Enterprise Resource Planning

In today's competitive world, an organisation has to manage its future cleverly — and that mostly means managing information. A large enterprise generates a huge amount of data: financial data, customer details, purchase details, employee data and more. In this age of information explosion, only the organisation that makes the best possible use of this data can succeed, and it is very difficult for people alone to manage such huge volumes of it. Information technology can be used to plan and organise the resources and information of an enterprise — which is exactly why most organisations are moving toward Enterprise Resource Planning (ERP) packages as a solution to their information-management problem.

An enterprise is a group of people and other resources working together for a common goal. It may consist of different sections or departments — manufacturing or production, planning, sales, purchase, finance, distribution and so on — each with its own duties and responsibilities, yet all working toward the objective set for the enterprise as a whole. The resources within an enterprise fall into familiar categories: men, material, money and machine. Information systems can be designed for the various departments of an enterprise so that accurate and timely data reaches the people who actually need it.

In some enterprises, different departments function independently. The information produced by each department may be available only to that department's own top management, and not to any other department — there is no communication between the different sections of the enterprise. Production planning, finance, marketing, HR, production, and sales & distribution each sit in their own silo, each blind to what the others are doing.

For better benefit and efficiency, every department must know what the other departments are doing. An enterprise can be thought of as a system, with each of its departments as a sub-system. Information about the entire enterprise can instead be stored in a centralised database and made available to every department — production planning, finance and marketing drawing from (and writing to) the same central store as HR, production, and sales & distribution.

ERP combines all the business requirements of an enterprise or company together into a single, integrated software that runs off a single database, so that the various departments of an enterprise can share information and communicate with each other more easily. Conceptually, ERP replaces the old standalone computer systems in each area of an enterprise — finance, human resource, manufacturing, sales, and so on — with a single software program that facilitates various functional modules. Employees in any department then get the information related to the activities of their own department, and that information is also available across departments. For example, someone in the finance department can use ERP to check whether a sale order has been shipped from the warehouse, and confidently plan working-capital management for the next period on that basis. ERP organises and integrates operation processes and information flows to make optimum use of resources — men, material, money and machine.

An ERP system is a fully integrated business management system covering the functional areas of an enterprise like Finance, Human Resources, Production, Sales and Logistics. Its key element is the use of a single database to store data for all the various system modules, and ERP systems draw on both computer software and hardware components to do it.

The resources available in an enterprise must be utilised effectively, and planning those resources is the responsibility of management — the ERP system helps make that planning process more productive and efficient. A full ERP package contains many modules or sub-units; exactly how many, and how each behaves, varies with the nature of the enterprise and the ERP package chosen. Some commonly used modules, available in almost every package, are outlined below.

Depending on the size and nature of the enterprise, other kinds of modules may also appear in the functional unit of an ERP system — but an ERP system integrates all of its components into a single software system.

Business Process Re-engineering (BPR) is the analysis and redesign of work flow within an enterprise. It involves changes in the structure and process of a business environment. Because business fields — especially information technology — change so rapidly, a business's processes often need to be redesigned for better service and benefit; IT plays a major role here, providing office automation, online business, flexible manufacturing, high-speed delivery and paperless transactions.

Re-engineering a business results in efficient time management, reduced cost and effective utilisation of resources. In the business world, competition is based on price, quality, selection and service, and with the advent of the internet and e-commerce, distance and time are no longer barriers to doing business. These changes impose the need for organisational transformation, where the entire processes and organisational structure are changed.

Re-engineering is the rethinking and redesigning of a business process to achieve improvements in the performance of an enterprise. A business process is a structured set of activities designed to produce a specified output for an enterprise; each process consists of related steps or activities that use people, information and other resources. A business process consists of three elements:

• Inputs: data such as application forms, customer enquiries and materials for processing.
• Processing: the set of activities or stages of operations that produce an output.
• Outcome: the output of the processing steps.

Processing is the time-consuming and problematic element of a business process. Basically, a business process is the way in which work is performed, and business process re-engineering is the process of changing this way of working, in a better style, to accomplish the goals of the enterprise — which is why BPR mainly focuses on the processing part, re-engineering it to reduce limitations and increase performance.

The fundamental rethinking and redesign of the business process to achieve improvements in performance — cost, quality, service and speed — of an enterprise is what is meant by business process re-engineering. Its life cycle moves through four phases, in a loop: identify business processes → analyse current processes → design and document revised processes → implement revised processes — and then back around again.

Before implementing ERP in a business, the need for such a new system must first be established. Business process re-engineering helps an enterprise determine what changes are needed in its structure or process for better outcomes — so ERP and BPR are closely related and tend to go hand in hand, and in most cases business process re-engineering is performed before enterprise resource planning. Conducting BPR before implementing ERP helps an enterprise avoid installing unnecessary modules from the software: BPR first ensures that business processes are optimised before the software is configured, and it also ensures that the software's functionality will closely match the enterprise's actual process steps.

All business process re-engineering does not necessarily lead to the implementation of a new ERP system — some BPR exercises find there is no need for a new system at all, due to cost, effectiveness or other challenges. In other cases, BPR and ERP are used together to achieve a better result for the enterprise and to improve an existing ERP.

Nowadays almost all major organisations are moving to an enterprise resource planning package as a solution to their information-management problem. If an ERP package is correctly selected and implemented, an organisation's productivity and profit can increase dramatically — but only if the implementation is well planned and executed. The implementation has to go through several different phases. There are, however, no clean lines separating these phases, and in many cases one phase will start before the previous one is fully completed.

Selection of an ERP package is very crucial to the implementation of an ERP system. If a package is chosen correctly, implemented judiciously and used efficiently, the productivity of the enterprise will be increased. ERP vendors invest a huge amount of time, money and effort in the research and development of their packaged solutions, and there are many ERP vendors across the world. Some of the popular ERP packages are Oracle, SAP, Odoo, Microsoft Dynamics, and Tally.

Other than the packages above, there are many more popular packages in the market:

In the near future, new ERP vendors may introduce new packages, and existing ERPs may gain more facilities and capabilities. Selecting an ERP solution is a serious exercise and has to be executed with great care.

Installing an ERP package in an enterprise has many direct and indirect advantages — but it comes with some challenges too.

An ERP system integrates separate business functions — material management, product planning, sales, distribution, financial and others — into single applications. When some other technologies are used alongside a stand-alone ERP package, the performance of the enterprise increases significantly.