ERP Systems is about managing the people, purchases products and services, sales of an organization. The way each activity is handled will vary, but every enterprise performs these basic functions. In most cases, it is more effective to handle these processes through an integrated software platform than through multiple applications never designed to work together. That’s where enterprise resource planning (ERP) systems come in.

While ERPs were originally designed for manufacturing companies, they have expanded to service industries, higher education, hospitality, health care, financial services, and government. Each industry has its own peculiarities. For example, government ERP uses Contract Lifecycle Management (CLM) rather than traditional purchasing and follows government accounting rules rather than GAAP. Banks have back-office settlement processes to reconcile checks, credit cards, debit cards, and other instruments.

What is ERP?

ERP is software that standardizes, streamlines and integrates business processes across finance, human resources, procurement, distribution, and other departments. Typically, ERP systems operate on an integrated software platform using common data definitions operating on a single database.

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What is an ERP system used for?

ERP systems improve enterprise efficiency and effectiveness by:

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What are the benefits of ERP systems?

4 key features of ERP systems

The scale, scope, and functionality of ERP systems vary widely. However, most ERP software features the following characteristics:

  1. Enterprise-wide integration. Business processes are integrated end to end across departments and business units. For example, a new order automatically initiates a credit check, queries product availability, and updates the distribution schedule. Once the order is shipped, the invoice is sent.
  2. Real-time (or near real-time) operations. Since the processes in the example above occur within a few seconds of order receipt, problems are identified quickly, giving the seller more time to correct the situation.
  3. A common database. A common database was one of the initial advantages of ERP. It allowed data to be defined once for the enterprise with every department using the same definition. Individual departments now had to conform to the approved data standards and editing rules. While some ERPs continue to rely on a single database, others have split the physical database to improve performance.
  4. Consistent look and feel. Early ERP vendors realized that software with a consistent user interface reduces training costs and appears more professional. When other software is acquired by an ERP vendor, common look and feel are sometimes abandoned in favor of speed to market. As new releases enter the market, most ERP vendors restore the consistent user interface.

Types of ERP systems

ERP systems are typically categorized in tiers based on the size and complexity of enterprises served. ERP systems can be either proprietary or free and open-source, though most open-source ERPs are designed for small organizations or higher education and may offer little functionality beyond finance.

Cloud ERP is becoming increasingly popular, but all cloud ERPs do not operate in the same fashion. There are two major types:

For most enterprises, ERP as a service offers three advantages: The initial cost is lower, upgrades to new releases are easier, and reluctant executives cannot pressure the organization to write custom code for their organization.

ERP implementation

Most successful ERP implementations are led by an executive sponsor. This is the executive who will receive the majority of the program’s benefits when the new system is operational. At a minimum, this executive should sponsor the business case, get approval to proceed, monitor progress, chair the steering committee, remove roadblocks, and capture the benefits. With the exception of internal IT projects such as infrastructure refreshes or ITIL rollout, the CIO should NOT sponsor projects.

The CIO works closely with the executive sponsor to ensure adequate attention is paid to the integration with existing systems, data migration, and infrastructure upgrades. The CIO should also advise the executive sponsor about the challenges encountered by all major programs and should help the executive sponsor select a firm specializing in ERP implementations. Such a firm should bring specialized business process knowledge and experience with the ERP selected. An implementation firm executive should become an advisor to the executive sponsor.

The executive sponsor should be advised by an organization change management executive as well. An ERP implementation will result in new business processes, roles, user interfaces, and job responsibilities. Organization change management can help every person in the enterprise understand the impact ERP will have on both the organization and on the individuals. In most cases, an organization change management firm, rather than an internal executive, provides this support.

Reporting to the program’s executive team should be a business project manager and an IT project manager. If the enterprise has engaged an ERP integration firm or an organization change management specialist, their project managers should be part of the core program management team.

ERP implementation: The 5 major steps

Most ERP practitioners use some version of the steps below to structure their ERP implementation:

1. Gain approval

The first step is to get formal approval to spend money and direct staff to implement the ERP. The executive sponsor oversees the creation of any documentation required for approval. This document, usually called a business case, typically includes the following:

Once the business case is complete, the appropriate group of senior executives should authorize ERP implementation to proceed.

2. Plan the program

The high-level timeline created for the business case must be refined into a more complete work plan. The following steps need to be completed:

3. Configure software.

This is the largest and most difficult phase. The major steps include:

4. Deploy the system

Prior to the final cutover when the new system is in production, multiple activities have to be completed. These include:

5. Stabilize the system 

Following ERP deployment, most organizations experience a dip in business performance as staff learns new roles, tools, business processes, and metrics. In addition, poorly cleansed data and infrastructure bottlenecks will cause disruption. All impose a workload bubble on the ERP deployment and support team.

What are the hidden costs of ERP?

The four factors that are commonly underestimated during project planning include:

Why ERP projects fail

ERP projects fail for many of the same reasons that other projects fail. The most common cause is an ineffective executive sponsor who cannot command respect throughout the organization, is not interested in the project, or is distracted by other responsibilities. Other ways to fail include poorly defined program goals, weak project management, inadequate resources, and poor data cleanup.

There are several causes of failure that are closely tied to ERPs. Specifically:

Even groups who support the ERP can become disenchanted if the implementation team provides poor support or is perceived to be rude or unresponsive. Disenchanted supporters can become vicious critics when they feel they have been taken for granted and not offered appropriate support.

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