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ERP Explained

Updated on April 26, 2011

What is Enterprise Resource Planning?

Before the advent of Systems Integration, different departments in an organization developed their own computer systems, each one working separately using its own applications and data. Each department relied on the others to transfer key information. Items such as employee numbers would be generated in one system, then passed on and entered manually into the other applications.

This was problematic. The synchronizing of information was manual, slow and unreliable. Mistakes occurred, leading to additional complications as erroneous data propagated throughout the organization.

Enterprise Resource Planning (ERP) standardizes and reduces the number of software specialities required in large organizations.

Enterprise Resource Planning (ERP)

Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP)

How does Enterprise Resource Planning (ERP) overcome Systems Integration problems?

ERP combines data used by different applications and eliminates the need for interfaces between software applications. It resolves the issue of synchronizing key information.

No wonder ERP seemed like the Holy Grail of Systems Integration. Just use one system with one large database to run all parts of your business and problems will disappear!

The reality, however, is somewhat different. The incidence of failure with large-scale ERP projects is high. ERP projects typically exceed both their delivery and budget estimates. Problems occur for a number of reasons, but the common denominator is that ERP projects try to do too much in a single application.

What applications does ERP typically include?

The ERP systems of today generally cover one or a number of the following:

  1. Manufacturing Bills of material, scheduling, quality control, cost management.
  2. Supply Chain Management Inventory, order entry, purchasing.
  3. Financials General ledger, cash flow, accounts payable, accounts receivable.
  4. Projects Costing, billing, expenses.
  5. Human Resources Payroll, benefits, training.
  6. Customer Relationship Management (CRM) Sales and marketing, commissions
  7. Data Warehouse, Reporting, Data Mining

It's not uncommon for an organization to mix and match different components of competing ERPs. For example, a company may choose SAP as their primary ERP supplier and opt for Peoplesoft products (now owned by Oracle) for Human Resources and Finance.

Few organizations rely on ERP to support all of their business functions. There will always be areas where a specialized application is the better option. Whenever a stand-alone application is required or a combination of different ERP modules from different vendors is sought, mainstream systems integration tools and techniques should be utilized to provide an integrated solution.


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      Coach Ed 2 years ago

      Hey really good article! Here's a training course for Adempiere to complement it:

    • profile image

      Ketan 2 years ago

      Nice article, check out this article on What is SAP

    • profile image

      Martin Calvert 6 years ago

      Nice concise overview!

    • profile image

      SAP ABAP 8 years ago

      Good stuff and Look at

      where i had written about erp advantages and the project launch.

    • profile image

      What is ERP System 8 years ago

      Well done! Your explanation is quite detailed (and I loved the picture). However, I tried to take a different approach and explain ERP system from business start-up perspective.

      Any ideas on how article could be further improved would be most welcommed!

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      Education Erp 8 years ago

      Now only I understand the process of ERP....

      Thanks Russell