What is an ERP System

What is an ERP system? ERP is an acronym for “Enterprise Resource Planning.” Some of the first instances of the term stretch back to 1990 from Gartner Group reports. The term was born from MRP (material requirement planning) term used in the 1960’s era manufacturing industry.

While ERP systems grew from the manufacturing industry, it has grown to encompass all industries. Also, while there might be “enterprise” in the definition, small and medium sized business also can use ERP systems tailored specifically to their needs and growth projections.

ERP II and ERP III

In the 2000’s, there was an effort to create a new generations of ERP systems that encompassed more available technologies into a centralized system. While the systems evolved, they were still called ERP systems. You might hear ERP II and ERP III used from time-to-time, but they aren’t common terms as everything is simply called “ERP systems” so the acronym alphabet soup doesn’t get too murky.

To understand what an ERP system is, you need to look at the history of the systems to see how they evolved into central pieces of software for companies across the world.

Manufacturing Roots

Back in the 1960’s, manufacturing companies needed better processes to make sure the right materials and equipment were being efficiently used so products could ship around the increasingly globalized world. Toyota created their own proprietary Toyota Production System (TPS) that organized every manufacturing interaction all the way down the supply chain. It results were tremendous for Toyota and others looked to replicate and improve the process. Material Requirement Planning (MRP) was the result and Black & Decker was the first company to implement it.

Fast forwarding through the decades, in the 1970’s several hundred companies adopted MRP practices and by the 1980’s, nearly 10,000 companies were on-board with MRP projects, thanks to the general availability of computers in the workplace. From there, the place of MRP projects picked up until the 1990’s when the first instances of ERP were used by the Gartner Group in their reports.

ERP Systems Take Center Stage in the 90’s

the 1990’s were distinct for ERPs for a single reason: they began to evolve into programs that any company could use. Not just manufacturers. With advancements in computers as a central component to work and the internet emerging as a business tool, all companies could take advantage of centralizing their processes under a single system that worked across the company.

At first, only the largest companies could afford to implement these programs (hence the “enterprise” in ERP) but with software bringing the cost of development down and more affordable computers, soon small and medium size businesses could reap the benefits of ERP systems without putting too much financial strain on their business.

In the 2000’s and beyond, ERP systems started to integrate more core business features and specialize in different industries.

At the highest level, ERP systems centralize critical business roles under a single program that has a consistent look and feel across all components. You often don’t get a clear picture of the specific functionality because the large number of ERP systems don’t always feature the same core features (also called modules). That said, there are commonality to a lot of the functions across the majority of popular ERP offerings.

Financial Management

Anything that relates to the flow of money in your company can be integrated, reported and tracked through an ERP system. From payroll to budgeting, ERP systems can handle complex financial tasks quickly and efficiently.

Human Resource Management

The people that help power the company are one of the most important resources to any company. With an ERP system, you can keep detailed information and master records of your employees while also offering time management systems and personal development.

Supply Chain Management

If you company works with physical goods, keeping track of inventory and demand planning can happen within an ERP environment. You can also keep track of scheduling and logistics to keep track of deliveries and timing.

Project Management

New initiatives, large or small, within a company can be visible with the project management modules to ensure the deliverables are on time.

Customer Relationship Management (CRM)

For marketing and sales functions, CRM modules help make sense of all your vendor and client information. Keeping detailed track of relationships makes sure your clients and contacts don’t fall through the cracks and don’t feel valued.

Business Intelligence and Reporting

ERP systems house incredible amounts of data from different areas of your business. What does it all mean? That’s what Business Intelligence and Reporting can tell you. Aggregating, slicing and dicing the information can provide invaluable insight into the operation of your organization and the elements that make up the whole.

In no uncertain terms, ERP implementations are a risk. When you make the decision to purchase an integrate an ERP system in your company, you need to make a series of other decisions that ultimately decide the success or failure of the entire project. Depending on how well you company plans and prepares for large undertakings is a barometer for how well the implementation process will go.

For instance, will your company implement a cloud-based solution or something you can host on-premise? What stakeholders do you need to align with the project goals? What vendor and partner will you work with to make the process go as smoothly as possible? Can you articulate the future of your business so you don’t lock yourself in something that won’t grow with your projections? How long can your employees be without access to critical systems while the changes happen?

The implementation process is a lot of asking questions and finding answers before the heavy lifting of committing the workhours it will take to get the system off the ground and operational.