What is ERP ?

From erp.manufacturer-supplier.com

Below article explains in brief what is ERP software.

What is ERP software ?

ERP software means Enterprise Resource Planning systems. ERP systems are large computer systems that integrate application programs in accounting (i.e., accounts receivable), sales (i.e., order booking), manufacturing (i.e., product shipping) and the other functions in the firm. This integration is accomplished with through a database shared by all the application programs.

When you first see an ERP program, the application programs are similar to those with which you are already familiar. So the production scheduling, billing a customer, processing a payroll and other tasks are done in ways that should be pretty familiar to those of you who have worked with these applications over the years. So what is the big deal? Integration! ERP systems tie these, usually separate, applications together. When a customer service representative takes a sales order it is entered in the common database and in the other applications where it is needed, for example, in the manufacturing backlog, the credit system and the shipping schedule. No more carrying little pieces of paper back and forth. Or writing translation programs to get the information from one function to another. Sounds great, right? Read on!

ERP systems work in real-time, meaning that the exact status of everything is always available. Further, many of these systems are global. Since they can be deployed at sites around the world, they can work in multiple languages and currencies. When they are, you can immediately see, for example, exactly how much of a particular part is on-hand at the warehouse in Japan and what its value is in Yen or Dollars. This is a pretty amazing accomplishment. Sound too good to be true? It is --- all this doesn't come free.

In addition to the technical details, the way the hardware and software are organized, and technically how the logic of the system functions, there is another aspect to understanding ERP. It is the management and implementation issues associated with the systems that may be the most important of all. Whether you are considering the use of ERP, are faced (forced?) with implementation, or are just generally concerned about the management issues involved in using ERP systems, you should understand some of the tradeoffs involved.

We are all concerned about keeping up with new technology and the challenge that this poses. The pervasive promotion and use of ERP systems suggest that, for this technology, we need to understand the scope of these systems and have a basic knowledge of how they work. Fortunately, learning about ERP is not so much learning all-new concepts and ideas, but rather learning about new ways to do things that we already have been doing and the ERP terminology associated with them. This means, whether you are a general manager, information system executive, an accountant, or a student, you already know more about how ERP works than you think you do, but you still need to learn the managerial issues associated with the degree of integration they support.

What are the hidden costs of ERP?

Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Armed with insights from across the business, ERP pros vote the following areas as most likely to result in budget overrun.

1. Training - Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface. Worse, outside training companies may not be able to help you. They are focused on telling people how to use software, not on educating people about the particular ways you do business. Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system. One enterprising CIO hired staff from a local business school to help him develop and teach the ERP business-training course to employees. Remember that with ERP, finance people will be using the same software as warehouse people and they will both be entering information that affects the other. To do this accurately, they have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along. Ultimately, it will be up to your IT and businesspeople to provide that training. So take whatever you have budgeted for ERP training and double or triple it up front. It will be the best ERP investment you ever make.
   
2. Integration and testing - Testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis is another often-underestimated cost. A typical manufacturing company may have add-on applications from the major?ae-commerce and supply chain?ato the minor?asales tax computation and bar coding. All require integration links to ERP. If you can buy add-ons from the ERP vendor that are pre-integrated, you're better off. If you need to build the links yourself, expect things to get ugly. As with training, testing ERP integration has to be done from a process-oriented perspective. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next, run a real purchase order through the system, from order entry through shipping and receipt of payment?athe whole order-to-cash banana?apreferably with the participation of the employees who will eventually do those jobs.
   
3. Customization - Add-ons are only the beginning of the integration costs of ERP. Much more costly, and something to be avoided if at all possible, is actual customization of the core ERP software itself. This happens when the ERP software can't handle one of your business processes and you decide to mess with the software to make it do what you want. You're playing with fire. The customizations can affect every module of the ERP system because they are all so tightly linked together. Upgrading the ERP package?ano walk in the park under the best of circumstances?abecomes a nightmare because you'll have to do the customization all over again in the new version. Maybe it will work, maybe it won't. No matter what, the vendor will not be there to support you. You will have to hire extra staffers to do the customization work, and keep them on for good to maintain it.
4. Data conversion - It costs money to move corporate information, such as customer and supplier records, product design data and the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated?aor inspired?aby the ERP implementation.
   
5. Data analysis - Often, the data from the ERP system must be combined with data from external systems for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget?aand they should expect to do quite a bit of work to make it run smoothly. Users are in a pickle here: Refreshing all the ERP data every day in a big corporate data warehouse is difficult, and ERP systems do a poor job of indicating which information has changed from day to day, making selective warehouse updates tough. One expensive solution is custom programming. The upshot is that the wise will check all their data analysis needs before signing off on the budget.
   
6. Consultants ad infinitum - When users fail to plan for disengagement, consulting fees run wild. To avoid this, companies should identify objectives for which its consulting partners must aim when training internal staff. Include metrics in the consultants' contract; for example, a specific number of the user company's staff should be able to pass a project-management leadership test?asimilar to what Big Five consultants have to pass to lead an ERP engagement.
   
7. Replacing your best and brightest - It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business and IS divisions. The software is too complex and the business changes too dramatic to trust the project to just anyone. The bad news is a company must be prepared to replace many of those people when the project is over. Though the ERP market is not as hot as it once was, consultancies and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford?aor that your HR policies permit. Huddle with HR early on to develop a retention bonus program and create new salary strata for ERP veterans. If you let them go, you'll wind up hiring them?aor someone like them?aback as consultants for twice what you paid them in salaries.
   
8. Implementation teams can never stop - Most companies intend to treat their ERP implementation as they would any other software project. Once the software is installed, they figure the team will be scuttled and everyone will go back to his or her day job. But after ERP, you can't go home again. The implementers are too valuable. Because they have worked intimately with ERP, they know more about the sales process than the salespeople and more about the manufacturing process than the manufacturing people. Companies can't afford to send their project people back into the business because there's so much to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. And it is in analysis?aand, one hopes, insight?athat companies make their money back on an ERP implementation. Unfortunately, few IS departments plan for the frenzy of post-ERP installation activity, and fewer still build it into their budgets when they start their ERP projects. Many are forced to beg for more money and staff immediately after the go-live date, long before the ERP project has demonstrated any benefit.
9. Waiting for ROI - One of the most misleading legacies of traditional software project management is that the company expects to gain value from the application as soon as it is installed, while the project team expects a break and maybe a pat on the back. Neither expectation applies to ERP. Most of the systems don't reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. And the project team is not going to be rewarded until their efforts pay off.
   
10. Post-ERP depression - ERP systems often wreak cause havoc in the companies that install them. In a recent Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live. The true percentage is undoubtedly much higher. The most common reason for the performance problems is that everything looks and works differently from the way it did before. When people can't do their jobs in the familiar way and haven't yet mastered the new way, they panic, and the business goes into spasms.