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Wednesday, January 28, 2009

Enterprise Resource Planning (ERP)

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(Refer our High Quality Management Encyclopedia “Management Universe” at:


1970s: MRP (Initially, material requirement planning; later, manufacturing resource planning)
1980s: MRP II
1990s: ERP (Enterprise resource planning; it's genesis is traced to a research and analysis firm Gartner)

What is ERP?
  • These systems are basically management systems and are supported by the computer software packages called ERP packages designed and marketed by many software vendors.
  • Basic most ERP system qualifies to be called ERP if it's related software package provides at least two functions say, materials function and accounting function.
  • Currently, ERP is an enterprise-wide system that is supposed to coordinate all the resources, information, and activities pertaining to all the business processes of an organization.
  • Computerized ERP provides a common integrated data base on the computer.
  • Earlier to advent of ERP systems, each function of an organization used to have its own, usually, stand alone, non-integrated customized computer system, mostly developed by in-house information technology professionals. For example, payroll system, purchase order system, material accounting system, financial accounting system, sales order processing system etc.
  • ERP is an extension of MRPII (and not the replacement of MRP II) for businesses.
  • ERP addresses the needs of multi-division, multi-location and multi-currency nature of businesses which was not the case with MRP or MRP II and also, with the earlier computerized functional systems for each function.
  • ERP systems now cover all the functions of an organization/company, regardless of the nature of businesses whether manufacturing, service, non-manufacturing, profit and non-profit organizations, governments etc.

ERP : Functionality

  • Sales order processing provides the inputs on what and how much needs to be manufactured and delivered to customers and when.
  • Building of Master Production Schedule (MPS).
  • MPS drives MRP by taking inputs from the bill of material (BOM).
  • MRP explodes the gross requirement and planning for the dependent demand is done.
  • At the same time it gets the feedback from the stores and production in terms of scheduled receipts.
  • Depending on this and the time frame (lead time ), it suggests Purchase Requisition (in case of bought out items) and Production Order (in case of make in-house items).
  • Purchase Requisitions get converted into Purchase Orders which lead to Goods Receipt Note.
  • In case of make in-house items, Production Orders are passed to shop-floor control.
  • At the time of releasing the Production Orders to the shop, it ensures that the resources required are available and are subsequently allocated.
  • Capacity requirement planning (CRP) ensures that capacity in terms of machine hours and man-power is available.
  • Scheduling of Production Orders enables that bottle-necks are minimized by following the optimum algorithm of sequencing.
  • Inspected goods, which make way to the finished goods stores, are in turn made available for the next MRP run.
  • Plant maintenance module will interface with the shop floor control system.
  • Human resources and payroll processing will interface with shop floor control, general ledger and costing.
  • Provides office automation tools like E-mail, EDI.
  • Provides business work flow system which supports processing of vendor invoices no matter how they arrive by EDI, fax or normal mail.
  • Management information system (MIS) models the data available from the core modules on various filters and presents the same in much simpler, graphical way.
  • MIS provides a ‘what if’ kind of analysis and exception reporting (early warning system).

ERP is Not.....

  • Magic potion to solve your business problems.
  • Resource optimization tool.
  • Merely computerization.
  • Merely a tool to automate business transaction processing.
  • Merely a tool to reduce inventory:
    - Inventory is your score board, not the game.
    - You implement ERP to orchestrate your business and improve business efficiency, which reflects in reduced inventory.

Some Misconceptions

  • This is IT Department’s project.
  • We don’t have time.
  • This is not suitable for us.
  • Our problems can not be addressed.
  • Our business is different.
  • Our organization is different.
  • Our people are different.

ERP Modules

Computerized ERP software package should have the modules given below. Many software vendors provide them.

  • Financial Accounting and Controlling
  • Capital Investment Management
  • Enterprise Controlling
  • Treasury
  • Project Management
  • Logistics Management
  • Human Resources
  • Production Planning and Control
  • Materials Management
  • Plant Maintenance
  • Quality Management
  • Sales and Distribution
  • International Management
  • Management Information System

For More Guidance, Assistance, Training and Consultation


Also refer: (Prodcons Group), (Training Programs by Prodcons Group), (Productivity Consultants)

Other Topics of Interest

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