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ERP definition and solutions

ERP topics covering definition, objectives, systems and solutions.

By Thomas Wailgum

PAGE 2

• What is ERP?
• How can ERP improve a company’s business performance?
• How long will an ERP project take?
• What will ERP fix in my business?
• Will ERP fit the ways I do business?
• What does ERP really cost?
• When will I get payback from ERP—and how much will it be?
• What are the hidden costs of ERP?
• Why do ERP projects fail so often?
• How do I configure ERP software?
• How do companies organize their ERP projects?
• How does ERP fit with e-commerce?
• How do on-demand and software-as-a-service ERP applications work?
• How do I know my ERP data is any good?
• Just how important have ERP systems become?

How long will an ERP project take?

Companies that install ERP do not have an easy time of it. Don’t be fooled when ERP vendors tell you about a three or six month average implementation time. Those short (that’s right, six months is short) implementations all have a catch of one kind or another: The company was small, or the implementation was limited to a small area of the company, or the company used only the financial pieces of the ERP system (in which case the ERP system is nothing more than a very expensive accounting system). To do ERP right, the ways you do business will need to change and the ways people do their jobs will need to change too. And that kind of change doesn’t come without pain. Unless, of course, your ways of doing business are working extremely well (orders all shipped on time, productivity higher than all your competitors, customers completely satisfied), in which case there is no reason to even consider ERP.

The important thing is not to focus on how long it will take—real transformational ERP efforts usually run between one and three years, on average—but rather to understand why you need it and how you will use it to improve your business.

Over the last few years, however, Internet-driven changes have occurred that can drastically reduce how long it takes vendors to deliver ERP modules. These faster implementations (meaning weeks, not years) are the result of a new category of ERP software delivery referred to as on-demand or software-as-a-service (SaaS). Typically, on-demand and SaaS ERP applications (such as finance or HR packages) are hosted by a third party, and customers access the multitenant (or shared) ERP applications via a Web connection. Because the software doesn't need to be installed as in the traditional on-premise manner, implementation times can be drastically shorter than implementing ERP applications on-premise.

What will ERP fix in my business?

There are five major reasons why companies undertake ERP.

1. Integrate financial information—As the CEO tries to understand the company’s overall performance, he may find many different versions of the truth. Finance has its own set of revenue numbers, sales has another version, and the different business units may each have their own version of how much they contributed to revenues. ERP creates a single version of the truth that cannot be questioned because everyone is using the same system.
2. Integrate customer order information—ERP systems can become the place where the customer order lives from the time a customer service representative receives it until the loading dock ships the merchandise and finance sends an invoice. By having this information in one software system, rather than scattered among many different systems that can’t communicate with one another, companies can keep track of orders more easily, and coordinate manufacturing, inventory and shipping among many different locations at the same time.
3. Standardize and speed up manufacturing processes—Manufacturing companies—especially those with an appetite for mergers and acquisitions—often find that multiple business units across the company make the same widget using different methods and computer systems. ERP systems come with standard methods for automating some of the steps of a manufacturing process. Standardizing those processes and using a single, integrated computer system can save time, increase productivity and reduce head count.
4. Reduce inventory—ERP helps the manufacturing process flow more smoothly, and it improves visibility of the order fulfillment process inside the company. That can lead to reduced inventories of the stuff used to make products (work-in-progress inventory), and it can help users better plan deliveries to customers, reducing the finished good inventory at the warehouses and shipping docks. To really improve the flow of your supply chain, you need supply chain software, but ERP helps too.
5. Standardize HR information—Especially in companies with multiple business units, HR may not have a unified, simple method for tracking employees’ time and communicating with them about benefits and services. ERP can fix that.

In the race to fix these problems, companies often lose sight of the fact that ERP packages are nothing more than generic representations of the ways a typical company does business. While most packages are exhaustively comprehensive, each industry has its quirks that make it unique. Most ERP systems were designed to be used by discrete manufacturing companies (that make physical things that can be counted), which immediately left all the process manufacturers (oil, chemical and utility companies that measure their products by flow rather than individual units) out in the cold. Each of these industries has struggled with the different ERP vendors to modify core ERP programs to their needs.

To help address industry-specific problems and customization needs, ERP vendors have recently begun to offer specially tailored application sets to take care of each vertical segment's needs. There still is customization work to do to satisfy each and every customer, but packaged applications now target such industries as: retail, media, utilities, high-tech, public sector, higher education and banking. In addition, ERP vendors have further tailored application to address the individual concerns within the broad manufacturing space. These range from consumer products to construction to HVAC to aerospace and defense companies.

 

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