Updated: April 30, 2009

What is ERP?

ERP stands for Enterprise Resource Planning. It is a type of software package that uses one database and interface to bring together functions for various departments. This means that employees across an organization can see the same information about any order or process, determine what steps need to be taken next, and communicate more easily about how to complete a sale or project.

ERP was originally developed to help streamline the complex processes involved in manufacturing and was initially called MRP, then MRP II (Materials Requirements Planning and Manufacturing Resource Planning, respectively) before the name was switched to ERP.

What functions does an ERP solution provide?

ERP solutions focus primarily on the back end of the business, providing one database to keep track of all the essential administrative functions that go on behind the scenes. These might include:

  • Manufacturing
  • Supply-chain management
  • Financials
  • Project management
  • HRIS (Human resources Information Systems)
  • Data warehousing

Recent ERP solutions also provide front-end software such as CRM. This allows back-office staff to see real-time information about customer interactions such as technical-support issues and sales orders.

Do all ERP solutions incorporate every department?

Most often, the term ERP refers to large applications that replace a multitude of independent applications. But different companies have different ERP requirements, and there are many ways to implement a solution.

Some companies might wish to limit the scope of their ERP software to a few vital applications that will help them streamline processes or make information more easily available. A company that wanted to integrate accounting and finance with payroll , for example, could use an ERP solution.

In certain cases, organizations might prefer to use ERP to integrate certain systems and leave legacy systems in place that are better able to handle specific tasks. These stand-alone solutions may have better features or be more appropriately configured for a department's needs than the ERP solution's software.

What are the benefits of ERP?

ERP solutions help integrate otherwise isolated systems into one platform and interface, which has a multitude of benefits:

  • Since it is easier to administer one platform than several, ERP saves the IT staff time.
  • Managers have greater insight into company processes and systems, which can help them standardize planning processes.
  • Employees can track orders and internal processes and adjust their plans as needed.
  • Because all of the information is stored in one database, users can access more comprehensive reports more easily.

What ERP systems are available for SMBs (small- to medium-sized businesses)?

Today, many hosted, Web-based ERP solutions are available for SMBs, allowing them to operate a smaller-scale ERP system at a fraction of the cost of a premise-based solution . By contracting a third-party provider to host and operate an ERP system, SMBs save the cost and hassle of having to hire and train extra IT staff to implement or maintain the solution.

However, there are some risks to a hosted solution. Since all the information is stored on the hosted servers, a company puts its sensitive data in the hands of the third-party contractor providing the systems, which presents risks of privacy or data compromise. Additionally, many large companies such as Oracle Corp ., SAP and Sage Software have developed highly customizable hosted solutions for businesses, but customization can bloat the price tag of a hosted solution and make it unaffordable for some companies.

That said, a properly-implemented solution, can help organize information in ways previously impossible to assist in the every-day operation of a business, especially when put in place with the assistance of an integration partner who understands the business's unique needs . For example, Oracle's ERP solution, contains several modules within Oracle Financials, Oracle Logistics, Oracle HRMS, Oracle Sales and several other product lines. Under the Oracle Accelerate program, partners work to develop solutions matched to the precise needs of customers with the goal of achieving specific goals within a set time frame and within a set budget.

Microsoft's Dynamics product family includes a similar assortment of applications that take aim at financial, CRM and supply chain management tasks, although it positions its products toward the way different companies work, such as project-based businesses like construction and professional services companies (Dynamics SL), single-store retail organizations (Dynamics Point of Sale) and companies with geographically dispersed operations (Dynamics AX). Microsoft solutions are delivered through channel partners who provide personalized services, from planning and implementation through customization through on-going training and support.

SAP's ERM suite is made up of four key products: SAP ERP Human Capital Management, Financials, Operations and Corporate Services. Again, these are delivered primarily through a network of intergator partners.

An alternative to these solutions are open-source products that allow companies to customize their own implementations and save the costs of paying a provider to do so. The solution you choose depends on what systems you are interested in integrating. For example, Compiere ERP focuses on sales and CRM processes, whereas Openbravo ERP focuses instead on warehouse and production management, as well as procurement and finance.

How long does it take to implement an ERP solution?

This depends on the systems you need to integrate and how customized you want the solution to be. Some hosted solutions available for SMBs can be implemented within a few hours if not much customization is required.

On the other hand, open-source or other premise-based implementations might take weeks, months or years, depending on the customization and scale of the project. Even large businesses don't usually have staff with the expertise to set up ERP, so they often bring in consultants to plan and deploy the system.

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