ERP is a software infrastructure that integrates and centrally manages the many pieces of your business. The end result should be an improvement in cooperation and interaction between all the disparate business units in your organization -- product planning, purchasing, manufacturing, sales and customer service.
Unfortunately, building a single piece of software to serve the needs of people in finance, the warehouse and human resources is like asking the dentist to perform a root canal, three crowns and a cleaning all in one sitting. Because the basic business processes of each department are usually unique and often optimized for a particular procedure, integration can be exceedingly difficult. ERP integrates the processes and software of all departments into a single software application running on a single database.
With proper installation, an ERP system can provide a tremendous payback. A customer order, for example, can flow through the system efficiently, rather than journey in paper form, being keyed and rekeyed into different systems along the way. Each time an order is entered into a system or travels via interdepartmental mail, the possibility of introducing errors or loss increases. If a customer calls to inquire about the status of his or her order, no one in the company may be able to provide a reasonable answer. A well-designed and well-implemented ERP system can alleviate this annoyance and provide the exact status and location of an order at any time.
Because the order exists in only a single system, all modules (or subsystems) are able to track and move the order through its full life cycle. From placement to creation or fulfillment in the warehouse, the order's status should be available to a customer. (If you've implemented an ERP system and cannot provide this information, you need to take another look at your system.)
While most ERP vendors offer various forms of support for enterprise business needs, some are more successful in one area over another. Several vendors are better at providing solutions for financials, for example, than for the manufacturing process. J.D. Edwards pioneered the CASE (computer-aided software engineering) development and design tool, and developed it into a business-process ERP solution. SAP has made a strong showing in all areas, and most recently has been pushing the edge of technology with its hosted ERP solutions. Baan has a strong background in the manufacturing process and provides support for several core business needs: financial, sales and supply-chain solutions. PeopleSoft initially focused on enterprise applications to support HR and finance but has grown to encompass all areas of enterprise business processes and provide a strong suite of hosted solutions.
Out of the initial focus of these ERP vendors came three distinct goals for the implementation of an ERP: integration of financial data, standardization of manufacturing processes and standardization of HR information. While a new goal might include the standardization of all business processes, these three goals remain the foundation.
Integration of financial data. As the CEO tries to understand the company's performance, he or she may find many different versions of the truth. Finance has its own set of revenue numbers, sales has another version, and the different business units may have their own versions of how much they contribute to revenues. ERP creates a single version of the truth with everyone using the same system.
Standardization of manufacturing processes. A manufacturing company -- especially one with an appetite for acquisitions -- would likely find that multiple business units across the company make the same widget using different methods and systems. Standardizing processes and using a single, integrated computer system can save time, increase productivity and reduce head count.
Standardization of human-resources information. Especially in a company with multiple business units, the human-resources department may not have a unified method for tracking employee time and communicating benefits. ERP provides solutions.
Some ERP packages are comprehensive but ignore the fact that each industry has quirks that make it unique. Most ERP systems are designed for manufacturing companies, which produce physical "things" that can be easily counted. Companies that perform services may find it difficult to implement and use systems that have not taken this into account. ERP vendors continue to struggle with the need to modify their core systems to fit service-oriented businesses.
Why Isn't Everyone Implementing ERP?
ERPs sometime require a radical change in the business processes of organizations. Anyone who has attempted to change business procedures even slightly knows that this is painful. You must first determine if your current business practices will fit within a standard ERP package before you sign the check. The move to ERP is a huge undertaking, and the costs do not stop at the initial purchase. You must include the price of consulting, reworking of business processes, integrating testing and other expenses that will appear long before the benefits of ERP begin to be realized.
As we all know, the expense of training new employees -- or existing employees on new systems -- is high. Failure to consider integration requirements for data warehousing also can be costly. Ignoring the auxiliary costs during financial planning for ERP implementation can send the price of the project spiraling out of control. The impact of ERP is far greater -- from the perspective of cost and amassing the changes to your business -- than any other systems project you undertake.
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