Introducing an ERP Systemby Contributor
Introducing an ERP System
An Enterprise Resource Planning (ERP) software system automates the processes and resources in an organization. In manufacturing, for example, an ERP orchestrates the complex chain of events that must occur for a manufacturer to receive an order, manufacture a product and deliver the finished product to the customer on time. Although ERPs are usually found in manufacturing, they can also be found in government and non-manufacturing businesses as well.
A Manufacturing Example
When an order comes in from sales, most small manufacturing companies follow a sometimes complex process to deliver that product on time to their customer. Imagine Bob the salesman at the ABC Widget Company getting an order for widgets. Bob passes the order to Sam in manufacturing so that he can schedule the use of the widget-making machine. Sam then calls Arnie in inventory so that he can make sure there are enough widget-making materials in inventory to meet the order. Sam then calls Helen in Human Resources so that she can arrange enough people to work the machine when the run is scheduled. Additionally, someone must tell Tom in the warehouse so that he can check to see if there is enough warehouse space to house the widgets while the order is being manufactured, and then someone must tell Al in shipping so that he can schedule trucks and drivers to pick up and deliver the order to the customer. Accounting and purchasing must also get involved to buy inventory, bill the customer and pay the employees. This complex series of events, from the initial order to the delivery of a product, is known as the "supply chain." At the ABC Widget Company, this process works as long as no one misses his part of the process or is on vacation. And it works as long as ABC does not have too many orders to keep track of, but once ABC reaches a certain size, or decides to grow into a major operation, an ERP is the only way to make it possible.
Automating the Process
An ERP software system automates the processes, information and resources in a supply chain. To be considered an ERP, the ERP must involve at least two corporate systems. For example, the ABC Widget Company above might only want to automate its manufacturing and shipping departments now. Later on, it might want to add other departments one by one, but in a fully integrated and maintained ERP installation, an incoming order will automatically kick off a chain of events. There is no chance that the chain will be broken. Existing systems can be complex, and so ERP systems are difficult to implement correctly. Often, the vendors of the ERP software will supply consultants to migrate the existing process and existing data into a new system, but even so, the failure rate for ERPs is quite high. Most studies indicate that more than 50 percent fail. Inadequate training and follow-up can mean that the new system is not used correctly. Resistance from existing employees is often a problem too, when they by-pass the system to use a more familiar way of doing things.