Introduction to ERP Systems

Introduction to Enterprise Resource Planning Systems

• Enterprise Resource Planning (ERP) is a system used by companies to integrate core business operations.
• Early information systems were narrowly focused, with duplicated data across departments and little sharing.
• Mid-to-late 1990s saw many large companies implementing ERP systems to integrate data and replace legacy systems.
• The introduction of PCs led to narrowly focused information systems.
• Duplicate data across the enterprise was not shared between departments.

What is ERP?

• ERP is a platform that combines core business operations needed to run a company.
• ERP systems integrate different business functions, like finance, supply chain management, human resources, and more.
• ERP is a platform for companies to combine all core business operations.

Core Business Operations

• ERP systems cover important areas like finance, human resources, manufacturing, supply chain, procurement, and services.
• Core business operations include: finance, human resource, manufacturing, supply chain, procurement, and services.

ERP Role

• ERP manages business operations in an integrated system.
• ERP provides a transparent view of business processes, including aspects like production, logistics, and financials.
• ERP offers customization options specific to industries.
• Without ERP, each department would have its own, optimized systems.
• ERP helps manage all these operations effectively in an integrated system.

How ERP Works

• ERP systems are built with integrated modules and applications.
• These modules share a common database and data.
• Each module focuses on one business area but works with others.
• Data is collected on a central server and is easily accessible to authorized users.
• Data visualization tools like graphs and charts are used to generate reports for analysis and decision-making.
• ERP modules communicate with each other and share a common database.

Legacy Systems

• Legacy systems can still work adequately, but the high cost of redesign or replacement, lack of knowledge, and the requirement for continuous availability are reasons to keep them.
• Examples include customer account systems in banks, computer reservation systems, air traffic control, energy distribution (power grids), and nuclear power plants.
• The system works fine and the company sees no reason for changing it.
• Costs of redesigning or replacing complex systems are prohibitive.
• Retraining may be a costlier alternative to replacing the system.
• Existing systems demand near-constant availability.

What is ERP - Definition

• ERP is an integrated suite of IT applications.
• The focus of ERP applications is on processes.
• ERP systems are built upon relational databases, providing a single, authoritative source of truth.
• ERP systems are usually sold as a set of modules.
• Companies can choose which modules they want and add more.
• ERP serves many functions and is process-centered around organized processes.

ERP-Supported Business Processes

• ERP systems support business activities like planning, selling, performing orders, managing materials & services, manufacturing products, logistics, and customer support.
• ERP-supported business process examples: plan market and sell, perform order management, procure materials and services, plan and manufacture products, manage logistics, and customer support and provide.

Typical Modules

• ERP systems contain various modules for different business functions.
• Some key examples include engineering, capacity management, inventory management, product configuration, quality control, general ledger, accounts receivable, project costing, activity management, human resources, human resources (core), payroll, training, time and attendance, benefits, recruitment, and more.
• Other modules handle customer interactions, sales, marketing, and customer contact.
• Modules like bills of material, process manufacturing, order entry, supply chain planning, and demand management are included.
• Financial modules include cash management and accounts payable, along with general ledger controls like fixed assets.
• Projects modules like project billing, controlling, project costings etc.
• Human resource modules, activity management, human resources, training, time and expense tracking.

Who Uses/Needs to Know About ERP?

• End users (staff in different departments)
• Internal/external auditors
• Consultants for implementation and maintenance
• Developers to customize the system.
• End users in manufacturing, sales, accounting/finance, human resources.
• Internal/external auditors for system security and duty segregation verification.
• Consultants for implementation/maintenance support.
• Developers for system customization.

ERP Value - Integration

• ERP supports complete organization integration with one data entry point and shared data.
• The system acts as an authoritative data source.
• Reduces data reconciliation needs and associated delays.
• Improves efficiency of disjointed processes.

Before and After ERP

• Before ERP, systems in different departments were often disconnected.
• After implementing ERP, applications become integrated, and data flows smoothly between departments through a common database and infrastructure.
• ERP integrates disparate systems for better data flow.

ERP Diffuses Best Practices

• ERP systems are based on best practices, allowing companies to access and implement established industry standards.
• Best practices are continuously added and integrated into new software versions.
• This creates a cycle of improvement by implementing best practice solutions in all new releases.
• ERP adapts best practices and continually introduces new versions with improved standards.

ERP Facilitated Client Server Computing

• Client-server computing became a more advantageous solution over the mainframe, with significant benefits for ERP's adoption.
• Client-server architecture allowed a program to ask another for service (request/response).
• ERP became a dominant/initial corporate application utilizing client-server technologies.

Technical ERP System Benefits

• Integrated processes & information systems
• More effective & efficient business processes.
• Enables organizational standardization.
• Eliminates information asymmetries.
• Provides on-line and real-time information.
• Facilitates communication and collaboration within & outside the organization.
• Reduces the complexity of application portfolios.

ERP System Benefits

• Consolidated financial information
• Standardized manufacturing processes.
• Reduced inventory and improved visibility into inventory.
• Standardized information for departments like HR and customer data.
• One view of the customer
• Integrate financials
• Standardize manufacturing processes
• Reduce inventory/better visibility into inventory
• Standardise information like HR and Customer data

ERP System Disadvantages

• Standardization can be a disadvantage, equalizing companies' competitive standings.
• Employee or user resistance to change is a common concern.
• Complexity of implementations.
• Hardware and software maintenance and costs.
• Implementation timelines and associated expenses.
• Standardized way of conducting business can be a disadvantage.

Implementation Issues

• Employee resistance to changes (e.g., new processes, workarounds)
• Lack of employee training to understand new processes and the system.
• Complex technical issues, modifications needed
• Need for change management to address employee concerns.
• Resistance by employees to the change or process, needing workarounds.
• Inability to understand how the system to be implemented, causing problems.
• Need for customization/configuration in some cases, needing external consultants.

ERP Evolution

• ERP roots are in Manufacturing Requirements Planning (MRP) and Manufacturing Resource Planning (MRP II).
• Y2K led to the adoption of new systems.
• Software as a service (SaaS) has become a popular approach.
• Open-source solutions continue to evolve.
• ERP evolved from simple manufacturing planning to a complete enterprise resource management system.
• Y2K crisis spurred the adoption of new, improved, and more reliable ERP systems.
• SaaS and multi-tenancy became popular ways businesses use ERP.
• Open source solutions continue to evolve, aiming to address issues in traditional ERP platforms.

ERP Market Analysis

• Significant, expanding industry, projected to grow significantly.
• Growth factors (e.g., globalization, centralization, competition)
• Best practices methodology is a key aspect.
• The ERP market is a billion-dollar industry, experiencing growth, especially via globalization, centralization, and competitive forces.

ERP Tiers

• Tier 1 vendors (e.g., SAP, Oracle) serve large, multi-national corporations.
• Tier 2 vendors (e.g., QAD) serve medium-sized companies.
• Tier 3 vendors (e.g., Microsoft Dynamics) target smaller corporations.
• Tier 4 vendors (e.g., QuickBooks) serve very small companies.
• Tier 2 Vendors: Medium sized companies, few sites, 100-999 employees.
• Tier 3 Vendors: Small, single-site companies, less than $40 million sales, less than 100 employees.
• Tier 4 Vendors: Small companies managing with basic accounting software.

An Enterprise System - Reality

• ERP implementations are usually part of a more complex environment.
• Often integrated with bolt-on applications, legacy systems, enterprise application integration (EAI) solutions, external business partners, and other technologies.
• ERP is often just one part of a complex system, including bolt-ons, legacy applications, and enterprise application integration (EAI) solutions.
• ERP usually involves connections to external business partners.

This quiz covers the fundamental concepts of Enterprise Resource Planning (ERP) systems, including their role in integrating core business operations. Learn how ERP systems evolved to replace legacy systems and how they manage functions such as finance and supply chain management.