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What is ERP?

May 28, 1999
Web posted at: 2:59 p.m. EDT (1859 GMT)

by Derek Slater

(IDG) -- ERP (excuse me) stands for enterprise resource planning, a software system that aims to serve as a backbone for your whole business.

It integrates key business and management processes to provide a sky-level view of much of what's going on in your organization. ERP tracks company financials, human resources data and (if applicable) all the manufacturing information such as where you put your inventory and when it needs to be taken from the parts warehouse to the shop floor.

The leader in ERP market share, and the one that invented the market to an extent, is the German company SAP AG with its R/3 software. Other big players include PeopleSoft Inc., Oracle Corp., Baan Co. NV and J.D. Edwards & Co.

Big whoop. We've always had software for those processes.

Yes, but each piece of the puzzle was provided by a different software vendor, and those pieces typically didn't talk to one another. The accounting system didn't exchange data with the manufacturing system, for example. At least not without a great deal of poking and prodding and rewriting from the techies in IS.

The idea behind ERP is that the software needs to communicate across functions. With an ERP system, the financial software can cut an accounts payable check as soon as the loading dock clerk confirms that the goods have been received in inventory. Similarly the accounts receivable module can generate an invoice as soon as the shipping clerk says the finished goods are on the truck to the customer. All this is done with a minimum of human intervention and paperwork.

ERP aims to replicate business processes (how do we record a sale, how do we verify hourly workers' paychecks) in software, guide the employees responsible for those processes through them step by step and automate as many procedures as desired.

Sounds great. Is there a downside?

Only if you consider multimillion-dollar project failures a downside. The promise of ERP is great but so is the expense in terms of time, effort and money. Implementing the software in a company usually involves changing business processes, that is, the way people do their jobs. So employee resistance to these changes can be a major thorn in a company's side and usually requires that executives hone their change management skills. With careful planning and lots of elbow grease, though, ERP can work and make many an enterprise work better.


ERM (enterprise resource management): Some analysts prefer this term and make a subtle distinction between ERM and ERP. ERM encompasses accounting, HR and materials management; ERP is ERM plus applications.

MRP: The ERP acronym is an outgrowth of MRP (materials requirements planning) and MRP II (manufacturing resource planning), older types of manufacturing-specific software that aim to keep the right inventories on hand and the lines humming.

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