ERP integrate all data and processes of an organization into a unified system. A typical ERP system will use multiple components of computer software and hardware to achieve the integration. A key ingredient of most ERP systems is the use of a unified database to store data for the various system modules. The stored data is a shared database that supports multiple functions used by different business units. In practice, this means that employees in different divisions—for example, accounting and sales—can rely on the same information for their specific needs.
A Brief History of BMS/ERP
The term ERP was coined in 1990 by Gartner1, but its roots date to the 1960s. Back then, the concept applied to inventory management and control in the manufacturing sector. Software engineers created programs to monitor inventory, reconcile balances, and report on status. By the 1970s, this had evolved into Material Requirements Planning (MRP) systems for scheduling production processes.
In the 1980s, MRP grew to encompass more manufacturing processes, prompting many to call it MRP-II or Manufacturing Resource Planning. By 1990, these systems had expanded beyond inventory control and other operational processes to other back-office functions like accounting and human resources, setting the stage for ERP as we've come to know it.
Today, ERP has expanded to encompass business intelligence (BI) while also handling "front-office" functions such as sales force automation (SFA), marketing automation and ecommerce. With these product advancements and the success stories coming out of these systems, companies in a broad range of industries—from wholesale distribution to ecommerce—use ERP solutions.
Moreover, even though the "e" in ERP stands for "enterprise," high-growth and mid-size companies are now rapidly adopting ERP systems. Software-as-a-Service (SaaS) solutions—also referred to as "cloud computing"—have helped fuel this growth. Cloud-based solutions not only make ERP software more affordable, they also make these systems easier to implement and manage. Perhaps even more importantly, cloud ERP enables real-time reporting and BI, making them even valuable to executives and staff seeking visibility into the business.
As a result, companies of all sizes and a wide range of industries are transitioning to cloud ERP systems. In fact, Forrester predicts that SaaS-based ERP adoption will rise 21 percent annually through 2015.2 When you stop to consider the benefits of ERP, it's easy to see why it's become so popular and why its use will continue to grow so rapidly.
Enterprise ERP Trends
The ERP field can be slow to change, but the last couple of years have unleashed forces which are fundamentally shifting the entire area. The following new and continuing trends affect enterprise ERP software:
- Mobile ERPExecutives and employees want real-time access to information, regardless of where they are. It is expected that businesses will embrace mobile ERP for the reports, dashboards and to conduct key business processes.
- Cloud ERPThe cloud has been advancing steadily into the enterprise for some time, but many ERP users have been reluctant to place data cloud. Those reservations have gradually been evaporating, however, as the advantages of the cloud become apparent.
- Social ERPThere has been much hype around social media and how important —or not — it is to add to ERP systems. Certainly, vendors have been quick to seize the initiative, adding social media packages to their ERP systems with much fanfare. But some wonder if there is really much gain to be had by integrating social media with ERP.
- Two-tier ERPEnterprises once attempted to build an all-encompassing ERP system to take care of every aspect of organizational systems. But some expensive failures have gradually brought about a change in strategy – adopting two tiers of ERP.
The Business Value of ERP
At its core, ERP helps employees do their jobs more efficiently by breaking down barriers between business units. More specifically, an ERP solution:
- Gives a global, real-time view of data that can enable companies to address concerns proactively and drive improvements
- Improves financial compliance with regulatory standards and reduces risk
- Automates core business operations such as lead-to-cash, order-to-fulfillment, and procure-to-pay processes
- Enhances customer service by providing one source for billing and relationship tracking.
ERP for the small and medium segments
A few years back, ERP was a distant concept, perceived as applicable for the most elite of companies, with deep pockets, who are ready to experiment with new ideas. Today, the scene has significantly changed and ERP is considered as a desirable tool for most organizations, in the medium and small sectors.
Entrepreneurs now seriously consider ERP as panacea for all their present day ills and as an imperative to retain their competitive edge. Some of the factors that have catalyzed this process are globalization, competition, need for faster response to the market place and the pressure to contain costs and improve efficiencies.
While ERP implementation can be undertaken by a well-run organization as a proactive measure to be ahead in the race, the normal symptoms that would suggest the need for ERP would be high levels of inventory, mismatched stock, lack of coordinated activity, excessive need for reconciliation, flouting of controls, poor customer response levels and operations falling short of industry benchmarks in terms of cost controls, and general efficiency.
ERP is often considered synonymous with enterprise computerization, which significantly dilutes the concept. It is really a business tool, which seamlessly integrates the strategic initiatives and policies of the organization with the operations, thus providing an effective means of translating strategic business goals to real time planning and control.
ERP, hence, means much more than computerizing the existing operations and is really an integrated change process, which encompasses all levels and elevates the total organization to a higher level of information, expertise and intelligence.
The SME segment is large and offers substantial potential to the ERP vendor. However, this segment is also extremely price-sensitive and is generally intolerant of high gestations on realizations from investment.
Hence, this segment would be keen on an effective but low priced solution, which can be speedily implemented and vendors have realized the potential of this segment and are working out ways to meet this requirement.
ERP Solutions for Small Businesses
As sales of ERP systems to large manufacturing companies began to slow, some vendors changed their focus to smaller companies. According to a survey by AMR research reported in Modern Materials Handling, the overall market for ERP systems grew 21 percent in 1998, despite the fact that sales to companies with greater than $1 billion in revenues declined 14 percent during the same period. "ERP applications are no longer just the stuff of huge corporations," Constance Loizos noted in Industry Week. "While billion-dollar manufacturing companies are now completing their ERP implementations, mid-size customers—witness to the improved business processes of manufacturing market leaders—are beginning to refine their own operations…. Invariably the most substantial reason for companies to implement ERP is that without it, staying competitive is a practical impossibility. The business world is moving ever closer toward a completely collaborative model, and that means companies must increasingly share with their suppliers, distributors, and customers the in-house information that they once so vigorously protected."
Of course, small and medium-sized companies—as well as those involved in service rather than manufacturing industries—have different resources, infrastructure, and needs than the large industrial corporations who provided the original market for ERP systems. Vendors had to create a new generation of ERP software that was easier to install, more manageable, required less implementation time, and entailed lower startup costs. Many of these new systems were more modular, which allowed installation to proceed in smaller increments with less support from information technology professionals. Other small businesses elected to outsource their ERP needs to vendors. For a fixed amount of money, the vendor would supply the technology and the support staff needed to implement and maintain it. This option often proved easier and cheaper than buying and implementing a whole system, particularly when the software and technology seemed likely to become outdated within a few years.
Benefits- Eases decision making
- Increases efficiency of business
- Increases data security
- Makes work transparent
- Increase co-ordination between diverse departments
- Improves the relationship between customer and business
- Lowers the cost operation
- Provides a competitive advantage
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