Definition of ERP (Enterprise Resource

Planning)
Enterprise resource planning (ERP) is the industry term used to describe a broad set of activities
supported by multi-module application software that helps a manufacturer or other business
manage the important parts of its business. These parts can include 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.
Some of the bigger players in the ERP outsourcing market are SAP, Peoplesoft, and J. D.
Edwards. New comers include Oracle, IBM, and Microsoft.

ERP Definition - A Systems

Perspective

What is ERP
ERP is the acronym of Enterprise Resource
Planning. ERP utilizes ERP software
applications to improve the performance of
organizations' resource planning,
management control and operational control.
ERP software is multi-module application
software that integrates activities across
functional departments, from product
planning, parts purchasing, inventory control,
product distribution, to order tracking. ERP
software may include application modules for
the finance, accounting and human resources
aspects of a business.
ERP vs. CRM and SCM
CRM (Customer Relationship Management)
and SCM (Supply Chain Management) are
two other categories of enterprise software
that are widely implemented in corporations
and non-profit organizations. While the

primary goal of ERP is to improve and

streamline internal business processes, CRM
attempts to enhance the relationship with
customers and SCM aims to facilitate the
collaboration between the organization, its
suppliers, the manufacturers, the distributors
and the partners.
ERP Definition - A Systems Perspective
ERP, often like other IT and business
concepts, are defined in many different ways.
A sound definition should several purposes:
1. It answers the question of "what
is ... ?".
2. It provides a base for defining more
detailed concepts in the field - ERP
software, ERP systems, ERP
implementation etc.
3. It provides a common ground for
comparison with related concepts CRM, SCM etc.
4. It helps answer the basic questions in
the field - benefits of ERP, the causes
of ERP failure etc.
A definition of ERP based on Systems
Theory can server those purposes.
ERP is a system which has its goal,
components, and boundary.
The Goal of an ERP System - The goal of
ERP is to improve and streamline internal
business processes, which typically requires
reengineering of current business processes.
The Components of an ERP System - The
components of an ERP system are the
common components of a Management
Information System (MIS).

ERP Software - Module based ERP

software is the core of an ERP system.
Each software module automates
business activities of a functional area
within an organization. Common ERP
software modules include product
planning, parts purchasing, inventory
control, product distribution, order
tracking, finance, accounting and
human resources aspects of an
organization.

Business Processes - Business

processes within an organization falls
into three levels - strategic planning,
management control and operational
control. ERP has been promoted as
solutions for supporting or
streamlining business processes at all
levels. Much of ERP success,
however, has been limited to the
integration of various functional
departments.

ERP Users - The users of ERP

systems are employees of the
organization at all levels, from
workers, supervisors, mid-level
managers to executives.

Hardware and Operating Systems Many large ERP systems are UNIX
based. Windows NT and Linux are
other popular operating systems to
run ERP software. Legacy ERP
systems may use other operating
systems.

The Boundary of an ERP System - The

boundary of an ERP system is usually small
than the boundary of the organization that
implements the ERP system. In contrast, the
boundary of supply chain systems and
ecommerce systems extends to the
organization's suppliers, distributors, partners

and customers. In practice, however, many

ERP implementations involve the integration
of ERP with external information systems.

History and Evolution of ERP

ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements Planning

(MRP) II. From business perspective, ERP has expanded from coordination of manufacturing
processes to the integration of enterprise-wide backend processes. From technological aspect,
ERP has evolved from legacy implementation to more flexible tiered client-server architecture.
The following table summarizes the evolution of ERP from 1960s to 1990s.
Timeline
System
1960s
Inventory
Management &
Control

1970s

1980s

1990s

Description
Inventory Management and control is the combination of
information technology and business processes of maintaining
the appropriate level of stock in a warehouse. The activities of
inventory management include identifying inventory
requirements, setting targets, providing replenishment
techniques and options, monitoring item usages, reconciling
the inventory balances, and reporting inventory status.
Material
Materials Requirement Planning (MRP) utilizes software
Requirement
applications for scheduling production processes. MRP
Planning (MRP)
generates schedules for the operations and raw material
purchases based on the production requirements of finished
goods, the structure of the production system, the current
inventories levels and the lot sizing procedure for each
operation.
Manufacturing
Manufacturing Requirements Planning or MRP utilizes
Requirements
software applications for coordinating manufacturing
Planning (MRP II) processes, from product planning, parts purchasing, inventory
control to product distribution.
Enterprise Resource Enterprise Resource Planning or ERP uses multi-module
Planning (ERP)
application software for improving the performance of the
internal business processes. ERP systems often integrates
business activities across functional departments, from product
planning, parts purchasing, inventory control, product
distribution, fulfillment, to order tracking. ERP software
systems may include application modules for supporting

marketing, finance, accounting and human resources.

ERP Systems - ERP Software, Business Processes, Users and

Hardware

ERP Systems - ERP Software, Business Processes, Users and Hardware From a systems
perspective, the components of an ERP system are the common components of Management
Information Systems (MIS) - software, business processes, users and hardware. AN ERP system
is more than sum of its parts or components. Those components interact together to achieve a
common goal - streamline and improve organizations' business processes.
ERP Software
ERP software applications are module-based. Each software module automates business
processes within a functional department. ERP applications can be implemented and deployed
module-by-module. Major ERP software modules cover the major functional areas of
organizations. Common ERP modules include product planning module, parts and material
purchasing module, inventory control module, product distribution module, order tracking
module, finance module, accounting module, marketing module, and HR module. Organizations
often selectively implement the ERP modules that match their business needs.
Reengineering of Business Processes
Anthony, R. A classifies organizational processes into three levels - strategic planning,
management control and operational control. The driving force behind the acceptance of ERP
was to streamline and automate enterprise-wide resource planning at strategic planning level. In
reality, much of ERP success has been in facilitating operational coordination across
departments. The success of ERP at strategic planning, management control calls for the
integration of ERP with other enterprise applications and demand long term management
commitment.
ERP Users
Following Anthony, R. A's classification of organizational processes, workers can be classified
into 1) those who execute strategic planning, 2) those who perform managerial control, and 3)
those who do operational control. Even though ERP applications have been mostly beneficial to
the operational control, the users of a ERP system include workers from all levels of an
organization.

Operating Systems for ERP

ERP software runs on various operating systems and hardware, from UNIX, Linux, Windows to
mainframe. Since one organization may acquire ERP and other enterprise software from many
different vendors, the requirements for running ERP applications are common - security, stability,
scalability and open standards.

Functional Modules of ERP Software

ERP software is made up of many software modules. Each ERP software module mimics a major
functional area of an organization. Common ERP modules include modules for product planning,
parts and material purchasing, inventory control, product distribution, order tracking, finance,
accounting, marketing, and HR. Organizations often selectively implement the ERP modules that
are both economically and technically feasible.
ERP Production Planning Module
In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while
vendors have developed more robust software for production planning, consulting firms have
accumulated vast knowledge of implementing production planning module. Production planning
optimizes the utilization of manufacturing capacity, parts, components and material resources
using historical production data and sales forecasting.
ERP Purchasing Module
Purchase module streamline procurement of required raw materials. It automates the processes of
identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and
billing processes. Purchase module is tightly integrated with the inventory control and
production planning modules. Purchasing module is often integrated with supply chain
management software.
ERP Inventory Control Module
Inventory module facilitates processes of maintaining the appropriate level of stock in a
warehouse. The activities of inventory control involves in identifying inventory requirements,
setting targets, providing replenishment techniques and options, monitoring item usages,
reconciling the inventory balances, and reporting inventory status. Integration of inventory
control module with sales, purchase, finance modules allows ERP systems to generate vigilant
executive level reports.

ERP Sales Module

Revenues from sales are live blood for commercial organizations. Sales module implements
functions of order placement, order scheduling, shipping and invoicing. Sales module is closely
integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as
part of the sales module.
ERP Market in Module
ERP marketing module supports lead generation, direct mailing campaign and more.
ERP Financial Module
Both for-profit organizations and non-profit organizations benefit from the implementation of
ERP financial module. The financial module is the core of many ERP software systems. It can
gather financial data from various functional departments, and generates valuable financial
reports such balance sheet, general ledger, trail balance, and quarterly financial statements.
ERP HR Module
HR (Human Resources) is another widely implemented ERP module. HR module streamlines the
management of human resources and human capitals. HR modules routinely maintain a complete
employee database including contact information, salary details, attendance, performance
evaluation and promotion of all employees. Advanced HR module is integrated with knowledge
management systems to optimally utilize the expertise of all employees.

ERP Benefits - Operational Control, Management Control and

Strategic Planning

According to Anthony, R. A, organizational processes fall into three levels - strategic planning,
management control and operational control. Even though much of ERP success has been in
facilitating operational coordination across functional departments, successful implementation of
ERP systems benefit strategic planning and manegment control one way or other.
Help reduce operating costs
ERP software attempts to integrate business processes across departments onto a single
enterprise-wide information system. The major benefits of ERP are improved coordination across
functinal departments and increased efficiencies of doing business. The immediate benefit from

implementing ERP systems we can expect is reduced operating costs, such as lower inventory
control cost, lower production costs, lower marketing costs and lower help desk support costs.
Facilitate Day-to-Day Management
The other benefits from implementing ERP systems is facilitation of day-to-day management .
The implementations of ERP systems nurture the establishment of backbone data warehouses.
ERP systems offer better accessibility to data so that management can have up-to-the-minute
access to information for decision making and managerial control. ERP software helps track
actual costs of activities and perform activity based costing.
Support Strategic Planning
Strategic Planning is "a deliberate set of steps that assess needs and resources; define a target
audience and a set of goals and objectives; plan and design coordinated strategies with evidence
of success; logically connect these strategies to needs, assets, and desired outcomes; and measure
and evaluate the process and outcomes." (source) Part of ERP software systems is designed to
support resource planning portion of strategic planning. In reality, resource planning has been the
weakest link in ERP practice due to the complexity of strategic planning and lack of adequate
integration with Decision Support Systems (DSS).

ERP Implementation Methodologies

Different companies may install the same ERP software in totally different processes. The same
company may implement different ERP software in the same approach. There are three
commonly used methodologies for implementing ERP systems.
The Big Bang
Companies layout a grand plan for their ERP implementation. The installation of ERP systems of
all modules happens across the entire organization at once. The big bang approach promised to
reduce the integration cost in the condition of thorough and careful execution. This method
dominated early ERP implementations, it partially contributed the higher rate of failure in ERP
implementation. Today, not many companies dare to attempt it anymore. The premise of this
implementation method is treating ERP implementation as the implementation of a large-scale
information system, which typically follows SDLC (Systems Development Life Cycle). But an
ERP system is much more than a traditional information system in the fact that the
implementation of ERP continuously calls for the realignment of business processes. Many
parties involved in ERP software systems are not IT professionals. ERP more than automates
existing business processes. ERP transforms the business processes.
Modular Implementation

The method of modular implementation goes after one ERP module at a time. This limits the
scope of implementation usually to one functional department. This approach suits companies
that do not share many common processes across departments or business units. Independent
modules of ERP systems are installed in each unit, while integration of ERP modules is taken
place at the later stage of the project. This has been the most commonly used methodology of
ERP implementation. Each business unit may have their own "instances" of ERP and databases.
Modular implementation reduces the risk of installation, customization and operation of ERP
systems by reducing the scope of the implementation. The successful implementation of one
module can benefit the overall success of an ERP project.
Process-Oriented Implementation
The process-oriented implementation focuses on the support of one or a few critical business
processes which involves a few business units. The initial customization of the ERP system is
limited to functionality closely related to the intended business processes. The process-oriented
implementation may eventually grow into a full-blown implementation of the ERP system. This
approach is utilized by many small to mid-sized companies which tend to have less complex
internal business processes.

Critical Successful Factors of ERP Implementation

Implementation of an ERP system is a major investment and commitment for any organizations.
The size and complexity of the ERP projects are the major factors that impact the cost of ERP
implementations. Different companies may implement the same ERP software in totally different
approaches and the same company may integrate different ERP software applications by
following the same procedures. However, there are factors common to the success of ERP
implementation regardless the ERP systems they implement and the methodologies they use.
Project Planning
ERP implementation starts with project planning - setting project goals, identifying high level
business requirements, establishing project teams and estimating the project costs. The project
planning offers the opportunity to re-evaluate the project at great details. If the ERP project is not
justified at the planning phase, organizations shouldn't hesitate to cancel the project. For every
successful ERP projects, there're projects that are canceled before implementation.
Architectural Design
While high level architectural decision is made in the process of ERP vendor selection, it
remains a critical successful factor in integrating ERP with other e-business applications,
ecommerce applications or legacy systems. Choice of middleware, interface software or
programming languages drastically impact the implementation cost and release date.

Data Requirements
Unlike in-house e-business applications, much of the packaged ERP implementation involves the
integration of ERP systems with existing e-business software (CRM, SCM and SFA) and legacy
information systems. Appropriate level of data requirements is critical for an ERP to interact with
other applications. Data requirements usually reflect details of business requirements. It costs ten
times to correct a mistake at later phase of ERP implementation than the effort to correctly define
requirements at analysis and design phase.
Phased Approach
It is important to break an ERP project down to manageable pieces by setting up pilot programs
and short-term milestones. Dependent on the IT experience, some organizations choose the
easiest piece as the pilot project, while others may implement a mission-critical application first.
The pilot project can both demonstrate the benefits of ERP and help gain hands-on ERP
implementation experience.
Data Conversion
Second generation ERP systems use relational database management systems (RDBMS) to store
enterprise data. If a large amount of data are stored in other database systems or in different data
formats, data conversion is a daunting tasks which is often underestimated in ERP
implementations. A two-hour data conversion task could be turned into to a two-month efforts as
the result of DBA group's lack of technical experience and management's incompetency or
ignorance.
Organization Commitments
The involvement of ERP implementation goes far beyond IT department to many other
functional departments. The commitment and smooth coordination from all parties is the key to
the success of ERP project. The commitments come from the understanding of how ERP can
benefit each functional department. For example, if the warehouse staff isn't completely sold on
the inventory control module's benefits, they may not input the kind of usage data that is
essential to the project's success

ERP Integration - The Challenge for ERP Implementation

The benefits of an ERP application is limited unless it is seamlessly integrated with other
information systems. Organizations face many challenges in ERP integration - the challenges of
integrating various functional ERP modules, 2) the challenge of integration with other e-business
software applications, and 3) the challenge of integration with legacy systems.

The success of ERP implementation is the success of ERP integration.

Integration of ERP Modules
Packaged ERP software consists of many functional modules (production planning, inventory
control, financial and HR). Organizations tend to install modules from the same ERP vendors in
the initial ERP implementation. Not all companies will purchase all ERP modules from a single
ERP vendor (SAP, Oracle, PeopleSoft etc.). The implementation of ERP systems could last many
years. The integration of ERP modules could be either the integration of modules from different
vendors, or the different versions of the modules from the same vendor.
Integration of E-Business Applications
E-business practice is the combination of strategies, technologies and processes to electronically
coordinate both internal and external business processes, and manage enterprise-wide resources.
E-business software systems generally fall into four categories: Enterprise Resource Planning
(ERP), Customer Relationship Management (CRM), Supply Chain Management (SCM) and
Knowledge Management (KM). To get the most out of ERP systems, ERP should be tightly
integrated with other e-business software - Supply Chain systems, CRM, knowledge
management, B2B exchange and ecommerce storefront on the Internet.
Integration with Legacy Systems
Over the years, legacy systems have accumulated vast amount of data vital to the survival,
operations, and expansion of corporations and non-profit organizations. Integration of ERP
systems with legacy systems is more complex than the integration of ERP modules and
Integration of e-business Applications. It routinely requires the installation of third-party
interface software for the communication between ERP software systems and legacy systems.
Second generation ERP systems use relational database management systems (RDBMS) to store
enterprise data. Data conversion from legacy systems to RDBMS is a often a time-consuming
and tedious process. While most interface software provides API for ERP to access legacy
systems, some vendors offer integration module that automates or accelerates the transformation
of legacy application logic and data into reusable components with XML, SOAP, J2EE and .NET
interfaces.

Manufacturing ERP - Features, Vendors and Implementation

Features of Manufacturing ERP Software

ERP is the evolution of manufacturing requirements planning (MRP) II. The design and
implementation of manufacturing ERP software are maturer than ERP software for other
industries. Manufacturing ERP software has built-in workflow processes that tailored specifically
for manufacturers to manage the entire order life cycle: from row material procurement,

production planning, manufacturing, marketing, sales, service to financial reconciliation. Realtime and paperless manufacturing processes are reality in a few well-established manufacturers.
Enterprise can maximize utilization of resources, and minimize the total costs by streamlining
and optimizing the order cycle and manufacturing processes.
Vendors of Manufacturing ERP Software
Manufacturing ERP captures a large percentage of ERP marketplace. All Major ERP vendors
(SAP, Oracle, Microsoft and PeopleSoft) offer ERP solutions for manufacturing industry by
expanding production planning and inventory control modules of their ERP software systems.
Small vendors targeting manufacturing niche market, such as Epic or, ShopTech and Encompix,
offer Manufacturing ERP Software for Make-to-Order and Mixed-Mode Manufacturing
companies. Their out-of-the-box solutions support built-in workflow processes that enable
manufacturers to manage the entire order cycle and manufacturing cycle. Large organizations
prefer ERP from major ERP vendors and invest significantly in customization. Small to mediumsized manufacturing companies can benefit from niche vendors for competitive pricing and
special features if the products from niche vendors meet their needs.
Implementation of Manufacturing ERP Software
Many ERP vendors and ERP consulting firms have accumulated vast knowledge of
implementing manufacturing ERP software. Implementation of manufacturing ERP system
involves less customization as the packaged software is designed for the particular industry.
Manufacturing workflow has been built into the software systems. The chance of successful
implementation in manufacturing industry is higher than in other industries. The integration with
legacy applications remains a challenge for both vendors and buyers of manufacturing ERP
software.