Enterprise resource planning (ERP)

Enterprise resource planning (ERP) systems integrate internal and external management of information across an entire organization—embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application. ERP facilitates information flow between all business functions inside the organization, and manages connections to outside stakeholders.[1]

Enterprise system software is a multi-billion 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 decade. Enterprise systems are complex software packages that offer the potential of integrating data and processes across functions in an enterprise. Although the initial ERP systems focused on large enterprises, there has been a shift towards smaller enterprises also using ERP systems.[2]

Organizations consider the ERP system a vital organizational tool because it integrates varied organizational systems and enables flawless transactions and production. However, an ERP system is radically different from traditional systems development.[3] ERP systems can run on a variety of computer hardware and network configurations, typically employing a database as a repository for information.[4]

History

Origin of "ERP"

In 1990 Gartner Group first employed the acronym ERP^[5] as an extension of material requirements planning (MRP), later manufacturing resource planning^[6][7] and computer-integrated manufacturing. Without supplanting these terms, ERP came to represent a larger whole, reflecting the evolution of application integration beyond manufacturing.^[8] Not all ERP packages were developed from a manufacturing core. Vendors variously began with accounting, maintenance, and human resources. By the mid–1990s ERP systems addressed all core functions of an enterprise. Beyond corporations, governments and non–profit organizations also began to use ERP systems.^[9]

Expansion

ERP systems experienced rapid growth in the 1990s because the year 2000 problem and introduction of the euro disrupted legacy systems. Many companies took this opportunity to replace such systems with ERP.^[10]
ERP systems initially focused on automating back office functions that did not directly affect customers and the general 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.^{[citation needed]}

"ERP II" was coined in the early 2000s.^{[by whom?]} It describes web–based software that provides employees and partners (such as suppliers and customers) with real–time access to ERP systems. The ERP II role expands traditional ERP's 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.^[11] 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.

Two-tier ERP software and hardware lets companies run the equivalent of two ERP systems at once: one at the corporate level and one at the division or subsidiary level. For example, a manufacturing company uses an ERP system to manage across the organization. This company uses independent global or regional distribution, production or sales centers, and service providers to support the main company’s customers. Each independent center or subsidiary may have their own business model, workflows, and business processes.
 
Given the realities of globalization, enterprises continuously evaluate how to optimize their regional, divisional, and product or manufacturing strategies to support strategic goals and reduce time-to-market while increasing profitability and delivering value.^[12] With two-tier ERP, the regional distribution, production, or sales centers and service providers continue operating under their own business model—separate from the main company, using their own ERP systems. Since these smaller companies' processes and workflows are not tied to main company's processes and workflows, they can respond to local business requirements in multiple locations.^[13]

Factors affecting enterprises adopting two-tier ERP systems are the globalization of manufacturing or the economics of sourcing in emerging economies, the potential for quicker and less costly ERP implementations at subsidiaries based on selecting a software product more suited to smaller companies, and any extra effort required where data must pass between the two ERP systems.^[14] Two-tier ERP strategies give enterprises agility in responding to market demands and in aligning IT systems at a corporate level while inevitably resulting in more systems as compared to one ERP system used throughout the entire organization.^[15]

Integration

Organizations perceive ERP as a vital tool for organizational competition, as it integrates dispersed organizational systems and enables flawless transactions and production. ERP vendors traditionally offered a single ERP system. ERP systems suffered from limitations in coping with integration challenges dealing with changing requirements. However, companies preferred to implement an ERP suite from one vendor that incorporated stand-alone point solutions (that once filled feature gaps in older ERP releases) to achieve higher levels of integration and improve customer relationships and the supply chain's overall efficiency.

However, though most companies still follow the single source approach, a significant number of firms employ a strategy of “best of breed” ERP to strive for a competitive advantage. ERP vendors began to acquire products, or develop new features comparable to or better than many of the top applications. This helped companies, via single source, maintain or create a competitive advantage based on unique business processes, rather than adopt the same business processes as their competitors.

In the following years, integration was a leading investment due to a feature gap and the need to extend and integrate the ERP system to other enterprises or "best of breed" applications. Integration was ranked as one of the leading investments for 2003. Well over 80% of U.S. companies budgeted for some type of integration in 2002, and roughly one-third of U.S. companies defined application integration as one of their top three IT investments in 2003. ERP license revenue remained steady as companies continued their efforts to broadly deploy core applications, and then add complementary features in later phases.

Developers now take greater 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.^[16]

Characteristics

ERP (Enterprise Resource Planning) systems typically include the following characteristics:

• An integrated system that operates in real time (or next to real-time), without relying on periodic updates^{[citation needed]}
• A common database, which supports all applications
• A consistent look and feel throughout each module
• Installation of the system without elaborate application/data integration by the Information Technology (IT) department, provided the implementation is not done in small steps^[17]

^{Source : http://en.wikipedia.org/wiki/Enterprise_resource_planning}