Enterprise resource planning (ERP) is a category of business-management software—typically a suite of integrated applications—that an organization can use to collect, store, manage and interpret data from many business activities, including:
product planning, purchase
manufacturing or service delivery
marketing and sales
shipping and payment
ERP provides an integrated view of core business processes, often in real-time, using common databases maintained by a database management system. ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP facilitates information flow between all business functions, and manages connections to outside stakeholders.
Enterprise system software is a multibillion-dollar industry that produces components that support a variety of business functions. IT investments have become the largest category of capital expenditure in United States-based businesses over the past[which?] decade. Though early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP systems. The ERP system is considered a vital organizational tool[by whom?] because it integrates varied organizational systems and facilitates error-free transactions and production. However, developing an ERP system differs from traditional system development. ERP systems run on a variety of computer hardware and network configurations, typically using a database as an information repository.
ERP systems initially focused on automating back office functions that did not directly affect customers and the public. Front office functions, such as customer relationship management (CRM), dealt directly with customers, or e-business systems such as e-commerce, e-government, e-telecom, and e-finance—or supplier relationship management (SRM) became integrated later, when the Internet simplified communicating with external parties.
"ERP II" was coined in 2000 in an article by Gartner Publications entitled ERP Is Dead—Long Live ERP II. It describes web–based software that provides real–time access to ERP systems to employees and partners (such as suppliers and customers). The ERP II role expands traditional ERP resource optimization and transaction processing. Rather than just manage buying, selling, etc.—ERP II leverages information in the resources under its management to help the enterprise collaborate with other enterprises. ERP II is more flexible than the first generation ERP. Rather than confine ERP system capabilities within the organization, it goes beyond the corporate walls to interact with other systems. Enterprise application suite is an alternate name for such systems.
Developers now make more effort to integrate mobile devices with the ERP system. ERP vendors are extending ERP to these devices, along with other business applications. Technical stakes of modern ERP concern integration—hardware, applications, networking, supply chains. ERP now covers more functions and roles—including decision making, stakeholders' relationships, standardization, transparency, globalization, etc.
ERP's scope usually implies significant changes to staff work processes and practices. Generally, three types of services are available to help implement such changes—consulting, customization, and support. Implementation time depends on business size, number of modules, customization, the scope of process changes, and the readiness of the customer to take ownership for the project. Modular ERP systems can be implemented in stages. The typical project for a large enterprise takes about 14 months and requires around 150 consultants. Small projects can require months; multinational and other large implementations can take years. Customization can substantially increase implementation times.
Besides that, information processing influences various business functions e.g. some large corporations like Wal-Mart use a just in time inventory system. This reduces inventory storage and increases delivery efficiency, and requires up-to-date data. Before 2014, Walmart used a system called Inforem developed by IBM to manage replenishment
Configuring an ERP system is largely a matter of balancing the way the organization wants the system to work with the way it was designed to work. ERP systems typically include many settings that modify system operations. For example, an organization can select the type of inventory accounting—FIFO or LIFO—to use; whether to recognize revenue by geographical unit, product line, or distribution channel; and whether to pay for shipping costs on customer returns.
The fundamental advantage of ERP is that integrated myriad business processes saves time and expense. Management can make decisions faster and with fewer errors. Data becomes visible across the organization. Tasks that benefit from this integration include:
Sales forecasting, which allows inventory optimization.
Chronological history of every transaction through relevant data compilation in every area of operation.
Order tracking, from acceptance through fulfillment
Revenue tracking, from invoice through cash receipt
Matching purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced)
ERP systems centralize business data, which:
Eliminates the need to synchronize changes between multiple systems—consolidation of finance, marketing, sales, human resource, and manufacturing applications
Brings legitimacy and transparency to each bit of statistical data
Facilitates standard product naming/coding
Provides a comprehensive enterprise view (no "islands of information"), making real–time information available to management anywhere, any time to make proper decisions
Protects sensitive data by consolidating multiple security systems into a single structure
ERP can improve quality and efficiency of the business. By keeping a company's internal business processes running smoothly, ERP can lead to better outputs that may benefit the company, such as in customer service and manufacturing.
ERP supports upper level management by providing information for decision making.
ERP creates a more agile company that adapts better to change. It also makes a company more flexible and less rigidly structured so organization components operate more cohesively, enhancing the business—internally and externally.
ERP can improve data security. A common control system, such as the kind offered by ERP systems, allows organizations the ability to more easily ensure key company data is not compromised.
ERP provides increased opportunities for collaboration. Data takes many forms in the modern enterprise. Documents, files, forms, audio and video, emails. Often, each data medium has its own mechanism for allowing collaboration. ERP provides a collaborative platform that lets employees spend more time collaborating on content rather than mastering the learning curve of communicating in various formats across distributed systems.
Customization can be problematic. Compared to the best-of-breed approach, ERP can be seen as meeting an organization’s lowest common denominator needs, forcing the organization to find workarounds to meet unique demands.
Re-engineering business processes to fit the ERP system may damage competitiveness or divert focus from other critical activities.
ERP can cost more than less integrated or less comprehensive solutions.
High ERP switching costs can increase the ERP vendor's negotiating power, which can increase support, maintenance, and upgrade expenses.
Overcoming resistance to sharing sensitive information between departments can divert management attention.
Integration of truly independent businesses can create unnecessary dependencies.
Extensive training requirements take resources from daily operations.
Harmonization of ERP systems can be a mammoth task (especially for big companies) and requires a lot of time, planning, and money.
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