What is ERP?

Enterprise Resource Planning (ERP) is an information technology system that uses both software and hardware to integrate and automate many internal business processes in the different departments of a company such as marketing, sales, operations, finance, and human resources. This system is widely used because its objective is to increase company efficiency, agility, and responsiveness by reducing inventories, shortening cycle times, lowering costs, and improving overall operations.

An information technology research and advisory firm called The Gartner Group developed ERP in 1990 as an extension of materials requirements planning, later known as materials resource planning, and computer integrated manufacturing. The system began growing rapidly during the early 2000’s and was first used by multinational companies specializing in producing fast moving consumer goods.

ERP is characterized as a transactional framework that makes use of software modules to integrate internal business processes, allowing its users to have a real-time view of a company’s core business processes through a common database that supports all its applications. This system does not rely on periodic updates, allowing users to proceed with their business modules.

A hardware system is also installed together with the software to support its function, especially in data conversion since this will be used for the system’s database. There is a need to provide training for users to familiarize them with the modules of the system. ERP provides functional areas for Financial Accounting, Management Accounting, Human Resources, Manufacturing, Supply Chain Management, Project Management, Customer Relationship Management, and Data Services.

In financial accounting, ERP has modules for general ledger, fixed assets, payables, receivables, cash management, and financial consolidation. For management accounting, its modules supports functions for budgeting, costing, cost management, and activity based costing.

In the area of human resources, its modules can provide functions in managing recruitment, training, payroll, benefits, 401K, diversity management, retirement and separation. ERP also supports customer relationship management by providing them functional modules for sales and marketing, commissions, service, customer contact, and call center support (mainly for Business Process Outsourcing companies). ERP can also provide data services functions through self-service interface for customers, suppliers, and employees.

ERP is useful for operations as it covers real-time modular functions from engineering to activity management. Its diversity and efficiency allows users to lessen response time, speed up transfer of information, and movement of business processes with lesser time and manpower necessary.

The success or failure of ERP in a company greatly depends on how the database is created and maintained, as well as how users are able to adapt to the transition and consistency of the system.

Source: Wikipedia