Earlier, in large organizations, different information systems were used to serve different business functions like sales, marketing, production, manufacturing, etc., separately. The business processes in each business function were disparate and not capable of sharing information with each other. It was difficult for the managers to assemble the data fragmented into separate systems in order to present an overall picture of the organization’s operations and take firm-wide decisions.
At the time a customer places an order, for example, the sales personnel might not be able to tell him whether the desired items are in inventory or are to be produced. To overcome such difficulties, in recent years, many organizations have opted to replace the several distinct information systems with a single integrated system that can support the business activities for different business functions. Such systems are called enterprise systems.
An enterprise system, also known as enterprise resource planning (ERP) system, is a cross- functional information system that provides organization-wide coordination and integration of the key business processes and helps in planning the resources of an organization. With the help of enterprise resource planning systems, information can flow seamlessly across the firm. Also, different business processes from sales, production, manufacturing, logistics, and human resources can be integrated into organization-wide business processes.
An ERP system is driven by the ERP software suite-a set of integrated software modules–and a common centralized database. The software modules support the basic business processes under different functional areas, and the database stores data from and feeds the data to various applications supporting the internal business activities.
Some examples of business processes supported by ERP software include accounts payable, general ledger, cash management and forecasting, personnel administration, payroll, time management, inventory management, product pricing, billing etc. Initially, ERP software was designed for automating a firm’s internal ‘back-office’ business processes, but now, it can also communicate with customers, suppliers, and other business partners.
For implementing ERP systems, organizations need to identify the business processes to be automated and then map those processes to the processes provided by ERP systems. All this requires a great amount of effort. Moreover, organizations may find that the business processes of these systems are not able to support the way that organization’s business processes work.
In such cases, the software may need to be customized to satisfy the requirements of the organizations. This may not only deteriorate the system’s performance but also need compromising the information and process integration. Thus, to obtain the maximum benefit from enterprise resource planning software, the organizations should change their way of working according to the business processes of software instead of customizing the software.
Nowadays, a variety of ERP software offered by different software vendors are available in the market. Some major enterprise resource planning software along with their vendors are:
Benefits of Enterprise Resource Planning (ERP) Systems
- Communicate the critical firm-wide information on the business performance to managers all across the organization quickly, so as to enable them to make better decisions and at the right time.
- Reduce the cost involved in transaction processing, hardware, software, and IT support staff in a significant manner.
- Improve the quality and efficiency of customer service, production and distribution by integrating the company’s internal business processes in sales, finance, production, custom logistics etc.
- Help to create a more uniform organizational culture where everyone uses similar type of processes and information to do business.