ERP stands for Enterprise Resource Planning. It is a special type of software that provides a comprehensive solution to a company’s commercial activities – manages inventory,handles customer orders,creates purchase orders or production orders and sends invoices.
Software that manages business activities is nothing new.IBM sold a calculating computer back in the 1950′s to replace manual accounting activities. It later added engineering capabilities to its software offering,allowing the American army to conduct large amounts of missile trajectory computations. The next step in the evolution of enterprise information systems was MRP (Manufacturing Resource Planning) – special software that managed production processes with much greater efficiency.
The problem started when large organizations began to have too many different information systems.These computer systems were created by different software vendors,used non-compatible technologies and proprietary languages.Connecting two such systems was almost impossible.Also, the business processes within an organization were not standard.Since each department had it’s own custom information system,the processes within the different departments were also custom.Communication between two department-and their own custom information system-involved a lot of misunderstanding,incorrect transfer of information and manual work that was required where automatic procedures could not be implemented.
That was the big promise of ERP – a single,comprehensive,cross organizational information system that would support all processes within an organization.Since the entire software was supplied by the same software vendor,flow of information between the different software modules-from purchasing to finance,from inventory to sales-was an integral part of the application.No longer did the technical specialists had to implement special interfaces between the system or worse-having to manually update information from one system to another.The flow of information between the different departments was completely transparent.
Another important advantage ERP systems had was that they enabled company management to deploy company-wide processes.Because all departments and locations of the company used the same information systems,business rules could be created in the ERP system that forced each department to behave in a certain,predefined way.For example,when a sales representatives would place a customer order in the ERP system,it is possible to create a rule that checks if stock is available to satisfy that order.If it is available,it will be automatically allocated to fill that order,a picking slip will be printed in the warehouse and the product will be shipped to the customer.If stock is not available,a purchase order will be generated by the system and sent to the supplier.
Altough the scenario mentioned above is over simplistic and ERP systems support processes much more complex than this one,it demonstrates the strength of an ERP system-the business rule determining how to handle the customer order are maintained once,in one system,and the flow of information between the sales,warehouse and purchasing department is completely autonomic to the ERP system.
Modern ERP systems claim they can manage all processes within an organization.That claim might be true for some of the largest vendors – they do have software components that can cover every process a company can imagine, mainly through customization,3rd party add-ons or acquisitions,but each approach has its own challenges.A true-ERP system,that can cover all business processes within a single software package,without extensive customization does not and probably will probably never exist.