ERP

Functional Modules of ERP Software


ERP software is made up of many software modules. Each ERP software module mimics a major functional area of an organization. Common ERP modules include modules for product planning, parts and material purchasing, inventory control, product distribution, order tracking, finance, accounting, marketing, and HR. Organizations often selectively implement the ERP modules that are both economically and technically feasible.
ERP Production Planning Module
In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while vendors have developed more robust software for production planning, consulting firms have accumulated vast knowledge of implementing production planning module. Production planning optimizes the utilization of manufacturing capacity, parts, components and material resources using historical production data and sales forecasting.
ERP Purchasing Module
Purchase module streamline procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and billing processes. Purchase module is tightly integrated with the inventory control and production planning modules. Purchasing module is often integrated with supply chain management software.
ERP Inventory Control Module
Inventory module facilitates processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory control involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status. Integration of inventory control module with sales, purchase, finance modules allows ERP systems to generate vigilant executive level reports.
ERP Sales Module
Revenues from sales are live blood for commercial organizations. Sales module implements functions of order placement, order scheduling, shipping and invoicing. Sales module is closely integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as part of the sales module.
ERP Market in Module
ERP marketing module supports lead generation, direct mailing campaign and more.
ERP Financial Module
Both for-profit organizations and non-profit organizations benefit from the implementation of ERP financial module. The financial module is the core of many ERP software systems. It can gather financial data from various functional departments, and generates valuable financial reports such balance sheet, general ledger, trail balance, and quarterly financial statements.
ERP HR Module
HR (Human Resources) is another widely implemented ERP module. HR module streamlines the management of human resources and human capitals. HR modules routinely maintain a complete employee database including contact information, salary details, attendance, performance evaluation and promotion of all employees. Advanced HR module is integrated with knowledge management systems to optimally utilize the expertise of all employees.

ERP Definition - A Systems Perspective

What is ERP

ERP is the acronym of Enterprise Resource Planning. ERP utilizes ERP software applications to improve the performance of organizations' resource planning, management control and operational control. ERP software is multi-module application software that integrates activities across functional departments, from product planning, parts purchasing, inventory control, product distribution, to order tracking. ERP software may include application modules for the finance, accounting and human resources aspects of a business.
ERP vs. CRM and SCM
CRM (Customer Relationship Management) and SCM (Supply Chain Management) are two other categories of enterprise software that are widely implemented in corporations and non-profit organizations. While the primary goal of ERP is to improve and streamline internal business processes, CRM attempts to enhance the relationship with customers and SCM aims to facilitate the collaboration between the organization, its suppliers, the manufacturers, the distributors and the partners.
ERP Definition - A Systems Perspective
ERP, often like other IT and business concepts, are defined in many different ways. A sound definition should several purposes:
1. It answers the question of "what is ... ?".
2. It provides a base for defining more detailed concepts in the field - ERP software, ERP systems, ERP implementation etc.
3. It provides a common ground for comparison with related concepts - CRM, SCM etc.
4. It helps answer the basic questions in the field - benefits of ERP, the causes of ERP failure etc.
A definition of ERP based on Systems Theory can server those purposes.
ERP is a system which has its goal, components, and boundary.
The Goal of an ERP System - The goal of ERP is to improve and streamline internal business processes, which typically requires reengineering of current business processes.
The Components of an ERP System - The components of an ERP system are the common components of a Management Information System (MIS).
· ERP Software - Module based ERP software is the core of an ERP system. Each software module automates business activities of a functional area within an organization. Common ERP software modules include product planning, parts purchasing, inventory control, product distribution, order tracking, finance, accounting and human resources aspects of an organization.
· Business Processes - Business processes within an organization falls into three levels - strategic planning, management control and operational control. ERP has been promoted as solutions for supporting or streamlining business processes at all levels. Much of ERP success, however, has been limited to the integration of various functional departments.
· ERP Users - The users of ERP systems are employees of the organization at all levels, from workers, supervisors, mid-level managers to executives.
· Hardware and Operating Systems - Many large ERP systems are UNIX based. Windows NT and Linux are other popular operating systems to run ERP software. Legacy ERP systems may use other operating systems.
The Boundary of an ERP System - The boundary of an ERP system is usually small than the boundary of the organization that implements the ERP system. In contrast, the boundary of supply chain systems and ecommerce systems extends to the organization's suppliers, distributors, partners and customers. In practice, however, many ERP implementations involve the integration of ERP with external information systems.

History and Evolution of ERP
ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements Planning (MRP) II. From business perspective, ERP has expanded from coordination of manufacturing processes to the integration of enterprise-wide backend processes. From technological aspect, ERP has evolved from legacy implementation to more flexible tiered client-server architecture.
The following table summarizes the evolution of ERP from 1960s to 1990s.

Timeline System Description
1960s Inventory Management & Control Inventory Management and control is the combination of information technology and business processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory management include identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status.
1970s Material Requirement Planning (MRP) Materials Requirement Planning (MRP) utilizes software applications for scheduling production processes. MRP generates schedules for the operations and raw material purchases based on the production requirements of finished goods, the structure of the production system, the current inventories levels and the lot sizing procedure for each operation.
1980s Manufacturing Requirements Planning (MRP II) Manufacturing Requirements Planning or MRP utilizes software applications for coordinating manufacturing processes, from product planning, parts purchasing, inventory control to product distribution.
1990s Enterprise Resource Planning (ERP) Enterprise Resource Planning or ERP uses multi-module application software for improving the performance of the internal business processes. ERP systems often integrates business activities across functional departments, from product planning, parts purchasing, inventory control, product distribution, fulfillment, to order tracking. ERP software systems may include application modules for supporting marketing, finance, accounting and human resources.

Functional Modules of ERP Software
ERP software is made up of many software modules. Each ERP software module mimics a major functional area of an organization. Common ERP modules include modules for product planning, parts and material purchasing, inventory control, product distribution, order tracking, finance, accounting, marketing, and HR. Organizations often selectively implement the ERP modules that are both economically and technically feasible.
ERP Production Planning Module
In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while vendors have developed more robust software for production planning, consulting firms have accumulated vast knowledge of implementing production planning module. Production planning optimizes the utilization of manufacturing capacity, parts, components and material resources using historical production data and sales forecasting.
ERP Purchasing Module
Purchase module streamline procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and billing processes. Purchase module is tightly integrated with the inventory control and production planning modules. Purchasing module is often integrated with supply chain management software.
ERP Inventory Control Module
Inventory module facilitates processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory control involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status. Integration of inventory control module with sales, purchase, finance modules allows ERP systems to generate vigilant executive level reports.
ERP Sales Module
Revenues from sales are live blood for commercial organizations. Sales module implements functions of order placement, order scheduling, shipping and invoicing. Sales module is closely integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as part of the sales module.
ERP Market in Module
ERP marketing module supports lead generation, direct mailing campaign and more.
ERP Financial Module
Both for-profit organizations and non-profit organizations benefit from the implementation of ERP financial module. The financial module is the core of many ERP software systems. It can gather financial data from various functional departments, and generates valuable financial reports such balance sheet, general ledger, trail balance, and quarterly financial statements.
ERP HR Module
HR (Human Resources) is another widely implemented ERP module. HR module streamlines the management of human resources and human capitals. HR modules routinely maintain a complete employee database including contact information, salary details, attendance, performance evaluation and promotion of all employees. Advanced HR module is integrated with knowledge management systems to optimally utilize the expertise of all employees.

ERP Implementation Methodologies

Different companies may install the same ERP software in totally different processes. The same company may implement different ERP software in the same approach. There are three commonly used methodologies for implementing ERP systems.
The Big Bang
Companies layout a grand plan for their ERP implementation. The installation of ERP systems of all modules happens across the entire organization at once. The big bang approach promised to reduce the integration cost in the condition of thorough and careful execution. This method dominated early ERP implementations, it partially contributed the higher rate of failure in ERP implementation. Today, not many companies dare to attempt it anymore. The premise of this implementation method is treating ERP implementation as the implementation of a large-scale information system, which typically follows SDLC (Systems Development Life Cycle). But an ERP system is much more than a traditional information system in the fact that the implementation of ERP continuously calls for the realignment of business processes. Many parties involved in ERP software systems are not IT professionals. ERP more than automates existing business processes. ERP transforms the business processes.
Modular Implementation
The method of modular implementation goes after one ERP module at a time. This limits the scope of implementation usually to one functional department. This approach suits companies that do not share many common processes across departments or business units. Independent modules of ERP systems are installed in each unit, while integration of ERP modules is taken place at the later stage of the project. This has been the most commonly used methodology of ERP implementation. Each business unit may have their own "instances" of ERP and databases. Modular implementation reduces the risk of installation, customization and operation of ERP systems by reducing the scope of the implementation. The successful implementation of one module can benefit the overall success of an ERP project.
Process-Oriented Implementation
The process-oriented implementation focuses on the support of one or a few critical business processes which involves a few business units. The initial customization of the ERP system is limited to functionality closely related to the intended business processes. The process-oriented implementation may eventually grow into a full-blown implementation of the ERP system. This approach is utilized by many small to mid-sized companies which tend to have less complex internal business processes.

ERP Benefits - Operational Control, Management Control and Strategic Planning
According to Anthony, R. A, organizational processes fall into three levels - strategic planning, management control and operational control. Even though much of ERP success has been in facilitating operational coordination across functional departments, successful implementation of ERP systems benefit strategic planning and manegment control one way or other.
Help reduce operating costs
ERP software attempts to integrate business processes across departments onto a single enterprise-wide information system. The major benefits of ERP are improved coordination across functinal departments and increased efficiencies of doing business. The immediate benefit from implementing ERP systems we can expect is reduced operating costs, such as lower inventory control cost, lower production costs, lower marketing costs and lower help desk support costs.
Facilitate Day-to-Day Management
The other benefits from implementing ERP systems is facilitation of day-to-day management . The implementations of ERP systems nurture the establishment of backbone data warehouses. ERP systems offer better accessibility to data so that management can have up-to-the-minute access to information for decision making and managerial control. ERP software helps track actual costs of activities and perform activity based costing.
Support Strategic Planning
Strategic Planning is "a deliberate set of steps that assess needs and resources; define a target audience and a set of goals and objectives; plan and design coordinated strategies with evidence of success; logically connect these strategies to needs, assets, and desired outcomes; and measure and evaluate the process and outcomes." (source) Part of ERP software systems is designed to support resource planning portion of strategic planning. In reality, resource planning has been the weakest link in ERP practice due to the complexity of strategic planning and lack of adequate integration with Decision Support Systems (DSS).
Critical Successful Factors of ERP Implementation

Implementation of an ERP system is a major investment and commitment for any organizations. The size and complexity of the ERP projects are the major factors that impact the cost of ERP implementations. Different companies may implement the same ERP software in totally different approaches and the same company may integrate different ERP software applications by following the same procedures. However, there are factors common to the success of ERP implementation regardless the ERP systems they implement and the methodologies they use.
Project Planning
ERP implementation starts with project planning - setting project goals, identifying high level business requirements, establishing project teams and estimating the project costs. The project planning offers the opportunity to re-evaluate the project at great details. If the ERP project is not justified at the planning phase, organizations shouldn't hesitate to cancel the project. For every successful ERP projects, there're projects that are canceled before implementation.
Architectural Design
While high level architectural decision is made in the process of ERP vendor selection, it remains a critical successful factor in integrating ERP with other e-business applications, ecommerce applications or legacy systems. Choice of middleware, interface software or programming languages drastically impact the implementation cost and release date.
Data Requirements
Unlike in-house e-business applications, much of the packaged ERP implementation involves the integration of ERP systems with existing e-business software (CRM, SCM and SFA) and legacy information systems. Appropriate level of data requirements is critical for an ERP to interact with other applications. Data requirements usually reflect details of business requirements. It costs ten times to correct a mistake at later phase of ERP implementation than the effort to correctly define requirements at analysis and design phase.
Phased Approach
It is important to break an ERP project down to manageable pieces by setting up pilot programs and short-term milestones. Dependent on the IT experience, some organizations choose the easiest piece as the pilot project, while others may implement a mission-critical application first. The pilot project can both demonstrate the benefits of ERP and help gain hands-on ERP implementation experience.
Data Conversion
Second generation ERP systems use relational database management systems (RDBMS) to store enterprise data. If a large amount of data are stored in other database systems or in different data formats, data conversion is a daunting tasks which is often underestimated in ERP implementations. A two-hour data conversion task could be turned into to a two-month efforts as the result of DBA group's lack of technical experience and management's incompetency or ignorance.
Organization Commitments
The involvement of ERP implementation goes far beyond IT department to many other functional departments. The commitment and smooth coordination from all parties is the key to the success of ERP project. The commitments come from the understanding of how ERP can benefit each functional department. For example, if the warehouse staff isn't completely sold on the inventory control module's benefits, they may not input the kind of usage data that is essential to the project's success.