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The ABCs of ERP
By TEC Analyst Team
October 21, 2008
History of ERP
Enterprise resource planning (ERP) systems were developed as an extension of materials requirements planning (MRP) systems. MRP, in turn, was originally developed (late 70s and early 80s) to integrate planning and scheduling elements to the manufacturing process. Subsequently "MRP II" was introduced to incorporate the planning elements of distribution and forecast requirements to the central manufacturing location.
ERP was introduced in the late 80s as a means to integrate other enterprise functionality. One example would be when a software system can provide at least two other functions (as is the case if an organization has the means to integrate the requirements of both a human resources module and a financial system).
In modern ERP systems, usage is not confined to manufacturing organizations. It is typically designed to integrate applications that traditionally would have been separate "stand alone" activities, such as product configuration control, bill of materials and sales, or order entry.
Modern ERP Systems
In current ERP systems one would expect to have the ability to manage the following applications (among others) through a single database:
manufacturing
supply chain
financials
customer relationship management
HR
warehouse management
business intelligence
Determining which ERP solution best meets your needs depends to a great extent on your industry vertical space, as well as the application requirements of your organization.
If your organization lacks the resources to integrate a complete ERP system package, then only portions of the system need be implemented, with the other applications introduced gradually over a period of time. In other instances an organization may already have a very robust accounting system, with other applications in place, and may simply be looking to extend the capabilities of current systems by adding additional applications.
One example might be a retail company that has a point of sale (POS) system and a financial application from different software vendors. However, additional specialized applications such as warehouse management systems (WMS) and transportation management systems (TMS) and demand planning are not in place and are required to optimize the supply chain capabilities.
Integration to other functionality is large part a measure of the capabilities of the company's existing legacy systems. In systems using modern relational database management systems (RDBMS), integrating other applications as a "best of breed" solution is fairly commonplace.
The alternative is to explore other options in light of the total cost of ownership (TCO) of supporting and maintaining the existing legacy system. In many instances it may make sense to purchase a new solution where all required applications are available as a standard part of the software solution.
It should also be noted that there has never been a better time for prospective ERP system buyers, as there are so many choices that can support the best practices of whatever industry vertical or business model your organization has in place.
Low-cost ERP Options
If your organization has limited IT resources and budget constraints, one option to consider is software as a service (SaaS), whereby your organization can access an externally hosted solution with a set of pre-configured modules that can provide the functionality of a completely integrated ERP system (for a monthly fee). This can address the need to have a solution in place, without incurring the costs for support and maintenance of an ERP system.
Another alternative is to explore the growing number of open source ERP vendors, which can address many application requirements for little or no up-front costs. Other costs are applied at the back end for support and for features which may not be available within the standard open source offering.
Do your own free custom ERP comparison
If you would like to compare different ERP systems based on your organization's special needs
and characteristics (size, industry, business model, geographical markets, IT platform and requirements,
etc.), visit TEC's ERP Evaluation Center. It's fast and easy, and you'll get the results immediately.
This article is based on an original TEC blog post.
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