An Enterprise Resource Planning (ERP) system is a single unified system developed for an organization for integrating all aspects of data and processes related to it. An ERP system covers all the basic functions of an organization, regardless of the organization's business or charter. It began as a group of applications or software focusing on combining multiple systems into one integrated system where data could be shared across the enterprise, presumably reducing redundant data entry and processes.
An ERP system is a software package, which provides the functionality of an organization in a single package that would be covered by two or more systems. For example, a software package that provides both Payroll and Accounting functions such as QuickBooks is considered as an ERP software package. The software attempts to integrate all departments and functions across a company onto a single computer system that serves all those departments' particular needs. Building a single software program that serves the needs of people in finance as well as the people in human resources and in the warehouse is a tall order. Each of those departments has its own computer system optimized for the particular ways that the department does its work. But ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can share information and communicate with each other more easily.
The term ERP originally implies system designed to plan the utilization of enterprise-wide resources. Although the acronym ERP originated in the manufacturing environment, today's use of the term has much broader scope. A typical ERP system would replace two or more independent applications of an organization by eliminating the external interfaces previously required between systems and provide additional benefits which range from standardization and lower maintenance, to easier or greater reporting capabilities.
The need to undergo an ERP project is seen not only as an opportunity to integrate data systems but also to redefine processes in the interest of gaining efficiencies as well as to mote professional growth for employees by introducing new skills and knowledge in the areas of data management and procedures.
Selecting ERP software does not happen all of a sudden or as a result of an overnight's discussion. There is lot of base work that needs to be done in this regard. There are many reasons for the uncertainty, with the foremost being advent of Internet. This has expanded the scope of computers and redefined the technological changes in the business. As a result there is more expectations and demand, which were not seen earlier. Advancement in computing indirectly implies the advancement in ERP. Needless to say the constant updating and innovating have become the benchmark of ERP packages. The tentative mind of companies in choosing ERP software solutions needs no explanation.
Selecting an ERP system - Build or Buy?
Many business executives rely on prepackaged enterprise resource planning solutions for all aspects of their businesses from manufacturing to accounting. The philosophy behind many ERP systems is that a suite of software tools can quickly integrate all areas of business administration more easily. Major vendors such as SAP, Oracle, and PeopleSoft offer integrated tools for accomplishing this task.
While many businesses choose one of these off-the-shelf ERP solutions, there are many advantages to building an ERP application in-house. Businesses often prefer to have in-depth institutional knowledge of how these systems work and how they interface with the various business areas. Managers faced with evaluating any enterprise-wide IT system must make the build vs. buy decision early in the process of implementing ERP Systems.
Mull over these questions before deciding to build or buying
While it is faster to install a packaged ERP suite than it is to build one from scratch, the required time investment depends mainly on the level of customization your company needs and the amount of data you have to migrate. For many organizations, the considerations that influence the build-or-buy decision include the following things:
► Whether your company willing to change the way it does business to accommodate the software?
► As the business grows do you anticipate many changes?
► Which business functions provide a competitive advantage?
Whether your company willing to change the way it does business?
The argument for packaged solutions: For many managers, suggesting that their employees change the way that they work to accommodate a software package is an absurd idea. However, many large companies are changing their business practices to use ERP packages. Why would a company generally be willing to do this? Customization to prewritten ERP packages may be expensive, especially when software is upgraded. A company may also decide that there is little harm in changing business practices in routine areas that do not provide a competitive advantage.
The argument for custom solutions: The custom solution is designed with your organization in mind so that it is less likely that your business processes will have to change to fit the ERP solution. The costs to customize vendor packages are literally high-an expense that might be avoided with a custom solution.
As the business grows, do you anticipate many changes?
Packaged: As business requirements develop and as the business grows, more changes to the ERP package will be needed. Although both customized solutions and ERP packages are often very difficult to extend into new business functionalities, the packaged ERP suites excel in their ability to amend and grow with the business, a flexibility advantage that is often touted by vendors.
Custom: Although a packaged ERP solution may be better at adapting to changing business requirements, you have to determine if this flexibility is worth the cost. Your organization may not probably make fundamental changes in the future. For example, basic business processes such as accounting finance and general ledger will rarely undergo radical changes. Therefore your organization may discover that a custom solution is sufficient.
Which business functions provide a competitive advantage?
Packaged: If your organization does not have a clear competitive advantage from your ordinary business systems, an off-the-shelf solution may provide the greatest benefit because a packaged solution can be used right out of the box and requires very little IT overhead.
Custom: Are there features within your ERP application suite that may give you an edge over your rivalry? For example, if your company's order processing ability gives you a competitive edge over the other vendors, it would be idiotic to install an off-the-shelf order processing solution.
In cases where rightful competitive advantages exist within the main business functions, it can be suicide to customize off-the-shelf ERP packages to maintain business methods. The cost of upgrades of these systems can reach tens of millions of dollars when the application code has been tailored.
Making the choice:
If you build your own ERP solution, you may benefit from customization, but that advantage comes at the expense of high development and maintenance costs. Packaged solutions are fully supported, but sometimes they may not always be an exact fit for your organization. To make the best selection, weigh the top considerations of your business against the advantages of each type of system.
Implementation of an ERP solution as a whole or as a part calls for high-level skills in analyzing your business operations, the business rules of your organization and the current technical scenario that could include a multitude of legacy systems. The dominant effect is a successful plan to integrate all these diverse activities into the ERP package resulting in efficient servicing of your customers, enhancing the bottom line of your operations and facilitating well-informed decision-making by various levels of management.
A successful ERP System implementation greatly depends on the blend and the synchronization of the team. A well-managed functional team with a clear understanding of the business practices, combined with a technical team, which understands the architecture of the product provides a team close to excellence. In general there are 10 tips to be followed while selecting the best ERP System for your business.
1. Make sure whether your executive team is willing to sponsor the ERP implementation project or not. One reason why projects fail is because the executive team does not establish a process to resolve issues, and neglects to make decisions in a timely fashion to keep implementations running smoothly. definitely
2. Clearly define what you are going to do, how long it will take, what resources are needed, and what it costs. Build contingency plans, manage risk, and communicate with everyone involved. A project manager is authorized person who can make or break an ERP implementation.
3. Select the best people for the ERP implementation team. You will be asking them to define how the business runs in the future. Pair the people who understand the business along with people who understand the technology.
4. Find the right consulting partner or firm that is experienced in ERP implementation, has a strong project management approach, and culturally blends in with your company. Remember, you will work long hours with these people and make sure that they have your best interests at heart and good references. It is also important that they understand your organizations needs.
5. Obtain the functionality you need but make sure that the ERP system provides the critical functions you need to run your business. Interview all the departments within your organization to identify the major features and functions they use on a daily basis to run the business. Understand the unique requirements of your organization, if the ERP system supports them, and how you are going to fill that gap if it does not.
6. Plan for the future and ask these questions: does the ERP system offer enough capacity to help my business grow? How will I support my IT infrastructure in an organization? Take the time to understand where your business goes in the future.
7. Select a solid ERP provider and make sure that the company you are considering doing business with today will still be here tomorrow. Apart from reading financial statements, talk to analysts and business contacts about the ERP software provider.
8. Understand skill levels in your company and look at the skill levels of the people in your company and IT department, and compare them with what you will need in the future. Identify the areas of need and invest in training and hiring people experienced in ERP concepts, business processes, and technology.
9. Focus on training your people and change management, which is absolutely crucial to the success of an ERP implementation. Every year companies invest millions of dollars in ERP systems, but do not provide adequate training. An investment in technology will not yield returns without adequate investment in people.
10. Understand your organizations integration requirements. Most companies have multiple applications that need to talk to the ERP software. Build integration architecture and use integration tools to reduce total cost of ownership and build a flexible architecture for the future.
Areas in which integration of ERP System best suits, includes:
Integrated Financials: General Ledger, A/P, A/R, integration/consolidation, cash management, multi-currency, multi-language, fixed assets.
Business Intelligence: Ad hoc reporting, executive information systems, multi-dimensional modeling.
Manufacturing / Importing & Scheduling: Purchasing, production scheduling, production process control, material requirements planning, master production scheduling, capacity planning, product definition, WIP tracking.
Distribution: Inventory management, bonded warehousing, logistics, transportation planning.
Customer Service: Sales order processing, returns.
Communications: EDI, Internet / Intranet.
The nuance in picking ERP software
Pre-ERP implementation includes analysis, constructive criticism; homework's which has a significant place in the whole process of ERP. Lot of research and base work needs to be completed prior to the implementation of ERP or even before thinking about bringing ERP into the organization. The plans of the organization must be clearly charted out and how it tends to benefit from ERP operations have to be looked from a broader context.
This discussion should include important things namely financial issues. Besides it should also account for the potential strengths, weaknesses and threats. How much profit will be incurred need to be discussed and substantiated? Other non-monetary benefits should also be discussed. These studies should involve the contribution of the entire group in the organization right from the person in the highest hierarchy to the one in the lowest level of hierarchy in the organization. The contribution should be validated and brightened by means of presentations, which will help everybody to get insight of the different perspectives, and views. All of them will be helpful in the successful implementation of ERP.
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