What is Enterprise Resource Planning (ERP)? Definition, Modules, Characteristics, Trends, Factors Affecting

What is Enterprise Resource Planning (ERP)?

Enterprise Resource Planning (ERP) is a class of business organization programming routinely a suite of facilitated applications that affiliation can use to assemble, store, direct and interpret data from various business works out.


ERP shows the core business processes as an integrated view with a common database managed by a computer program called Database Management System (DBMS).

The main objective of ERP is to maintain the stream of real-time data to help in decision-making. ERP helps and supports the analysts to manage and monitor Inventory, supply chain, Human Resources, finance, procurement, and project and product life cycle.

To understand the concept of ERP, let us first discuss the three terms enterprise, resource and planning separately.

What is Enterprise?

An enterprise is a system of people who work towards achieving common goals. Private organisations, businesses, educational and research institutions and government bodies are examples of enterprises. People, processes and resources are the common components of an enterprise.

What is Resource?

A resource can be defined as an asset that helps an enterprise in achieving pre-defined goals. Anything that adds value to a business is called a resource. Land, labour, machine, human resource, capital, etc. are some examples of resources.

What is Planning?

It refers to a process of looking into the future through an organised series of activities with an aim to attain the desired results. In other words, it is deciding in advance what is to be done next.

Thus, ERP can be defined as an information system that integrates all the resources of an organisation. The concept became prevalent in the 1990s when the need for managing all the resources of an enterprise emerged widely.

An ERP system provides complete, accurate and timely information on business processes, customers, sales, suppliers, employees, production, finance, etc. to the different departments of an organisation. This further facilitates independent decision-making across departments.

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Definition of Enterprise Resource Planning (ERP)

Defined as following as some of the Researchers and practitioners:

ERP frameworks as “configurable data frameworks bundles that synchronize data and data-based actions inside and diagonally over utilitarian zones in an organization.

Kumar et al.

ERP speaks to an ideal endeavor wide innovation framework and the fundamental engineering of an ERP framework expands on one application, one database and a brought together interface over the whole undertaking.

Al-Mashari and Zairi

An ERP framework is normally characterized as a bundled companies programming framework that encourages an enterprise to contract with the useful and successful use of resources (materials, HR, fund, and so forth).

By giving an aggregate coordinated answer for the relatives’ data handling demands, through a procedure arranged view steady over the organization

Nah et al

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ERP Modules

These are ERP Modules:

1. Material Management (MM)
2. Sales and Distribution (SD)
3. Production Planning (PP)
4. Plant Maintenance (Pm)
5. Controlling (CO)
6. Customer service (CS)
7. Quality Management (Qm)
8. Finance
9. Human Resource(HR)

Material Management (MM)

Integrates the functions which control the cycle of material flow starting from purchase to distribution of the final product with taking into account material planning and control from warehouses and shipping.

• Purchasing
  
• Inventory Management
  
• Warehouse Management
  
• Invoice Verification
  
• Information System
  
• Consumption-Based Planning
  
• Electronic Data Interchange
  
• Material Requirement Planning
  
• Material Ledger

Sales and Distribution (SD)

This module contains the business processes responsible for the sales and distribution of service or products and integrates them with their customers and business partners.

• Master Data
  
• Sales Support
  
• Shipping
  
• Transportation
  
• Billing
  
• Sales Information System
  
• Electronic Data Interchange
  
• Logistic Execution

Production Planning (PP)

This module supports the function that helps to achieve manufacturing output as per the planned sales at the same time meets with general business requirements i.e. profitability, decided in the business plan.

The main aim of this module is to satisfy customer demand by varying production rates with inventory management and maintaining a stable workforce.

• Sales and Operations Planning
  
• Capacity Requirement Planning
  
• Master Planning
  
• Assembly Sequence
  
• General Data
  
• Data Structure
  
• Kanban Jit
  
• Recording Plant Data
  
• Production Planning for Process Companies
  
• Manufacturing Orders
  
• Detailed Scheduling

Plant Maintenance (Pm)

This module supports the planning process and completion of plant maintenance in a way that it is least disruptive for manufacturing and sales requirement.

• Equipment and Technical Objectives
  
• Data System Plant Maintenance
  
• Anticipatory Maintenance
  
• Maintenance Plans
  
• Service Supervision
  
• Maintenance Order Administration

Controlling (CO)

This module generates reports on profit centres, profitability, cost centres and contribution margins to support the management.

• Cost Element Accounting
  
• Cost Centre Accounting
  
• In-House Orders
  
• Costing Based Activity
  
• Product Cost Monitoring
  
• Profitability Investigation

Customer service (CS)

Supports various types of interaction channels like internet, mobile etc. between in-house employees, field employees and customers.

• Service Processing
• Service Agreement

Quality Management (Qm)

Supports the quality inspection and tracking of lots while purchase or sales.

• Quality Planning
  
• Quality Review Processing
  
• Quality Control
  
• Test Apparatus Administration
  
• Quality Warnings
  
• Quality Documentations.

Finance

Provides automated outer coverage of general ledger, account receivable, amount to be paid, income statement and balance sheets of cash flow throughout the organization.

• Finance Accounting
  
• Treasury
  
• Enterprise Controlling
  
• Investment Management
  
• Special Purpose Ledger

Human Resource(HR)

It takes care of all the information regarding employees, Administration, and Operational data. It also supports planning and controlling personnel activities.

• Personnel Administration
  
• Aspirant Administration
  
• Profits
  
• Worker Administration
  
• Incentive Salaries
  
• Pay Roll
  
• Travel Management
  
• Time Management

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Characteristics of ERP

Following are characteristics of ERP:

1. Adaptability Flexibility
2. Openness Modularity
3. Integration
4. Completeness
5. Homogenization
6. Transversely (process-oriented view)
7. Best Practices
8. Real-time
9. Simulation

Adaptability Flexibility

ERP system is very flexible to adopt the various requirement of a particular organization and also it is easy to connect with other industrial software. It can be installed over several databases to run from various points in the organization. One of the leading software in ERP, SAP R/3 allows changes in software as per requirement.

Openness Modularity

ERP has an open connection with the interface with any functional module and also with CRM and SCM in the extended versions. It is easy to attach and detach the module as per requirement in ERP.

Integration

ERP is a transaction- processing system which interconnects the various functions, organization process and hierarchical levels to help the decision-making process which leads to creating goodwill for the organization.

Completeness

ERP has global functionality with its wide range of functions which is applied to various types of organizations in various countries with various languages.

Homogenization

ERP system provides unique data throughout the organization with uniformity in human-machine interfaces. As the data is unique and realtime it leads to better system administration.

Transversely (process-oriented view)

ERP system is mainly desired to achieve goals of business processes to create value and goodwill for the organization rather than authority flows.

Best Practices

ERP system represents an integration of best business practices that can be implemented globally and any up gradation in the process can be easily added in ERP which maintains the best practices in the organization and reduces operational costs.

Real-time

ERP system shows the real-time data changes directly into an online database. Data entered once from one place is available online for all users which helps in better decision making and analysis of the process.

Simulation

ERP allows conducting various simulation activities of the business process.

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Advantages of ERP

Successful implementation of ERP has the following advantages:

• Provides the complete visibility of the business process.
  
  
• Smooth transaction of data and information between different departments.
  
  
• Leads to the single and unified reporting system.
  
  
• No individual ERP software is required for all departments since single ERP covers all the departments.
  
  
• Extended ERP prompts business intelligence that can give general bits of knowledge to the business process.
  
  
• Web-based tracking and processing give e-commerce integration.
  
  
• Various models are available to satisfy various requirements globally.
  
  
• ERP is modular in practice so it is easy to attach and detach modules as and when to require.
  
  
• Facilitates the centralized storage of company data.
  
  
• Easy integration with other systems of the organization through Application Programming Interface (API).

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History of ERP

During the mid-1970s MRP turned into the basic idea of manufacturing administration in the organization. The mainstream concept during these periods was BOM which is a list of parts for managing the purchase order and this idea from order stock administration is unfurled to plant and staff planning and planning of circulation called MRP II amid the 1980s.


Later ideas of financial accounting, sales and distribution and Human resource management presented in this and identified as Enterprise Resource Planning (ERP), which is currently changed to broaden ERP.

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Evolution of ERP

1. Pre Material Requirement Planning (MRP) stage:
   
   Before the year of 1960s organizations, for the most part, depended on conventional methods for overseeing stock to guarantee leveled working of the associations. These hypotheses are famously acknowledged,
   
   “Classical Inventory Management or Scientific Inventory Control Methods”
   
   
   The arrangement of ERP has developed after the Material Planning System of the 1980s. There are different stages through which this development procedure has experienced. The different periods of improvement of asset arranging framework in connection to time and development of the idea of ERP.
   
   

2. MRP (Material Requirement Planning)

MRP was the key idea of production planning and control in the mid- 1970s and reflected as the principal step in the advancement of ERP. Get together processes including a huge number of parts, for example, a car makes prompted expansive stocks. The requirement to cut down the substantial stock levels related to these enterprises prompted the early MRP frameworks that arranged the request discharges.


Such arranged request discharges guaranteed appropriate time expressing and exact arranging of the sub-get together things, considering complex sub-gathering to get together connections described by the BOM.

Table depicts how ERP evolved over the years:

1960s	Inventory Control Package
1970s	Material Requirements Planning (MRP)
1980s	Manufacturing Resource Planning (MRP II)
1990s	Enterprise Resource Planning (ERP)
2000s	Extended and Updated ERP

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Myths of ERP

There are some myths associated with ERP as listed below:

• Job opportunities will be reduced with the use of ERP.
  
  
• Only top management is responsible for ERP.
  
  
• It is difficult to implement and maintain ERP.
  
  
• ERP is only for managers and decision-makers.
  
  
• Main purpose of ERP is to just impress the customer.
  
  
• ERP will take care of everything.
  
  
• ERP does not require any other expenses rather than implementation.
  
  
• Return of investment is instant with ERP.

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Benefits of ERP Software

Following are benefits of ERP software:

1. Scalability
2. Improved Detailing
3. Data Quality
4. Lower Cost of Operations
5. Better CRM
6. Business Analytics
7. Improved Data Access
8. Better Supply Chain
9. Regulatory Compliance
10. Reduced Complexity

Scalability

An ERP structure is effortlessly versatile. That gathers enhancing the framework as the business needs change is clear. This could mean a fundamental association of new procedures, divisions, and that is only a look at a bigger issue.

Improved Detailing

An extraordinary piece of the inefficiency in operational work starts from uncalled for reporting. With an ERP system, this believability is discarded as reporting takes after a modernized format structure, empowering distinctive workplaces to get to information reliably.

Data Quality

As separated and manual record-keeping or other normal frameworks, an ERP structure updates information quality by enhancing the covered procedures. Along these lines, better business choices can become.

Lower Cost of Operations

An ERP structure shows genuine upgrades in regulating assets, which wipes out suspensions and consequently decreases the cost of operations. For example, utilization of mobility licenses a steady collection of information, which is basic to chopping down expenses.

Better CRM

A prompt preferred standpoint of using a not too bad ERP structure is upgraded customer relations in view of better business shapes.

Business Analytics

Having astounding data empowers associations to use the vitality of sagacious examination mechanical assemblies to get in contact with better business decisions. All things considered, various extraordinary ERP structures have worked in examination value to allow more straightforward data examination.

Improved Data Access

Controlling data get to suitably is reliably a test in affiliations. With an ERP structure, this test is overpowered with the use of bleeding-edge customer organization and access control.

Better Supply Chain

Having the benRegulatory Complianceefit ERP system set up infers upgraded securing, stock, ask for deciding, et cetera., fundamentally improving the entire store system and making it more responsive.

Regulatory Compliance

Having the structure in charge infers affiliations can better fit in with bearings. Further, the most imperative and rehashing managerial essentials can be fused perfectly with the structure.

Reduced Complexity

Maybe the richest argument in the help of ERP systems is that they diminish the versatile nature of commerce and present a usefully made plan out of work forms. This impacts the whole HR for the cycle more capable.

There are numerous more advantages to an ERP framework. Obviously, a great ERP framework is fundamental in the cutting edge financial scenario.

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Futures of ERP Trends

• To examine the future patterns of ERP it is first critical to take a gander at the present province of the ERP Software industry. ERP programming is utilized for CRM (client relationship administration and SCM (store network administration).
  
  
  By and by ERP organizations are attempting to grow the limit of their item that is the reason a significant number of them are taking into account SMEs (little and medium ventures) rather than expansive associations.
  
  
• Internet and web-based business joined have both assumed a critical part in the development of. Organizations are attempting to consolidate their store network administration capacities with the web so providers can likewise have simple access to data from anyplace on the planet.
  
  
  ERP programming is incorporating the business forms inside an organization; merchants are attempting to combine the coordinated effort of providers, clients and representatives that work with them.
  
  
• Many ERP organizations have begun to concentrate on SME, they are giving tailor-made items and administrations vertically by decreasing the cost and multifaceted nature of usage. The advances proceed to change, and organizations must have the capacity to adjust to new advances on the off chance that they wish to stay aggressive.
  
  
  Because of inescapable steady progress in innovations it can be hard to judge which bearing certain fundamental business assets are going. Luckily, it is generally simple to extend and can be anticipated with some measure of lucidity.
  
  
• That’s on account of the essential precepts of ERP frameworks that are entrenched and just should be changed over to different sorts of gadgets to stay aware of advances in innovation.
  
  
  Truth be told, while the basic science behind ERP frameworks may be over the heads of the majority of the populace, the idea is generally straightforward – the more data that organizations have available to them, the more taught their choices, later on, will be. Here is a portion of the ways that information recording and forecast will enhance going ahead.

Factors Affecting ERP

Top management Commitment

The support and commitment of top management is consistently recognized as crucial in the implementation of ERP processes. Top management is accountable for formulating a vision and plan, as well as motivating users to accomplish objectives. Nah et al. (2001) state that top management is responsible for assigning appropriate resources, including human and financial resources, and communicating the business vision and the role of the ERP system to users.

According to Wu Wang (2006), top management support significantly decreases users’ resistance to ERP implementation. Al-Mashari et al. (2003) claim that top management is responsible for deciding on an ERP system and selecting the appropriate vendor, as well as anticipating feedback from end-users and IT professionals prior to implementation.

Additionally, top management’s constant monitoring of the implementation process and provision of necessary guidance to the ERP team are critical for successful implementation. Although top management responsibilities and duties may vary from project to project, their commitment and support remain constant, as emphasized by numerous researchers.

Users Satisfaction

(Wu-Wang, 2006) defines satisfaction as the overall feeling and attitude towards the various factors involved in the delivery of information, products, and services. The literature has examined user satisfaction in the context of ERP implementation success. The implementation of ERP, or any technology for that matter, is very difficult to achieve without the interest and positive attitude of users. The success of ERP implementation is centered on users, as noted by Satcioglu (2009).

Researchers, including (Wu-Wang, 2006, Bailey and Pearsons, 1983, Nah et al., 2003), have considered user satisfaction a major variable for evaluating ERP implementation. Several factors have been identified that can impact users’ satisfaction with the implementation process, including system understanding and training, involvement in the pre-implementation process, adaptability of the ERP product, interaction with the IT department, knowledge, and involvement.

These factors increase users’ satisfaction and acceptance level, thereby improving their perceived control through participation in the project implementation. Nah et al. (2003) have emphasized the importance of users’ training and education about the ERP, as this helps increase the success of ERP implementation.

Training

According to Khaled et al. (2008), training is crucial to modify behavior and enhance trainee knowledge and skills about the system, ensuring its successful implementation. Failure to provide adequate training has led to partial success or complete failure of many ERP projects.

ERP systems are complex and not straightforward to use or adapt, even for those with IT knowledge and skills. Therefore, providing training to all users is vital for successful implementation in any organization, as noted by Nah et al. (2001) and Wu Wang (2006).

A training plan should include training needs, users’ knowledge capacity, and their attitude toward technology acceptance. Involving ERP in the development and implementation processes can help identify their needs and lack of expertise, allowing effective training to be provided.

ERP vs CRM and ERP vs Scm

The three terms Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Supply Chain Management (SCM) are often perceived to be the same by most people. However, these three are different altogether. Let us now compare these three systems.

ERP vs CRM

ERP is a system that integrates all the business functions of an organisation, such as finance, inventory, operation, manufacturing and human resource, by providing easy access to accurate information. On the other hand, CRM is restricted to customer information and relationships. However, the role of CRM cannot be ignored in today’s stiff competition.

An ERP system may contain CRM as its part to serve a function of an organisation. However, CRM can be implemented and used as a separate module to handle customers’ segment. An ERP system attempts to improve the internal business processes of an organisation by improving efficiency, while CRM focuses on understanding customers’ needs and fulfilling them, thereby increasing customer satisfaction.

Therefore, the need for CRM is also recognised in today’s competitive business environment. Although the roles and areas of ERP and CRM are different, both move hand in hand to improve organisational efficiency.

ERP vs SCM

ERP is an integrated system that combines all the functions of an organisation through a common data platform, while SCM is restrained to the adequate supply of products so that they can be delivered to customers on time.

ERP helps an organisation’s employees at various levels in the hierarchy, such as workers, supervisors, mid-level managers and executives, by providing information for making decisions. On the other hand, SCM collaborates between various parties such as organisations, suppliers, manufacturers, partners, distributors and customers.

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ERP for Small Businesses

Earlier, ERP systems were mainly implemented by large or multinational organisations because of huge costs associated with them. However, a need for an integrated, automated and organised information system is also being realised by small organisations.

In today’s fast and competitive world, small businesses also want to keep pace with the growing industry. Although small organisations are not able to afford expensive ERP packages for their businesses, they want to capitalise on modern technologies.

Considering the needs of small businesses, many ERP vendors have come up with a toned-down version of ERP, which is specifically designed for the requirements of small businesses. ERP packages dsigned for small businesses are generally economical. However, they may not include features as in the ERP systems of large organisations.

An ERP system integrates all the essential functions of an organisation, whereas ERP for small businesses works typically as SaaS (Software as a Service).

The services provided by ERP packages designed for small businesses may not include features such as reporting, analysis, handling large data, etc. However, they are able to manage the basic functions of an organisation, including finance management, inventory management, etc.

ERP for small businesses has the following benefits:

• It is economical and thus, can be afforded by small businesses.
• It does not require a specially trained team for its management and use.
• It improves the productivity of an organisation.

There are a number of ERP solutions for small businesses, such as Tally, Suchan, Marg, Navision, eLite, Flexi ERP, iWeb, ERP Next, and cflow

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Integration of ERP and CRM Systems

While ERP and CRM systems do require the ability to communicate data, doing so through technical integration is preferable than having two sets of data that must be managed independently.

When trying an upsell or cross-sell campaign, a sales representative, for example, could want to know about a customer’s order history, credit status, or overdue payments. For example, the finance department could need access to the CRM system to compute sales commissions when processing payroll or calculating bulk buy discounts.

Business leaders that seek a centralised mechanism to monitor pricing structures and manage Key Performance Indicators (KPIs) such as customer acquisition costs and lifetime value of current customers would benefit from CRM solutions built on top of ERP platforms. Among the usual processes that necessitate tight integration between CRM and ERP is Configure, Price and Quote (CPQ).

In order to function properly, CPQ solutions require information from both the CRM and ERP systems. They are critical for many firms. The bigger CRM and ERP providers often have prebuilt interfaces for one another, which they or a third-party partner can make available to customers. The downside is that when a CRM or ERP system is upgraded, these integrations can become expensive and difficult to manage.

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ERP Implementation

ERP implementation has a checkered history of mammoth projects over budget and out of control. Dow Chemical spent half a billion dollars and seven years implementing an ERP system that has since been overhauled. FoxMeyer Drug claims that ERP implementation sent it into bankruptcy. ERP vendors and their customers have learned from these debacles, and the second-generation ERP systems are substantially different from the first-generation, although they are still complex.

New ERP offerings sport stand-alone modules and open architecture. Companies can pick and choose the modules they want to install and can even choose a collection of modules from different vendors—the best-of-breed approach. While single-source ERP systems are easier to integrate, best-of-breed systems may provide a better match with organizational needs.

Analyze Business Processes

Analyzing business processes is the first step in implementation. Since ERP is an integrated technology that pervades and connects all parts of a company, it usually alters the way a company makes decisions; thus, its implementation typically requires major changes in a company’s organizational structure and business processes. Companies that have had success with ERP have taken the time to think about how their processes work and how they can best be integrated before “automating” them.

To guide companies in this massive project, ERP vendors have designed their software around best practices for specific industries. Solution maps and stories of successful implementations are available for such industries as aerospace and defense, apparel, automotive, chemicals, consumer products, engineering and construction, healthcare, high-tech industries, insurance, media, oil and gas, pharmaceuticals, the public sector, real estate, retail, telecommunications, and utilities.

Choose Modules to Implement

Determining which ERP modules to implement and how they should be configured is a process-oriented (rather than technology-oriented) decision. The decision should be guided by questions such as:

• Which processes have the biggest impact on customer relations?
  
  
• Which processes would benefit the most from cross-functional or inter-organizational integration?
  
  
• Which processes should be standardized throughout the organization, and which should be allowed to vary?

Small-market and midsize-market companies with time and budget constraints have an especially hard time implementing ERP. In response, software vendors like SAP have created a fast-track approach to ERP implementation. Based on the processes and applications that have proved most successful in the past, SAP has created 11 industry-specific best-practices templates designed to maximize efficiency and minimize customization.

Plain vanilla, template-based modules chosen by the client are provided at a fixed price and implemented over a fixed timetable. The results are impressive. eCompany installed fully functional ERP modules for materials management, function planning, finance, and online retailing in three weeks for less than $200,000. Interactive Apparel implemented SAP’s materials management, sales and distribution, warehouse management, and financial modules in nine weeks for less than $150,000.

Align Level of Sophistication

Knowing the level of sophistication needed for your business is also key to effective ERP implementation. QAD, a midmarket ERP vendor, offers industry-specific software to manufacturing companies and international clients. QAD software can be directed with instructions much simpler than those of larger ERP vendors. Instead of deploying a single system to manage all of a company’s plants, QAD tailors its software to individual plants and then links them with corporate financial, distribution, and support functions.

Finalize Delivery and Access

The Internet provides another aid to implementation. ERP vendors, including Oracle and SAP, now offer their products through portals. The vendor hosts the application, which the customer accesses over the Internet with their browser. Portals are less expensive, so they give midsize market and smaller clients access to the same services as larger corporations.

ERP services can also be accessed through third-party application service providers (ASPs). Redback Networks, for example, uses Qwest Cyber Solutions to access Oracle’s suite of enterprise solutions, including finance, order management, human resources, manufacturing, shipping, and inventory systems.

Link with External Partners

The value of e-business relies on a company’s ability to integrate its internal processes with external suppliers, customers, and companies. First-generation ERP systems could not interact outside the organization with other ERP systems, with e-businesses, or directly with customers.

By the second generation of ERP, vendors had learned to create web-centric systems by consolidating data and allowing dynamic access from various clients. Software vendors have developed powerful new analytic tools and applications that capitalize on ERP’s infrastructure. Examples of such software systems are customer relationship management, supply chain management, and product lifecycle management.

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