What is ERP Really?

Part 1 of a 5 part series
The software industry has a tendency to throw around a lot of acronyms like CRM, ERP, HRMS, and others.  Some are self explanatory once you realize what they stand for, such as Human Resources Management Systems – or HRMS.  Some are murky like Customer Relationship Management – or CRM – only because CRM systems can do so much more than manage relationships with customers.  However, the most obscure of all is Enterprise Resource Planning – or ERP.

ERP software doesn’t live up to its acronym. Forget about planning—it doesn’t do much of that—and forget about resource, a throwaway term. But remember the enterprise part. This is ERP’s true ambition. It attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs.

That is a tall order, building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse. Each of those departments typically has its own computer system optimized for the particular ways that the department does its work. But ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other.

That integrated approach can have a tremendous payback if companies install the software correctly. Take a customer order, for example. Typically, when a customer places an order, that order begins a mostly paper-based journey from in-basket to in-basket around the company, often being keyed and rekeyed into different departments’ computer systems along the way. All that lounging around in in-baskets causes delays and lost orders, and all the keying into different computer systems invites errors. Meanwhile, no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department, for example, to get into the warehouse’s computer system to see whether the item has been shipped. "You’ll have to call the warehouse" is the familiar refrain heard by frustrated customers.

ERP vanquishes the old standalone computer systems in finance, HR, manufacturing and the warehouse, and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. Finance, manufacturing and the warehouse all still get their own software, except now the software is linked together so that someone in finance can look into the warehouse software to see if an order has been shipped. Most vendors’ ERP software is flexible enough that you can install some modules without buying the whole package. Many companies, for example, will just install an ERP finance or HR module and leave the rest of the functions for another day.

Just how important have ERP systems become?

A magazine survey of nearly 400 IT executives who had an ERP system installed found that more than 85 percent of them agreed or strongly agreed that their ERP systems were essential to the core of their businesses, and that they "could not live without them." When asked if their company would be able to live without its ERP systems within the next five years, more than 80 percent disagreed or strongly disagreed. For better or worse, ERP systems are here to stay.

So, now that you have a better idea of what ERP really means and that they are here to stay, you may be wondering, what it impact it can have on a business and your company’s performance, and how does it fit in.  We’ll discuss this in part 2 of this article series in the November issue of Solutions.