Fundamentals of Enterprise Resource Planning Systems: Part I
The basic concept of an Enterprise Resource Planning (ERP) system is to act as the coordination and synchronization point of inbound supplies, raw materials, subassemblies, matching up customer orders while also scheduling production and manufacturing resources. ERP systems typically also include Accounts Payable (AP) and Accounts Receivable (AR) systems so that financial reporting of transactions can be completed. In previous generations of ERP systems it was considered sufficient to support a single location, yet today multi-instance ERP systems that are capable of managing the coordination of inbound orders and their fulfillment across multiple locations is increasingly a commonplace requirement (Yang, Lin, Lin, Huang, 2006). ERP systems also often have Customer Relationship Management (CRM), Supply Chain Management (SCM), and often Distributed Order Management (DOM) systems integrated into them to make the underlying business processes more efficient and agile, capable of responding to market requirements.
The Implementation and Use of ERP systems
The greatest impediment to any successful ERP implementation is resistance to change on the part of both the managers who will use the system and their employees (Youngberg, Olsen, Hauser, 2009). Overcoming resistance to change takes a series of strategies called change management, as they seek to provide those who will use the system with an opportunity to “own” the changes to their jobs and the processes and procedures they rely on daily to do their jobs. Key to the successful implementation of any ERP system is the transfer of knowledge and its being organized into taxonomies that are usable in the context of the new system and its processes (Xu, Ma, 2008).
Once initiatives and strategies are in place for nurturing and providing those employees and managers most affected by the implementation of the new system, intensive business process re-engineering (BPR) typically takes place (Xu, Ma, 2008). Once business processes have been re-engineered and then integrated into the new ERP systems’ workflows, standardization of processes typically occurs so that the company implementing the system can attain higher levels of efficiency and productivity (Chtioui, 2009). From the workflows to the processes and procedures and even down to the graphical interfaces of the ERP applications, it is critical to get user’s input and allow them to have ownership of the system before actually implementing the software (Youngberg, Olsen, Hauser, 2009).
The actual and potential benefits of implementing an ERP system in many organizations center around being more driven by customer needs and being more responsive to key markets and customer segments. The concept of becoming a demand-driven organization through the use of ERP systems has been well-proven, has the ability to get greater levels of financial performance through more process efficiency as well. The near-term benefits are greater levels of process and in many cases, system integration that allow organizations to perform more efficiently. In addition, ERP systems can greatly reduce the number of errors an organization makes in its supply chain, order management, manufacturing, and fulfillment processes as well. Future potential benefits include the ability to anticipate and respond to demand more efficiently (Burrows 2007).
Internet Communications Improvements and ERP Effectiveness
The immediate impact of the Internet on ERP effectiveness beings with more real-time integration to suppliers, and therefore better visibility and forecasting during the production scheduling and fulfillment processes. Second, the Internet and its capacity for real-time communications also provides a more direct link and potential for understanding customers’ demands clearly and with greater speed as well. All this translates into having an ERP system that becomes truly demand-driven (Burrows, 2007) and therefore has the ability to be more responsive over time to the needs of customers’ that are relying on their orders to be filled. Third, the Internet’s real-time communications capability makes it possible for the first time to have accurate forecasting, supply chain, and service strategies based on actual customer requirements instead of relying on inferences based on analyzing previous sales, supply chain and service history.
References
Robert P Burrows III. 2007. DEMAND DRIVEN S&OP: A SHARP DEPARTURE FROM THE TRADITIONAL ERP APPROACH. The Journal of Business Forecasting 26, no. 3 (October 1): 4,6-7,9-10,12-13.
Tawhid Chtioui. 2009. Understanding the Impact of ERP Standardization on Business Process Performance. International Journal of Business 14, no. 2 (April 1): 151-162.
Qing Xu, Qingguo Ma. 2008. Determinants of ERP implementation knowledge transfer. Information & Management 45, no. 8 (December 1): 528.
Ching-Chow Yang, Wen-Tsaan Lin, Ming-Yi Lin, Jui-Tang Huang. 2006. A study on applying FMEA to improving ERP introduction: An example of semiconductor related industries in Taiwan. The International Journal of Quality & Reliability Management 23, no. 2/3 (February 10): 298-322.
Elaine Youngberg, David Olsen, Karina Hauser. 2009. Determinants of professionally autonomous end user acceptance in an enterprise resource planning system environment. International Journal of Information Management 29, no. 2 (April 1): 138.
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Filed Under: ERP • Lean Manufacturing • Louis Columbus' Blog • supply chains
About the Author: Louis Columbus is Senior Manager, Enterprise Systems at Cincom Systems, concentrating on assisting clients with their channel management, sales and product configuration system strategies. Pricing and revenue management strategies enabled through Cincom Acquire are also his key areas of focus. Louis is a former senior analyst with AMR Research where he served both companies adopting enterprise software and vendors with their product and go-to-market strategies. He has worked with enterprise clients on defining solutions to their channel management, order management and service lifecycle management strategies. He is the author of fifteen books on technology and two books on analyst relations. His book, Getting Results from your Analyst Relations Strategies, can be downloaded for free (http://bit.ly/yDKWs). Mr. Columbus also teaches graduate-level international business and marketing courses at Webster-Loyola Marymount University, Webster University and University of California, Irvine.
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