration, freeing up human resources from tedious tasks...
- Enterprise Feedback Management
Enterprise feedback management is a system of processes and software that enables organizations to centrally manage deployment of surveys while dispersing authoring and analysis throughout an organization...
(EFM)
- Enterprise system
Enterprise systems are large-scale, integrated application-software packages that use the computational, data storage, and data transmission power of modern information technology to support processes, information flows, reporting, and data analytics within and between complex organizations...
- E-procurement
E-procurement is the business-to-business or business-to-consumer or Business-to-government purchase and sale of supplies, Work and services through the Internet as well as other information and networking systems, such as Electronic Data Interchange and Enterprise Resource Planning.Typically,...
- ERP modeling
ERP modeling, abbreviated ERP, is the process of reverse engineering an Enterprise Resource Planning software package in order to align it to an organizational structure.-Usage:...
- ERP for IT
- ERP System Selection Methodology
An ERP system selection methodology is a formal process for selecting an Enterprise Resource Planning system. Existing methodologies include:* Kuiper's funnel method* Dobrin's 3D decision support tool* Clarkson Potomac method- Overview :...
- Information technology management
The definition of Information Technology Management, derived from the definition of Technology Management is as follows:Information Technology Management is concerned with exploring and understanding Information Technology as a corporate resource that determines both the strategic and operational...
- List of project management software
- Management information system
A management information system is a subset of the overall internal controls of a business covering the application of people, documents, technologies, and procedures by management accountants to solve business problems such as costing a product, service or a business-wide strategy...
- Manufacturing Operations Management
Manufacturing operations management is a methodology for viewing an end-to-end manufacturing process with a view to optimizing efficiency....
- Material requirements planning
Material Requirements Planning is a software based production planning and inventory control system used to manage manufacturing processes...
(material resource planning)
- Modular BOM
A modular bill of materials is type of bill of materials and a critical element in defining the product structure of an end-item....
(MBOM)
- Order to cash
Order to cash normally refers to the Enterprise Resource Planning process in which taking customer sales orders via different sales channels, such as email, internet, sales person, fax or by some other means like EDI, and then fulfilling the order, shipping, logistic and then generating an...
- Service Management
Service Management is integrated into Supply Chain Management as the joint between the actual sales and the customer. The aim of high performance Service Management is to optimize the service-intensive supply chains, which are usually more complex than the typical finished-goods supply chain...
- Software as a Service
Software as a Service is a model of software deployment whereby a provider licenses an application to customers for use as a service on demand. SaaS software vendors may host the application on their own web servers or download the application to the consumer device, disabling it after use or...
- Supply chain management
Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
- Warehouse management system
A warehouse management system, or WMS, is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, putaway and picking...
- Web management system
Website Management System is a cloud computing platform designed to allow organizations, businesses, and individuals the ability to manage their on-line presence directly through any web-browser. WMS supports any web browser that conforms to the World Wide Web Consortium standards, and all WMS...