Enterprise Resource Planning (ERP), a term originally derived from material resource planning (MRP), is a business management and automation system that integrates multiple (or all) business processes, including planning, manufacturing, logistic, inventory, accounting, human resources, sales, and marketing. Since ERP systems are cross-functional and enterprise wide and all functional departments that are involved in operations or production are integrated in one system, implementing such a complex and huge software system in a company usually involves an army of consultants (external), analysts, programmers, and users, and often comprises a multi-million dollar/yen/euro project in itself for bigger companies.
ERP systems are packaged and modular software rather than proprietary software written by or for one customer. ERP modules may be able to interface with an organization's own software with varying degrees of effort, and, depending on the software, ERP modules may be alterable via the vendor's proprietary tools as well as proprietary or standard programming languages. Enterprise resource planning systems are often closely tied to supply chain management systems. Supply chain management software can extend the ERP system to include links with suppliers.
The benefits from enterprise resource planning are claimed to include:
- lower inventory carrying costs
- lower ordering costs
- lower production costs
- lower accounting and record keeping costs
- lower transportation costs
- lower investment in equipment
- lower investment in plant
- lower investment in land
- reduced assembly-line down-times
- more flexible production processes
- more efficient lot sizes and scheduling
- reduced errors due to better coordination
- the cost and efficiency improvements may result in increasing profitability and competitiveness
- reduced number of stock-outs
- reduced fulfillment times
- increase process transparency for the customer
- allow greater product customization, and thereby better match the customer needs
- the customer satisfaction improvements may result in increasing sales, profitability and competitiveness
The limitations and pitfalls of the enterprise resource planning are:
- the systems can be very expensive to install and maintain
- some systems can be difficult to use
- the system is no better than the weakest link in the chain - a problem in one department or at one of the partners will affect all the other participants
ERP: Enterprise Resource Planning
Related Terms: Supply Chain Management, Material Resource Planning