An introduction to Enterprise
Resources Planning system
Imagine
you are working at a manufacturing company. You receive an order from a customer
and need to ship the products in a week. But then you find out your factory is
in lack of raw materials for production. You go to your desktop, call the
vendor, and pray that materials will arrive as soon as possible. When they
arrive in two days, you arrange workers to work on production immediately.
After another two days, you call shipping company to transport final goods to
client’s office. When the goods finally reach to the customer, he asks you why
there is a short in quantity. There are also some goods broken due to
transportation issue. He informs you that he is going to pay less than the deal
price and you don’t have any evidence or proof to argue against.
How
does life like this sound to you? Rush and mess, right? What if something else
is going wrong at the same time? Will you just quit your job?
Large
firms don’t face problems like this nowadays. The emergence of information
systems greatly reduces workloads for employees. A type of information system
is especially popular – Enterprise Resources Planning system (ERP). It is a system
software designed to provide business process management. ERP is powerful in
its ways to help seek optimal business solutions and promotes efficiencies (Beal).
It can connect business functions such as sales and distribution, marketing,
procurement, and production together to make workflow smoother. Employees don’t
have to go through the painful process of manual operations. Executives and
managers can run their businesses more easily and earn their revenues more
peacefully.
Main Functions of ERP
ERP
has the basic data-processing and data-sorting functions like the other
information systems. It has three layers: presentation, application, and
database. The presentation layer is what we know as “user view”. Most people
use the user interface – a software application like Microsoft Words – to manipulate
inputs and outputs. The application layer enables experts to execute logistics
and customize functions – like the sorting function when you press “Ctrl” and
“F”. And the database layer contains all the data stored – like different font
styles existed in Words – which programmers can edit through coding (Venkata).
ERP
is unique in its core function of planning. It has a certain set of rules which
can help to define terms and calculate numbers. In the opening scenario, if the
company uses an ERP system, it won’t struggle against shortage of raw
materials. The software can automatically calculate the reorder point to which
raw materials need purchasing and goods need producing. This mechanism can prevent
a company’s stock level from dropping to zero. When inventory goes down to this
calculated amount, ERP will simultaneously send out requests for raw materials
to vendors. It makes easier for companies to plan ahead and leads to a
reduction in cycle time from order to delivery. It thus can maximize
organizations’ profits (Zhao). Besides production planning, companies also use
ERP systems in the following areas:
· Financial
Accounting
· Controlling
· Human Resources
· Materials
Management
· Sales and
Distributions
· Warehouse
Management
ERP
is very customizable. Experts can design special functions or modules in order
to meet different needs. For example, if one company has a special payroll
calculation method, it can hire experts to replace the default setting with new
method. In order to meet the best use of ERP, Chief Information Officers
normally request ERP upgrade projects every three to five years. After each
upgrade, ERP system will be better suited for specific industry or business
process. It also has evolved to the stage where system scanning and evaluation
are correlated. It means that the software can automatically detect errors and
evaluate the needs to upgrade into next generation (Mu).
Today’s ERP Market
Since
the first appearance of ERP system in the 1990s, the market has grown largely (Harreld).
There are three main providers right now:
- Oracle: This is probably the most well-known ERP developer in the world and the only one you heard of before. Oracle’s JD Edwards EnterpriseOne is an integrated suite of software that provides ultimate solutions for its owners. It is extremely useful for manufacturing companies with unique Manufacturing Management function. Oracle also invents its own database management program. Other providers even use the program which gives Oracle a huge advantage in pricing (SelectHub).
- Microsoft Dynamics: Yes, as the biggest software producers in the world, Microsoft also has its own version of ERP system. But Dynamics doesn’t dominate the market as its brother, Windows, does. The main reason is that it doesn’t support multiple companies easily. Firms with subsidiaries may find it difficult to use Dynamics. One advantage of Dynamics is its richness in end-to-end business process supports, such as governance, risk, and compliance; and supplier relationship management (SelectHub).
- SAP: SAP is a Germany ERP software company that grows the most rapidly in recent years. It develops software designed for large organizations as well as small and midsize companies. SAP ERP is very customizable. Companies can add or delete functions easily so that employees will not be confused by areas they are not familiar with. Because of its ease to use and low price, a lot of midsize firms begin to use SAP these days (SelectHub).
Benefits and Risks of
ERP
I
found ERP extremely useful in helping with making decisions. When I was using
SAP ERP for a case competition, I was surprised that it had strong analytic
tools. They allowed me to keep track of price fluctuations in the real market so
that I could change my production plans accordingly. They also generated
monthly or quarterly finance reports automatically. By reading those reports, I
was able to spread out budgets among marketing and research and development. Even
though I didn’t know much about management and strategy at that time, the
valuable financial insights and results I got from the system helped to make
the right move.
ERP
systems also help with learning process. When I started my internship, I was
helping clients with problems regarded to SAP ERP system. With limited
knowledge and bare training, I was still able to finish my tasks. Through
detecting system errors, I learned a lot about the system itself and the
organization it was serving. People using the system benefit as they soon become
experts in specific areas.
But
there are still some risks of using ERP. It normally takes three years and millions
of dollars to implement the system software. Not many corporations are able to
afford the costs and neither to see the direct benefits in short term.
According to a research conducted by Etezady, ERP adoption had little effect on
a company’s financial performance in a four-year period (Etezady). Also, a
user’s lack of familiarity with an ERP system can heavily limit the benefits he
or she receives (Jain). Since ERP system is so huge that it covers the whole
company, it usually causes some unexpected risks. One project I was dealing
with was that the client firm had too many anonymous users in its SAP system. The
firm lost track of who actually did the transactions. This risk could be very
serious as it could lead to a potential fraudulent action.
The Future of ERP
The
future of ERP is still bright. Due to its customizations, ERP system has huge
potentials. Employees save so much energy and work in different industries. A
recent news showed that Bihar, a state in East India, is trying to install
Prison ERP system in all jails since it is very helpful in facilitating central
monitoring of jails (PTI). In addition, ERP system is still evolving. Modern
versions are integrated with cutting-edge technologies, like Cloud technique.
Resources planning can be real-time now and managers can operate the system
online. The future is always unknown but I believe ERP can last long.
Works
Cited
Mu,
Enrique. "The Role of Scanning, Evaluation, and Mindfulness in the
Assimilation of Information Technology: The Case of Enterprise Resource
Planning (ERP) Systems." Order No. 3270101 University of Pittsburgh, 2007.
Ann Arbor: ProQuest. Web.
Jain,
Vikas. A framework for sustainable ERP value, The George Washington
University, Ann Arbor, 2008. ProQuest,
Web.
Zhao,
Fan. An Empirical Study of
Enterprise System Upgrades., 2007. ProQuest.
Web.
Etezady,
Nooredin. The impact of ERP investments on organizational performance,
Nova Southeastern University, Ann Arbor, 2008. ProQuest. Web.
Harreld,
Heather. Extended ERP technology reborn
in B2B. 2001. Web.
Enterprise
Resources Planning. SelectHub. Web.
Beal,
Vangie. ERP - enterprise resource planning. Webopedia. Web.
PTI.
Bihar to install hi-tech Prison ERP
system in all jails. The Indian Express. Web.
I think your article idea is great, and I really enjoyed how you start it with making the reader imagine they are in such position. To be honest with you (and I don't know if it's because English is my second language or because I really don't know anything about the subject) but it seemed like to much in the first paragraph. I got lost at times. But I would like to learn more.
ReplyDeleteI liked how you started with an example of what could go wrong without ERP because it gives me a sense of what ERP actually does. And I appreciate the simple definition at the end for those of us with no business knowledge whatsoever. I like the different sections because I think that will make is easy to follow. It is a little long at the beginning, and I think you could get the point across by shortening the story a little bit. But I like the shorter sentences and the idea of explaining a problem that relates to ERP. I also like the questions at the end, and the first two paragraphs make me want to read more!
ReplyDeleteYou clearly know what you are talking about and I am excited to learn more about ERP. I felt that your second paragraph was very strong and you were successful in explaining what it does and how it can help companies. But I felt very lost in the first paragraph. I liked how that tied into your idea of how doing business without ERP is complicated and confusing but I felt that you could have simplified your example and still made the same point. I am looking forward to hear more about how ERP helps companies!
ReplyDeleteI am excited to read more of your blog because I don't really know too much about ERP and your way of explaining is very helpful. I love that you started the paragraph discussing the things that can go wrong without ERP or how things would be if ERP wasn't there. However, I feel that you can combine some of your sentences in paragraph 1 to keep the reader reading. I say this because you mention many things in the paragraph and it can be too much and disengage the reader. Otherwise, I like your tone and the sections you have listed for the remainder of your blog. Hope this helps!
ReplyDelete