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.
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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