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Chapter: Business Science - Enterprise Resource Planning

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Overview of enterprise systems

ERP is a package software solution that addresses the enterprise needs of an organization by tightly integrating the various functions of an organization using a process view of the organization.

Overview of enterprise systems

 

1. Introduction

 

ERP is an acronym that stands for Enterprise Resource Planning. ERP software saw phenomenal interest from the corporate sector during the period 1995-2000. The ERP market is estimated to be in excess of USD 80 Billion in the year 2000 Many analysts feel that today’s global business environment - products and services customized to suit the individual needs of millions of customers, delivered over multiple timelines in a 24X7 basis - would have been impossible without such enterprise software. Undoubtedly ERP represents one of the most complex and demanding application software in the corporate environment.

 

2 What is ERP?

 

ERP is a package software solution that addresses the enterprise needs of an organization by tightly integrating the various functions of an organization using a process view of the organization.

 

A.   ERP software is ready-made generic software; it is not custom-made for a specific firm. ERP software understands the needs of any organization within a specific industry segment. Many of the processes implemented in an ERP software are core processes such as order processing, order fulfillment, shipping, invoicing, production planning, BOM (Bill of Material), purchase order, general ledger, etc., that are common to all industry segments.

 

B.   ERP does not merely address the needs of a single function such as finance, marketing, production or HR; rather it addresses the entire needs of an enterprise that cuts across these functions to meaningfully execute any of the core processes.

 

C.   ERP integrates the functional modules tightly. It is not merely the import and export of data across the functional modules. The integration ensures that the logic of a process that cuts across the function is captured genuinely. This in turn implies that data once entered in any of the functional modules (whichever of the module owns the data) is made available to every other module that needs this data. This leads to significant improvements by way of improved consistency and integrity of data.

 

D.   ERP uses the process view of the organization in the place of function view, which dominated the enterprise software before the advent of ERP.

 

 

3. Why ERP?

 

In spite of heavy investments involved in ERP implementation, many organizations around the world have gone in for ERP solutions. A properly implemented ERP solution would pay for the heavy investments handsomely and often reasonably fast. Since ERP solutions address the entire organizational needs, and not selected islands of the organization, ERP introduction brings a new culture, cohesion and vigor to the organization. After ERP introduction the line managers would no longer have to chase information, check compliance to rules or conformance to budget. What is striking is that a well-implemented ERP can guarantee these benefits even if the organization is a multi-plant, multi- location global operation spanning the continents.

 

In a sense ERP systems can be compared to the “fly-by-wire” operation of an aircraft.

 

ERP systems similarly would relieve operating managers of routine decisions and leave them with lots of time to think, plan and execute vital long-term decisions of an organization. Just as “fly-by-wire” operation brings in amazing fuel efficiency to the aircraft operation by continuous monitoring of the airplane operation, ERP systems lead to significant cost savings by continuously monitoring the organizational health. The seemingly high initial investments become insignificant in the face of hefty long-term returns.

 

At another level, organizations today face the twin challenges of globalization and shortened product life cycle. Globalization has led to unprecedented levels of competition. To face such a competition successful corporations should follow the best business practices in the industry. Shortened life cycles call for continuous design improvement, manufacturing flexibility and super efficient logistics control; in short a better management of the entire supply chain. This in turn presupposes faster access to accurate information both inside the organization and from the entire supply chain outside. The organizational units such as Finance, Marketing, Production and HRD need to operate with a very high level of integration without losing flexibility. ERP systems with an organizational wide view of business processes, business needs of information and flexibility meet these demands admirably.

 

4 Need for Enterprise Resource Planning

 

Organizations today face twin challenges of globalization and shortened product life cycle. Globalization has led to unprecedented levels of competition. To face such competitions, successful corporations should follow the best business practices in the industry. Shortened life cycles call for continuous design improvements, manufacturing flexibility, super-efficient logistics control and better management of the entire supply chain. All these need faster access to accurate information, both inside the organization and the entire supply chain outside. The organizational units such as finance, marketing, production, human resource development etc. need to operate with a very high level of integration without losing flexibility. ERP system with an organization-wide view of business processes, business need of information and flexibility meet these demands admirably. One of the developments in computing and communication channels is providing tighter integration among them.

 

5 Definition of ERP

 

Researchers and practitioners have defined ERP in many different ways.

 

Minahan (1998) defines ERP as a complex software system that ties together and automates the basic processes of a business. ERP has been defined by various authors but with few differences.

 

Kumar et al. (2000) define enterprise resource planning (ERP) systems as “configurable information systems packages that integrate information and information-based processes within and across functional areas in an organization”

 

Al-Mashari and Zairi (2000) states that ERP represent an optimal enterprise-wide technology infrastructure. The basic architecture of an ERP system builds on one database, one application, and a unified interface across the entire enterprise.

 

Nah et al. (2001) defines ERP as “An enterprise resource planning (ERP) system is typically defined as a packaged business software system that facilitates a corporation to manage the efficient and effective use of resources (materials, human resources, finance, etc.) by providing a total integrated solution for the organization’s information-processing requests, through a process-oriented view consistent across the company.”

 

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