ERP Buyers Guide Introduction

Sales of ERP systems grew significantly in the mid-1990s as manufacturers replaced their legacy systems.

Enterprise resource planning (ERP) is an integrated computer-based system used to manage internal and external resources, including tangible assets, financial resources, materials, and human resources.

The purpose of ERP is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connection to the supply chain. Built on a centralized database and normally using a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise-wide system environment..1

The term “Enterprise Resource Planning” was first employed by the research and analysis firm Gartner Group in 1990 as an extension of MRP (Material Requirements Planning 2; later, Manufacturing Resource Planning 3) and CIM (Computer Integrated Manufacturing). While not supplanting these terms, it has come to represent a larger whole.

Problems with ERP systems are mainly due to inadequate investment in ongoing training for the involved IT personnel, including those implementing and testing changes, as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and the ways in which it
is used. However, the advantages of ERP systems generally outweigh these concerns. In the
absence of an ERP system, a large manufacturer may find itself with many software applications that cannot communicate or interface effectively with one another.

ERP systems also centralize data in one place. Benefits of this include:

  • Eliminating the problem of synchronizing changes between multiple systems; consolidating finance, marketing and sales, human resources, and manufacturing applications
  • Permitting control of business processes that cross functional boundaries
  • Providing a top-down view of the enterprise (no “islands of information”); real-time information is available to management anywhere, anytime, to make proper decisions
  • Reducing the risk of loss of sensitive data by consolidating multiple permissions and security models into a single structure
  • Cutting production lead time and delivery time
  • Facilitating business learning, empowerment, and common vision building

An ERP system can either reside on a centralized server or be distributed across modular hardware and software units that provide “services” and communicate on a local area network. The distributed design allows a business to assemble modules from different vendors without the need for the placement of multiple copies of complex and expensive computer systems in areas that will not use their full capacity.4

Normally, ERP software is bundled with the following basic functional modules:

  • Production Planning
  • Purchasing
  • Inventory
  • Sales and Marketing
  • Accounting and Finance
  • Human Resources

Sales of ERP systems grew significantly in the mid-1990s as companies faced the infamous Y2K problem in their legacy systems. Many manufacturers took this opportunity to replace legacy systems with ERP systems. In the early 2000s, the term “ERPII” was coined to describe the next generation of ERP software. This new generation of software is Web-based and allows employees, suppliers, and customers real-time access to the system’s data. The implementation of an ERP system is a mission-critical, strategic investment for most manufacturers. Buying the right system and choosing the best vendor partner is critical for success.


FOOTNOTES

1. Bidgoli, Hossein (2004). The Internet Encyclopedia, Volume 1. John Wiley and Sons, Inc., p. 707. 2. Wylie, L. (April 12, 1990). “A Vision of Next Generation MRP II,” Scenario S-300-339. Gartner Group. 3. ERP.com 4. Khosrow-Puor, Mehdi (2006). Emerging Trends and Challenges in Information Technology Management. Idea Group, Inc., p. 865.