Enterprise Resource Planning
This essay investigates enterprise resource planning (ERP) and ways that ERP systems are being used in today's complex business environment. There are two critical requirements in the ERP process: identification of key business processes and functions and implementation of ERP software that will serve as the architecture for those processes. ERP systems can greatly enhance organizational effectiveness by connecting a company's business units internally as well as externally to customers and vendors. Many organizations have benefited greatly from implementing ERP systems, and some best practices are reviewed. In other cases, organizations have under-utilized their ERP systems or have struggled with successful deployment. The next generation of ERP systems is web-based, indeed even cloud-based (Shukla, 2012), and highly customizable as ERP continues to be adopted by an even more diverse industry base.
Keywords Business Intelligence (BI); Business Process Reengineering; Core Business Processes; End-to-end process automation; Enterprise Resource Security; Extended ERP; Identity Management; Knowledge-based Management; Middleware; Role-Based Access Control (RBAC); Service Oriented Architecture (SOA); Supply Chain Management
Business Information Systems: Enterprise Resource Planning
The rise of global corporations has meant that organizations need to implement enterprise-wide systems for linking core operations and business units. Organizations have learned that their business units often need access to the same information but at different times during the product/service lifecycle. ERP systems are large, integrated software packages that offer solutions for administrative (back end) and core business processes (Fuβ, Gmeiner, Schiereck, & Strahringer, 2007).
ERP systems allow for integration on the data and functional levels in a way that aims to avoid data redundancy. In today's global economy, companies can also benefit by allowing partners, vendors, and customers access to some internal information; ERP systems lend themselves well to this capability.
"An ERP system is [defined as] an integrated, configurable, and tailorable information system which plans and manages all the resources and their use in the enterprise, and streamlines and incorporates the business processes within and across the functional or technical boundaries in the organization. With ERP, an enterprise can automate its fundamental business applications, reduce the complexity and the cost of the collaboration, force the enterprise itself to take part in the Business Process Reengineering (BPR) to optimize its operations, and finally result in a successful business" (She & Thuraisingham, 2007, p. 152).
ERP systems have their roots in the manufacturing sector of the 1960s, when centralized computer systems for inventory control were being developed. By the 1970s, MRP (materials resource planning) systems were being designed to define manufacturing requirements and production planning; throughout the next decade they were optimizing the manufacturing process.
In the 1990s the ERP concept was introduced and referred to enterprise-wide (cross-functional) systems that included core operations and processes such as
- Accounting and finance
- Project management
- Inventory management
- Product distribution
Early ERP systems were expensive to implement and maintain, but the cost has come down as service oriented architecture (SOA) and web services have helped to ease implementation. The majority of all Fortune 1000 manufacturing companies have implemented ERP systems. ERP systems have now been adopted in many diverse industries, such as banking, insurance, health care, and higher education. ERP is considered to be "the price of entry for running a business" (Kumar & van Hillegersberg, 2000). Comprehensive reviews of later ERP implementation were conducted by Shaul and Tauber (2013) and by Nazemi, Tarokh, and Djavanshir (2012).
Why Implement an Enterprise Resource Planning System?
Companies do not take lightly the decision to implement major software applications such as ERP. The following list can serve as a sanity check for companies who are thinking of implementing an ERP system. Research indicates that many companies purchase ERP systems and then fail to fully use the application. One of the best things that senior executives can do before authorizing the purchase of an ERP is to realistically determine if the system will meet the following objectives.
Some of the documented benefits of implementing ERP systems (Fuβ, Gmeiner, Schiereck, & Strahringer, 2007):
- increased revenue and market share
- product differentiation
- shortening of post-merger integration by twelve to eighteen months
- substantial cost saving
- data transparency
- interaction with satellite systems
Some challenges to implementing ERP include
- substantial costs (licensing fees and consulting fees)
- danger of eroding competitive advantage processes
- possible lower flexibility (ERP not customizable)
- vendor dependence for maintenance support
- tisk and complexity of replacing legacy systems
- no good industry option for ERP ( available options are too generic)
ERP Solutions in Today's Organization
ERP has been a widely accepted business practice since the 1990s. Vendor ERP systems allowed for enterprise integration of many core functions that are a part of many organizations, regardless of industry. Companies in industries as different as manufacturing and insurance share common functional areas, such as human resources, accounting, and project management. Generic administrative (back office) functions are one part of an ERP system that has been successfully implemented by companies. The other part of the ERP system handles the core-business processes and is highly dependent upon the nature of the specific industry.
ERP system vendors (such as SAP and Oracle) are facing challenges in several areas as their products evolve to serve ever more specialized industries with their more generic applications. Some of the challenges that ERP system vendors have faced face include (Katz, 2007) the following:
- Vendors struggled to make their suites web serviceable.
- Service oriented architecture relegated ERP systems to a component of system architecture rather than a core application.
- Vendors faced growing pressure from cheaper offshore vendors who could develop cheaper, more customized options (commodity pieces of ERP)
- Vendors offered split models of ERP systems
- Generic offerings, such as accounting or human resources, became available.
- Specialized services were offered via middleware applications
ERP systems have been most threatened by SOA, which have been introduced in large organizations. Large companies have more money and resources to implement middleware solutions and build sophisticated applications on top of their ERP backbone. Small companies still use vendor ERP systems and rely on vendor upgrades to add functionality at the functional level. As more small and medium enterprises (SMEs) adopt ERP systems, vendors will offer more middleware to allow for customization.
The Future of ERP Systems
The high cost of implementing the ERP processes and systems is well documented. The purchase of the application, maintenance costs, upgrade costs, training, and IT support are just a few of the costs associated with implementing an ERP system. ERP systems serve as the core process infrastructure for many companies; in other companiess, the ERP system will serve as a process backbone for a larger service-oriented architecture system. In either case, the investment in ERP systems is...
(The entire section is 3560 words.)