Fundamentals of ERP

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Enterprise resource planning (ERP) is business management software- usually a suite of integrated applications—that a company can use to collect, store, manage and interpret data from all business activities.

ERP provides an integrated view of core business processes, often in real-time, using common databases maintained by a database management system. ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll. ERP facilitates information flow between all business functions, and manages connections to outside stakeholders.

Enterprise system software is a multi-billion dollar industry that produces components that support a variety of business functions. IT investments have become the largest category of capital expenditure in United States-based businesses over the past decade. Though early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP systems.

The ERP system is considered a vital organizational tool because it integrates varied organizational systems and facilitates error-free transactions and production. However, ERP system development is different from traditional systems development. ERP systems run on a variety of computer hardware and network configurations, typically using a database as an information repository.

Characteristics of ERP

ERP (Enterprise Resource Planning) systems typically include the following characteristics:

  • An integrated system that operates in (or near) real time without relying on periodic updates
  • A common database that supports all applications
  • A consistent look and feel across modules
  • Installation of the system with elaborate application/data integration by the Information Technology (IT) department, provided the implementation is not done in small steps

Functional areas of ERP

An ERP system covers the following common functional areas. In many ERP systems these are called and grouped together as ERP modules.

  • Financial Accounting: General ledger, fixed asset, payables including vouchering, matching and payment, receivables cash application and collections, cash management, financial consolidation
  • Management Accounting: Budgeting, costing, cost management, activity based costing
  • Human Resources: Recruiting, training, rostering, payroll, benefits, appraisals, diversity management, retirement, separation
  • Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity, workflow management, quality control, manufacturing process, manufacturing projects, manufacturing flow, product life cycle management
  • Order Processing: Order to cash, order entry, credit checking, pricing, available to promise, inventory, shipping, sales analysis and reporting, sales commissioning.
  • Supply Chain Management: Supply chain planning, supplier scheduling, product configuration, order to cash, purchasing, inventory, claim processing, and warehousing (receiving, put away, picking and packing).
  • Project Management: Project planning, resource planning, project costing, work breakdown structure, billing, time and expense, performance units, activity management
  • Customer Relationship Management: Sales and marketing, commissions, service, customer contact, call center support - CRM systems are not always considered part of ERP systems but rather Business Support systems (BSS).
  • Data Services: Various "self–service" interfaces for customers, suppliers and/or employees

Components of ERP

  • Transactional database
  • Management portal/dashboard
  • Business intelligence system
  • Customizable reporting
  • Resource planning and scheduling
  • Analyzing the product
  • External access via technology such as web services
  • Search
  • Document management
  • Messaging/chat/wiki
  • Workflow management
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