What is ERP?




ERP stands for Enterprise Resources Planning. ERP system was originally used in manufacturing company as it has a complicated business processes. Today, ERP system has been applied in various companies, such as manufacturing, retail, oil and gas, banking, telecommunication, and many more.

ERP software system has an objective to integrate all of the business data and process so it can be managed in most effective and efficient way. It reduces the redundant data and process by making all data from various business processes in a company can be accessed by all departments of that company (of course, with an appropriate authorization according to that company’s policy). By doing so, a data only needs to be entered once by a department that triggers it in its business process, and then it can be used by other departments according to their business process needs.

Without an ERP system, a company usually has several computer software systems, such as:

  • Accounting software
  • Fixed asset software
  • Payroll software
  • Inventory control software, including Material Requirement Planning (MRP) software
  • Purchasing software
  • Manufacturing software / Production planning software
  • Sales software
  • Order tracking software
  • Invoicing software
  • Project management software
  • etc.
Each of them can have their own database, even their own platform. In the worst case, each system has no interface with others, so the data from one system can’t be used by another. The data that should flow from a business process to the other does not flow. It must be re-entered to the other system. Beside the additional unnecessary business process, this also can lead to the possibility of the mistake in the data re-enter process which cause low data integrity assurance.

With ERP software, the data integrity can be assured better, because the data only needs to be entered by the responsible department in its business process/transaction. Then this same data can trigger another business process/transaction in other department.

For example, typical business processes in a manufacturing company are:
Demand for finished products from customer will be recorded by Sales department in a sales order document. Sales order data can be analyzed by Inventory department. If there are not enough finished products in current stock, with MRP function, the sales order can trigger a planned order that can be converted to a production order that requests the Production department to start producing the finished products. In order to produce the finished products maybe it requires some raw materials that have to be bought from vendors. The production order can trigger a purchase requisition for the raw materials. The purchase requisition will be processed by Procurement department to be a purchase order that is sent to vendor. Vendor will deliver the raw materials and Inventory department will receive them. Accounting department will record the vendor’s invoice and Finance department will process the payment. Once the raw materials are available, the Production process begins. Then the finished products will be delivered to the customer, and Finance department will send invoice to the customer.

All of business processes in the above example can be integrated in one ERP system. The ERP system usually consist of several modules such as Customer Relationship Management (CRM), Sales, Inventory, Production Planning, Plant Maintenance, Purchasing, Supplier Releationship Management (SRM), Accounting, Human Resources, etc. But, all of them are in the same platform and same database. ERP system is one of the largest software code ever written. It’s so complicated because it tries to be flexible, so it can adopt all business process in all companies. It’s been designed with a standard set of tables, transaction programs, and report programs. It also provides a configuration/customizing program, so it can be configured / customized according to a specific business process or company need.

There are some ERP software vendors that provide an off-the-shelf ERP System. Although they say their ERP system is off-the-shelf products, usually it can’t be used / implemented as soon as you’ve installed it, not like other application such as office application. Before it can be used, we must first configure and or customize it based on our business processes and needs. Usually, the configuration process needs expert consultant services. The consultants will map our business process into the ERP System configuration. This process is usually called ERP Implementation Project. This project can take months or even years, depends on its scope. After the ERP System configured based on our needs, then it will ‘Go Live’, and ready to be used in a daily operational activities in our company.

Here are some companies that provide ERP system product, sorted by its ERP product’s revenue:

  • SAP
  • Oracle Applications
  • Infor Global Solutions
  • The Sage Group
  • Microsoft Dynamics (Formerly Microsoft Business Solutions)
  • Unit 4 Agresso
  • Lawson Software
  • Epicor
  • Visma
  • Industrial and Financial Systems
  • QAD
  • ABAS Software
  • Ramco Systems
  • NetSuite
  • SIV.AG

SAP book on Amazon:
Using SAP: A Guide for Beginners and End Users


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