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What is ERP (Enterprise Resource Planning)?

Shipping is part of an enterprise's "back office."
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  • Written By: Dan Blacharski
  • Edited By: L. S. Wynn
  • Last Modified Date: 16 August 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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There are many different systems in a large company's "back office," including planning, manufacturing, distribution, shipping, and accounting. Enterprise resource planning (ERP) is a system that integrates all of these functions into a single system, designed to serve the needs of each different department within the enterprise. ERP is more of a methodology than a piece of software, although it does incorporate several software applications, brought together under a single, integrated interface.

An ERP system spans multiple departments in a corporation, and in some cases an ERP will also transcend the corporate boundary to incorporate systems of partners and suppliers as well, to bring in additional functions like supply chain management. Because it is so vast and all-encompassing, the ERP system goes far beyond being just a simple piece of software. Each implementation is unique and is designed to correspond to the implementer's various business processes. An ERP implementation can cost millions of dollars to create, and may take several years to complete.

An ERP system likely represents a company's largest IT investment, so some companies prefer to implement ERP in a more incremental fashion rather than all at once. Some ERP vendors provide modular software units together with a unified interface to allow for this gradual approach.

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Regardless of how a company approaches it, ERP is sure to bring significant changes to how a company does business. It tinkers with the workflows, and alters long-standing processes. Companies often meet with resistance on the part of employees who are reluctant to let go of their proven methods. Employees may also fear for their jobs; since ERP makes such radical changes to business processes, it's not unusual for job descriptions to change or be eliminated altogether.

Once implemented however, the ERP system brings tremendous advantages. Because all systems are joined together, all departments can more easily share information. The workflow that takes place between departments can become much more automated, and ultimately, customers are better served because the individual using the customer-facing applications will have access to every bit of information regarding each relevant process. For example, someone in sales would easily be able to log into a single system to determine the status of a customer order that is still in manufacturing. All this comes at a cost though; training costs are high because employees must not only learn how to use new software, they must also learn new processes.

There are many reasons a company undertakes an ERP implementation. The ERP system integrates information, such as order information and financial data. It can speed up the manufacturing process by automating processes and workflow, and as a result, it also reduces the need to carry large inventories. Although the up-front costs may be enough to give the CFO nightmares, in the end, if implemented correctly, the rewards will give the company implementing the system a major competitive edge.

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Discuss this Article

mabobine
Post 7

Can a software, that helps in automating business processes for departments (internal + external) on large scale and helps integrating them together, be stated as under ERP?

hangugeo112
Post 5

A company with many branches must have a solid core in order to function well as a team. This keeps competition healthy, and branches are not continually jealous of each other. Companies work much better when their collective morale is high.

BigBloom
Post 4

The Japanese business practice of Kaizen, or constant change for the better, applies well to an ERP approach because it takes all the best ideas for any part of a company and seeks to improve an apply them to the whole process. Each branch is improved.

mitchell14
Post 3

I can see why companies would want to utilize ERP, especially large companies. While the idea of planning things so that every department communicates with all of the other departments, it is understandable that it might meet resistance or be difficult to coordinate at first. However, keeping everyone on the same page would definitely improve the way a business runs.

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