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Enterprise Resource Planning : Chapter 8

ERP is an organization-wide management system that helps companies automate their processes, integrate various functions, enable optimum planning and utilization of resources and improve process efficiency. ERP packages initially focused on large corporations that operated in various businesses in various countries.

The various traditional applications used by these organizations served as information islands and did not facilitate exchange of data between departments. ERP solved this problem by facilitating integration of various functions. However, the implementation of an ERP system needs a huge amount of investment, and if the application is not suitable for the organization, it can do more harm than good. There are instances when profitable organizations have become bankrupt due to failure in implementing ERP. Thus, it is advisable for organizations to analyze the organization’s needs and develop a detailed architecture for ERP prior to ERP implementation. The architecture should be derived from a holistic analysis of the organization. An integrated process view rather than a data or function view may be adopted for the purpose. By adopting the process view, the organization can develop an architecture supporting all the functional modules required in an ERP package. The architecture helps the management evaluate different packages available in the market and select the one that suits the organization.

ERP packages are not implemented in an organization as easily as installing software in a PC. ERP implementation involves managing changes in the corporate culture, business processes, and communication and feedback systems. Only an efficient project leader with strong leadership skills can implement an ERP system in an organization effectively. However, without the cooperation of employees, he cannot achieve anything. ERP, when implemented properly, can offer many benefits to organizations such as lead time reduction, on-time shipment, cycle time reduction, and enhancement of customer satisfaction, improved supplier performance, flexibility in processes, cost reduction, improved resource utilization, and information accuracy. It is essential for companies to take adequate measures during ERP implementation to ensure that the ERP application integrates with existing applications.

Investments on ERP systems form a major part of IT investments made by organizations. The investments on ERP can be broadly studied as industry specific extensions, BI, and general ERP upgradations. Industry specific extensions enhance the productivity of operating processes. Application BI tools help organizations in data extraction and maintaining up-to-date information. General upgradations aim at achieving regulatory compliance. Emergence of SOA and XERP products are some of the trends witnessed by the ERP market. SOA is described as an approach towards the design, implementation, and deployment of IS. XERP are new applications that would be dependent on connectivity and web services. They emphasize sharing of API for easy working on products of different companies.

An ERP solution is effective only when it integrates all the components/modules (like finance, logistics, and HR) and is flexible enough to accommodate changes in the business environment. The major limitation of most ERP solutions is that while they excel at transaction management, they have poor support capabilities for intelligent decision-making. Another limitation is that many of them limit integration to the enterprise level, and do not extend it to external business partners. ERP vendors are upgrading their packages to overcome these limitations. Moreover, as organizations find it difficult to manage complex ERP systems, ERP vendors are starting to supplement their ERP packages with application management tools.

An ERP package consists of a number of modules such as finance & accounting, manufacturing, sales & distribution, HR management, plant maintenance, marketing, and inventory control. Each module further consists of sub-modules. An ERP solution is effective only when it integrates all modules and is flexible enough to accommodate changes in the business environment. An organization may encounter certain problems while implementing ERP systems. It will need to change its corporate culture and manage employees if they resist change.

Chapter 8 : Overview

ERP: An Overview
Rationale for ERP
Enterprise Architecture Planning

Implementing ERP
Effect of ERP on the Company
Future of ERP Applications