ENTERPRISE RESOURCE PLANNING (ERP)
Meaning
Enterprise resource planning (ERP) is a system of integrated software applications that
standardizes, streamlines and integrates business processes across finance, human
resources, procurement, distribution, and other departments. Typically, ERP systems
operate on an integrated software platform using common data definitions operating on a
single database.
ERPs were originally designed for manufacturing companies but have since expanded to
service industries, higher education, hospitality, health care, financial services, and
government. Each industry has its own ERP peculiarities. For example, government ERP uses
contract lifecycle management (CLM) rather than traditional purchasing and follows
government accounting rules rather than GAAP. Banks have back-office settlement
processes to reconcile checks, credit cards, debit cards, and other instruments.
THE BENEFITS OF AN ERP SYSTEM
ERP systems improve enterprise efficiency and effectiveness in a number of ways.
1. By integrating financial information in a single system, ERP systems unify an
organization’s financial reporting.
2. They also integrate order management, making order taking, manufacturing,
inventory, accounting, and distribution a much simpler and less error-prone process.
3. Most ERPs also include customer relationship management (CRM) tools to track
customer interactions, thereby providing deeper insights about customer behavior
and needs.
4. They can also standardize and automate manufacturing and supporting processes,
and unifying procurement across an organization’s disparate business units.
5. An ERP system can also provide a standardized HR platform for time reporting,
expense tracking, training, skills matching, and the like, and greatly enhance an
organization's ability to file the necessary reporting for government regulations,
across finance, HR and the supply chain.
6. Properly operating ERP systems enable enterprises to reduce the time required to
complete virtually every business process.
7. They also promote collaboration through shared data organized around common
data definitions, resulting in better decision-making.
8. The standardization and simplification that ERP systems offer result in fewer rigid
structures, thereby creating a more agile enterprise that can adapt quickly while
increasing the potential for collaboration.
9. An ERP systems centralized database, while being a bigger target, is easier to secure
than data scattered across hundreds of systems.
KEY FEATURES OF ERP SYSTEMS
The scale, scope, and functionality of ERP systems vary widely. However, most ERP software
features the following characteristics:
1. Enterprise-wide integration. Business processes are integrated end to end across
departments and business units. For example, a new order automatically initiates a credit
check, queries product availability, and updates the distribution schedule. Once the order is
shipped, the invoice is sent.
2. Real-time (or near real-time) operations. Since the processes in the example above occur
within a few seconds of order receipt, problems are identified quickly, giving the seller more
time to correct the situation.
3. A common database. A common database enables data to be defined once for the
enterprise with every department using the same definition. Some ERP systems split the
physical database to improve performance.
4. Consistent look and feel. Early ERP vendors realized that software with a consistent user
interface reduces training costs and appears more professional. When other software is
acquired by an ERP vendor, common look and feel is sometimes abandoned in favour of
speed to market. As new releases enter the market, most ERP vendors restore the
consistent user interface.
TYPES OF ERP SOLUTIONS
ERP systems are categorized in tiers based on the size and complexity of enterprises served.
Typical tiers include:
Tier I ERPs support large, global enterprises and handle all internationalization issues,
including currency, language, alphabet, postal code, accounting rules, etc. For decades,
Oracle and SAP have been considered Tier I. Microsoft and Infor are more recent
competitors but are frequently categorized as Tier I as well.
Tier I Government ERPs support large, mostly federal, government agencies. These vendors
support the nuances of government accounting, HR, and procurement. Oracle, SAP and
CompuServe’s PRISM are considered Tier I with Infor and CGI’s Momentum close behind.
Tier II ERPs support large enterprises that may operate in multiple countries but lack global
reach. Tier II customers can be standalone entities or business units of large global
enterprises. Most of these ERPs have some internationalization but lack Tier I breadth.
Depending on how vendors are categorized there are 25 to 45 vendors in this tier.
Tier II Government ERPs focus mostly on state and local governments with some federal
installations. Tyler Technologies and UNIT4 fall in this category.
Tier III ERPs support mid-tier enterprises. Most handle a handful of languages and
currencies but only a single alphabet. Depending on how ERPs are categorized, there are 75
to 100 Tier III ERP solutions.
Tier IV ERPs are designed for small enterprises and often focus on accounting.
Over the past few years, ERP vendors have created new systems designed specifically for
the cloud, while long time ERP vendors have created cloud versions of their software. Cloud
ERP is becoming increasingly popular, and fall into two major types:
ERP as a service. With these ERPs, all customers operate on the same code base and have
no access to the source code. Users can configure but not customize the code.
ERP in an IaaS cloud. Enterprises that rely on custom code in their ERP cannot use ERP as a
service. If they wish to operate in the cloud, the only option is to move to an IaaS provider,
which shifts their servers to a different location.
For most enterprises, ERP as a service offers three advantages: The initial cost is lower,
upgrades to new releases are easier, and reluctant executives cannot pressure the
organization to write custom code for their organization.
